--- title: "Navigating Market Volatility: A Guide to Futures Trading" description: "Navigate market volatility with confidence through futures trading. Learn the basics and practical tips to brave the storm and preserve long-term goals." url: "https://www.mrmoneytv.com/articles/navigating-market-volatility-a-guide-to-futures-trading/" category: "Investing & Market" author: "Finlit" published: 2024-06-14 source: "Mr Money TV" --- # Navigating Market Volatility: A Guide to Futures Trading Navigate market volatility with confidence through futures trading. Learn the basics and practical tips to brave the storm and preserve long-term goals. ## Key takeaways - Futures are financial agreements that obligate parties to buy or sell an asset at a predetermined date and price, so you are taking a position on where its price is heading. - With gold: if you expect the price to rise, a futures contract lets you buy at today's price and sell higher at expiry; if you expect it to fall, you agree to sell at today's price and buy back cheaper. - You trade the futures contract itself, not the physical gold, and can do so at any time because the market provides enough liquidity. - An incorrect prediction means a loss: you are locked into trading at a higher price than the asset's actual market value. - Experienced investors use futures to hedge and manage risk, while many retail investors use them for short-term speculation. - Futures trading carries higher risk than stocks or mutual funds, and mainly suits people already trading stocks or ETFs who want to diversify or hedge. Market volatility is inevitable, and with the [Fed keeping interest rates higher for longer,](https://www.npr.org/2024/05/01/1248454950/federal-reserve-inflation-interest-rates#:~:text=Sullivan%2FGetty%20Images-,Federal%20Reserve%20chairman%20Jerome%20Powell%20and%20his%20colleagues%20voted%20to,trying%20to%20curb%20stubborn%20inflation.&text=The%20Federal%20Reserve%20voted%20to,tries%20to%20curb%20stubborn%20inflation.) potential economic shifts are expected. While volatility is a natural part of the investment landscape, it can pose potential risks to your portfolios. However, with a bit of strategy, you’ll be able to brave the market storm to preserve your long-term goals. In this article, we’ll explore the basics of futures trading along with some practical tips for you to get started.  ## What are Futures? According to [Investopedia](https://www.investopedia.com/terms/f/futures.asp), futures are “financial agreements that obligate parties to buy or sell an asset at a predetermined date and price.” But what does this mean?  Imagine futures as **having confidence in the future price movement of an asset**. Let’s use Gold as an example. If you’re confident that the price of gold will go up, you might look at a gold futures contract to purchase it at today’s price. Then, as the gold price increases over time, you can sell it at a higher price when the contract expires.  On the other hand, if you think the price of gold will go down, you might look at a gold futures contract that agrees to sell it at today’s price in the future. You can then buy it back at a lower price, therefore making a profit.  If you’re still confused, don’t worry. Let’s take a look at these simple scenarios: ### Scenario 1: Prediction of Price increase in Gold value Suppose a jewelry manufacturing company needs gold six months from now. The manager is uncertain about future gold prices but is satisfied with the current price. To avoid risk, the manager enters into a futures contract with another risk-averse supplier, agreeing to trade a specified amount of gold at the current price in six months. After three months, the price of gold rises. The seller can now sell the futures contract (not the actual gold) at the higher current price, thus gaining from the price difference. Financial markets provide enough liquidity for traders to trade these contracts at any time. ### Scenario 2: Incorrect Prediction where Price of Gold falls The same jewelry company and supplier agree to trade gold in six months at the current price. However, after three months, the price of gold falls. The buyer must still purchase the gold at the original higher price, resulting in a loss as they could have bought the gold cheaper at the new market price. **Benefit:** Accurate prediction results in acquiring more valuable gold. **Risk:** An incorrect prediction results in a loss due to trading gold at a higher price than the market value. Experienced investors use futures for hedging to manage risk, while many retail investors use them for short-term speculation to profit from price changes. ## Strategic Futures Trading Bear in mind that navigating the futures market requires more than just predicting market trends; it requires a strategic approach to risk management.  So, here’s what you can do to skillfully approach futures trading:  ### 1\. Get acquainted with market dynamics You’ll have to take a very holistic approach to comprehending the market dynamics of your chosen asset. This includes supply and demand factors, geopolitical influences, and economic indicators. Awareness of what causes volatility in the futures markets of interest is very important.  ### 2\. Create a trading plan Think of this as a much higher level of the SMART goals, except instead of Specific, Measurable, Achievable, Relevant, Time-bound, it’s going to be a comprehensive trading plan that helps with your trading decisions in a methodical and disciplined manner.  It would consist of investment objectives, risk tolerance, criteria for trade entry and exit, and money management strategies (What does that spell out? IRCM?). It not only helps you to stay disciplined and focused but also provides a framework for continuous improvement and learning.  ### 3\. Stay inform**ed** Financial markets are influenced by various factors, from economic data releases to geopolitical events. Staying aware of these developments and understanding their possible effects on the markets is crucial for making informed decisions. ### 4\. Keep learn**ing** The futures trading landscape is complex and constantly changing. Staying educated about market trends, trading strategies, and financial instruments can improve your ability to skillfully navigate market volatility. ## Who is it for? With that being said, futures trading isn’t for everyone. It requires a nuanced approach, especially considering the complexity of it all. Of course, it still offers great opportunities for hedging and speculation, but it also comes with a higher level of risk compared to more straightforward investment vehicles like stocks or mutual funds. So, if you’re someone who is already trading in stocks or ETFs and looking to diversify your portfolios or hedge against market risks, this is for you.  ## Open your Futures Account Today Speaking of, did you know that you can do futures trading with RHB? Not only that, but if you open a futures account with RHB right now, you’ll get:  **Zero Brokerage Fees**: Enjoy **zero brokerage fees up to RM500** on all online buys for the first 60 calendar days after opening your account. This **offer runs till August 31, 2024.** **Exciting Prizes**: By logging in and trading, you **earn entries into a grand giveaway** where **you could be the lucky winner to** drive home **a brand new Perodua Ativa SUV** or **win** amazing **vouchers worth more than RM200,000** in total. This **offer runs till 31 December 2024**. Futures trading with RHB right now would mean no excess fees at the start and potential rewards just for participating. Click here to sign up: [https://www.rhbtradesmart.com/campaign/mr-money-tv](https://www.rhbtradesmart.com/campaign/mr-money-tv)  *\*This promotion is subject to terms and conditions.* ## The Bottom line If you're curious about futures trading and ready to put in the work to understand it, there's potential to make it work in your favour and RHB has just the right tools to get you started. Just remember, it's all about staying informed, sticking to your plan, and keeping a cool head. And with offers like RHB's, getting started might just be a bit sweeter. *Subscribe to our* [***financial newsletter***](https://www.mrmoneytv.com/) *for the latest news, insights, and advice on personal finance, investing, and more. With every email, you’ll gather the confidence and knowledge to make informed decisions to achieve your financial goals.* ## Frequently asked questions ### What is futures trading? Futures are financial agreements that obligate parties to buy or sell an asset at a predetermined date and price, a definition from Investopedia. In practice you are taking a position on where an asset's price is heading. If you are confident gold will rise, a gold futures contract lets you buy at today's price and sell higher when the contract expires. Experienced investors hedge with futures, while retail traders often speculate on short-term price changes. ### How does a gold futures contract work? You agree to buy or sell gold at today's price on a set date in the future. If you expect gold to rise, you lock in today's price and profit when it climbs. If you expect it to fall, you agree to sell now and buy back cheaper later. You trade the contract itself, not the physical gold, and can do so at any time thanks to market liquidity. ### Who is futures trading for? Futures trading is not for everyone. It suits people already trading stocks or ETFs who want to diversify their portfolios or hedge against market risks. It carries a higher level of risk than more straightforward vehicles like stocks or mutual funds, and it requires a nuanced approach given how complex it can get. ### What are the risks of futures trading? The main risk is an incorrect prediction, which locks you into trading at a higher price than the asset's real market value and leaves you with a loss. In the gold example, if the price falls after you have agreed to buy at the original higher price, you lose out because you could have bought cheaper on the open market. That is why risk management matters more than guessing trends. ### What should a futures trading plan include? A trading plan should cover your investment objectives, risk tolerance, criteria for trade entry and exit, and money management strategies. It keeps your decisions methodical and disciplined and gives you a framework to keep improving. Alongside the plan, get acquainted with market dynamics for your chosen asset: supply and demand, geopolitical influences, and economic indicators. Then stay informed on economic and geopolitical developments and keep learning.