Can somebody explain to me what bonds, futures, options on futures, currency and spot contracts are?

2 Answers

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   Cox Network & PC Services on Sep 04, 2010

   My sincerest condolences on the loss of your future funds.
   THE PHRASE "NEAR FUTURE" ALARMS ME.
   (Seriously now, don’t you think it might be considered just a bit, well, CRAZY to invest real money when you have no idea what you are doing? My suggestion: play with the website, find a local investment group, read a few books – if all of this seems too hard – HOW HARD WILL IT BE WHEN YOUR CASH GOES BYE_BYE?)

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   andrewtrades on Sep 04, 2010

   Oof. That’s a lot of questions, and if you’re still not sure what those instruments are, you’d be much better off not trading them with any kind of real money until you really get educated about what they are, how they work, and most importantly, how you can avoid losing money while trading them.

   Bonds are essentially long-term loans that may be issued either by governments or corporations. They pay an interest rate (usually fixed) in exchange for your purchasing the bond (essentially, lending the company money).

   Futures are contracts on assets, usually either deliverable commodities (such as oil, soybeans, gold, etc.) or financial instruments (treasury bonds, market indexes such as the S&P 500, etc.) that are used to speculate against future prices versus the current prices of the underlying. Futures can be extremely volatile and are often traded on a leveraged margin system that can cause you to lose more than you wager on your initial trades. Therefore, futures trading can be very, very risky if you don’t know what you’re doing!

   Currency futures contracts are futures contracts on various world currencies (US dollar, the Euro, the Japanese yen, etc.) that are used to speculate on the future values of currencies, while spot contracts relate to the current prices of currencies.

   Options are derivative contracts that derive their value from the underlying assets (stocks, indexes, commodities, currencies, currency pairs) and may go up or down in value as the underlying assets go up or down. (e.g. A call option on AAPL, the stock of the company Apple, might go up in value if Apple’s stock goes up in value). However, options have a limited lifetime, after which they expire, and unlike stocks/indexes/currencies/futures, they are also subject to other market forces such as implied volatility. Beginners commonly either buy options with very little time to expiration, or they sell them "naked" (that is, selling only an option short without any long options to "cover" the position), both of which are generally losing propositions.

   You should absolutely get educated on what these investment vehicles are before you ever consider trading a dime of your real money into them. Good luck.