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Spot market VS futures markets and what you need to know

by , 29 April 2020
Spot market VS futures markets and what you need to know
“I am trying to wrap my mind around the spot and the futures market. Could you please clarify between the two and what the differences are between them?”

~ Graham

 
A. There are two different types of markets when it comes to trading – the spot and futures market. 
 
The spot market or cash market is a public financial market in which the actual financial instrument is traded at the current market price for immediate purchase and settlement.
 
In other words, the deal is done on the ‘spot’.
 
With the spot market, it always involves an exchange of the underlying asset. When it comes to the delivery of the asset, it’s that it normally takes place within two days.
 
This is because banks take around two days to transfer the funds between their accounts.
 
Here’s an example of the spot market…
 
If a company wants immediate delivery of Brent Crude, it will pay the spot price to the seller and have the barrels of oil delivered within two days.
 
The other market is the futures market.
 
The futures market or forward market is where a trader buys and sells a derivative contract of an underlying financial market in which the instrument is based on a future market price which will be delivered on a specified date.
 
In other words, the deal is done in the ‘future’.
 
With the futures market, it will involve a settlement and an exchange of an underlying asset in the future.
 
Here’s an example of the futures market
 
If a company wants delivery of WTI Crude oil, it will buy the WTI futures contracts from the seller and have the barrels of oil delivered when the futures contracts are settled after a specified date.
 
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Q. “I would like to outline my questions as they are related to Pickpocket Trader.
 
On the 15th April we received an email, where we were given a trade idea to go short (sell) Adidas CFD.
 
Then on the 16th April we received another email with a trade idea to adjust the stop loss on Adidas CFD.
 
This confused me as I don’t understand how we can sell Adidas and then adjust the stop loss after selling?
 
I therefore request your clarity so that I don’t make a mistake on my account.” ~ R
 
A. With trading, you can buy (go long) a trading position at a lower price and sell it at a higher price for a profit.
 
You can also do the opposite. This is where you can sell (go short) a market at a higher price where you can buy it back at a lower price for a profit.
 
Basically, it is a three-step process to understand the short (selling) of a market.
 
Step #1: First you borrow shares from someone who already owns them.
 
Step #2: You then immediately sell the shares you borrow at a higher price.
 
Step #3: You’ll then buy the shares later at, hopefully, a lower price…
 
If the market drops, you will make a gross profit after you include costs, interest and dividends.
 
If the market rises, you will make a gross loss after you include costs, interest and dividends.
 
When you sell a market, such as a CFD, you’ll place a take profit level at a lower level and a stop loss at a higher price. If the market drops in price, you’ll be able to lower your stop loss, where you can lock in a minimum gain should the market turn against you again.
 
To explain this better, let’s look at the trade trader X sent out via Pickpocket Trader.
 
Trade idea: 15 April 2020
 
“I will be going short (selling) Adidas
Symbol: Adidas CFD
Entry: 218.00
Stop loss: 232.00
Take profit: 190.00
Margin: 10%”
 
Then as the market’s price dropped, Trader X sent out another email the next day where he told his members he was moving his stop loss below his entry price in order to lock in an 18.35% gain.
 
Trade update: 16 April 2020
 
“I opened the Adidas trade yesterday and already will be looking to lock in a minimum 18.35% gain.
 
To do this, I will be moving my stop loss to 214.00.”
 
In conclusion:
 
There are two ways to trade and profit from the markets:
 
1. You can buy (go long) a market at a low price with the expectation that the price will move where you can sell it at a higher price for a profit.
 
2. You can sell (go short) a market at a higher price with the expectation that the price will move where you can buy it back at a lower price for a profit…
 
Go here to learn more about Pickpocket Trader.
 
Trade well,
Timon Rossolimos,
Analyst, Red Hot Storm Trader
 
PS:
 
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You’ve tried learning how to trade – but are not getting anywhere.
 
You’ve bought the best trading courses – and still struggle to pull the trigger.
 
You’ve watched hours of trading videos and read a ton of articles – and yet your portfolio is still in the negative.
 
You’ve reached the point where you’re tired of lacking the confidence and feel completely unsatisfied with how your trading career is going...
 
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It took me a lot of time, perseverance, blood, sweat and fear – to get it right…   
 
 


Spot market VS futures markets and what you need to know
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