Futures on Other Indices and Assets

In addition to commodities, currencies and shares, futures can also be applied to other asset classes, and are available on virtually all major indices where there is sufficient demand.  This gives futures an unrivalled flexibility, and allows traders to broaden their horizons to take in a wealth of new investment opportunities.  From interest rates to market indices, from baskets of stocks to binaries, futures can be used across a diverse base of trading assets to provide traders with an opportunity to speculate on a wider range of indices.

Interest Rates

One of the core and most common types of index to be traded with futures contracts is interest rates.  Interest rates, as stipulated by the world’s central banks pose a significant threat to businesses that rely heavily on finance, and so it’s imperative for businesses to hedge against these risks by taking positions in interest rates futures.  Interest rates futures rely on instruments with an interest yield as the basis of the contract, and afford traders the ability to hedge against interest rate rises.  This creates a liquid market for the instruments, and allows traders to capitalise on their market and economic knowledge to forecast the likely movements in interest rates that will come to bear on the value of their futures.

While this is naturally a longer-term investment proposition, interest rates as a basis for futures investing is both a potentially lucrative trading market, in addition to one that performs a crucial function in allowing businesses to safeguard their interests with inversely correlated instruments.

Market Performance

Futures are also traded on markets as indices, for example the FTSE 100.  The effect of this type of futures contract is to give traders the ability to back (or sell) an overall economy, making use of macroeconomic triggers to determine when and how to trade.  Because the FTSE represents a collection of the UK’s 100 largest companies across different industries and sectors, it provides a reasonably accurate reflection over the medium term of the performance of a given economy.

While telecoms stocks might be performing poorly and a trader could lose out on futures in that sector while the remainder of the UK economy performs well, futures on the FTSE as a whole are likely to produce more reliable results, and results that can be more logically forecast in line with current affairs and government and central bank policy.

Futures can be traded on a virtually limitless base of assets, and wherever there is a practical need for the advantages futures contracts bring, it is likely that futures will be available to trade.

For the trader looking to make a significant return from his investment in futures, it is recommended that you narrow down the field of potential investments to hone in on one particular asset class in which you believe there are the biggest opportunities for earnings, or the more straightforward-to-interpret price behaviours – in being specialised, it becomes much more efficient and effective to trade futures contracts.

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