Home
Online Tools
Market Reports
Open Account
About Compass

Compass Trading Company, Inc.

"The Compass To Guide You in the Futures and Options World"

Start your Future Today...

800-576-9250

Futures
Futures are investments that serve a purpose for both the seller and the buyer
of a given future.  They are set prices for a commodity at some future point.  If
you're the producer of say, soybeans, and you want to lock in profits for your
harvest some months in the future, you would sell enough futures to cover your
crop yield to provide assurance of a pre-determined price at harvest.  This also
provides the grower, or producer, with the leverage to approach lending
institutions in order to secure funding for that yield's crop planting.  This is
what's known as "hedging." This grower is said to be "long the commodity."
When he sells the futures, he is said to be "short the future."  The converse is
true of the buyer of the future, who is then "long the future" and "short the
commodity."  By purchasing a future, you're "speculating."  That's the long and
short of it!

The many horror stories of receiving a truck load of soybeans in your front yard
are greatly exaggerated, as the longs and shorts in these situations are
resolved prior to contract expiration through the purchase of off-setting
positions.

The name of the game for a speculator is to buy low and sell higher. It doesn't
matter which is done first. If you buy first, you've entered into a "long" position.
If you've sold first, you've entered into a "short" position.

In order to enter into a futures purchase, an account has to have some degree
of "margin." This is money set aside to cover the amount that the position that
you entered into could go wrong. That's not to say that the amount of margin
couldn't change.

If a position continues to go against you, a "maintenance margin call" would be
called for to cover the increased risk that the position has exposed you to. It is
rare cases indeed that we continue with a position that has worsened by calling
for additional margin, but that's the risk that you take. And with the risk, the
rewards can come.  By no means are we implying that they do, but that would
be the only reason to continue to hold a degrading position.

The risk of loss in trading futures contracts or futures options can be substantial, and investors should
carefully consider the inherent risks of such an investment in light of their financial condition.
Find the Best Rates on Long Distance and Computer Communications Services
at: EasyCommunications.Net