Futures trading is a popular investment strategy for those involved in the stock market. By using derivatives and assessing current economic trends, traders can attempt to maximise returns and hedge against potential losses. To make successful trades, one must first learn how to select futures contracts that are likely to do well. This article will discuss methods of selecting futures to trade.
Fundamental analysis:
Fundamental analysis evaluates future contracts by analysing underlying economic and financial data such as company earnings, market sentiment, and industry trends. By studying these data points, traders can identify the best opportunities to enter long or short positions to capitalise on potential price movements. Fundamental analysis requires an intimate knowledge of market fundamentals and may take some time to fully understand before implementing any trades.
Technical analysis
Technical analysis focuses on analysing past and current market prices to predict price movements in the future. This approach uses charts and other graphical tools that help traders interpret patterns in recent price movements, which they can use to inform potential trades. Technical analysis is a popular method among traders as it provides an objective and quantitative way of assessing the markets without relying on subjective opinions or theories.
Sentiment analysis
Sentiment analysis is another technique used to select futures contracts that involve monitoring social media posts, news articles, and other public opinion forms to identify market sentiment trends. This method can help identify price movements before they happen, allowing traders to make timely decisions about entering or exiting positions. However, sentiment analysis requires careful consideration as it can be subject to manipulation from those with vested interests in the markets.
Fund selection
Fund selection is a process by which investors choose funds most likely to provide them with successful returns. It involves selecting funds based on past performance, risk tolerance, and other factors that can indicate future returns. Fund selection is a helpful tool for traders new to the markets, allowing them to quickly identify potential investments without extensive research. Moreover, fund selection can help traders diversify their investments and reduce the chances of heavy losses due to bad trades.
Portfolio monitoring
Portfolio monitoring is when investors track their progress and make changes when necessary to maximise returns. By closely monitoring their holdings, traders can ensure that any positions they take are likely advantageous and reduce risks associated with trading futures contracts. Portfolio monitoring also helps traders stay up to date with market developments so they can adjust their strategy accordingly.
Factors to consider when selecting futures to trade in Singapore
When selecting futures to trade in Singapore, investors should consider a few factors. These factors will determine the success of any potential trades and ultimately dictate whether a trade is lucrative.
The underlying asset
When selecting futures to trade in Singapore, traders should pay attention to the underlying asset being traded. Knowing how different assets perform can give traders valuable insight into their future investment returns and provide them with information about volatility and liquidity.
Market conditions
The market conditions at any given time will significantly impact the success of any trade. For example, a trader looking to enter a long position on an index future might choose one that looks more promising if the markets are trending upwards instead of sideways or downwards. By keeping track of current market conditions, traders can better assess which contracts are most likely to do well.
Time frame
Investors must also consider when they plan to open and close trades. Shorter time frames tend to be more liquid, offering greater flexibility and allowing traders to exit or enter positions quickly if needed. On the other hand, more extended time frames can provide higher returns but require investors to be patient until their desired outcome is achieved.
Risk profile
Traders should also consider the risk profile of any potential trade. Different trading strategies come with different levels of risk, so investors need to assess their risk tolerance before entering a position. Doing so can ensure that their portfolio remains balanced and that losses are kept within an acceptable range.
Cost
Trading futures contracts also carries a certain amount of cost. It includes the exchange fees, clearing costs and margin requirements associated with trading. Investors should calculate these costs against their expected returns to determine whether the trade is worth undertaking.
