Trading Education Trading Help Learn to Trade
- ByBullish Bears
- Updated April 14, 2024
7 min read
- Reviewed by Angelica Rieder
- Fact checked by Lucien Bechard
SHARE THIS ARTICLE
So, how exactly does one make money trading derivatives? It doesn’t sound very easy, but it’s quite simple. Follow simple game rules, educate yourself, and pick a strategy. Then profits will follow. Before we get there, it’s important to understand what a derivative is.
Table of Contents
- Make Money Trading Derivatives Introduction
- Value and Price to Make Money Trading Derivatives
- Common Underlying Assets for Derivatives
- Why Do We Trade Derivatives?
- Common Way to Trade Derivatives
- Common Forms of Derivatives
- Let’s Talk Futures Derivatives
- Derivative Trading Example
- Speculating
- Final Thoughts: Make Money Trading Derivatives
Make Money Trading Derivatives Introduction
A derivative is also known as afinancialsecurity. The derivative itself is a contract between two or more parties. And the derivative derives its price from fluctuations in the underlying asset.
In this context, the term “security” refers to a financial instrument that is fungible and negotiable while holding some type of monetary value.
It represents an ownership position in a publicly-traded corporation viastock, a creditor relationship with a governmental body, or a corporation represented by owning that entity’s bond or ownership rights as defined by an option.
Value and Price to Make Money Trading Derivatives
A derivative’s value depends on or is derived from an underlying asset or group of assets referred to as a benchmark.
So what price does a derivative depend to make money trading derivatives?The derivative derives its price from fluctuations in the underlying asset.
Common Underlying Assets for Derivatives
The most common underlying assets for derivatives are the following:
- Stocks
- Bonds
- Commodities
- Currencies
- Interest rates
- Marketindexes
Why Do We Trade Derivatives?
For many reasons. You can make money trading derivatives, so why wouldn’t you want to? For some, it’s just preference. On the other hand, you might have a smaller account and want to use the leveragethey offer.
Depending on the type of derivative, you can use them for risk management, speculation, and leverage.
Common Way to Trade Derivatives
Derivatives commonly trade OTC (over-the-counter) or on an exchange. On the whole, we mainly trade derivatives OTC. However, one major downside of OTC-traded derivatives is their high potential for counterparty risk. For those of you unfamiliar with counterpartyrisk, let me explain.
Counterparty risk is the danger that one of the two parties involved in the trade might default. And the answer as to why comes as no surprise. The trades happen between two unregulated private parties.
Conversely, if counterparty risk concerns you, stick with exchange-traded derivatives. Fortunately, exchange-traded derivatives are not only standardized but heavily regulated.
SERVICES | |||
---|---|---|---|
DESCRIPTION | Bullish Bears offer trade rooms in our Discord. Our chat rooms include penny stocks, large caps, options, and futures | We offer stock signals and trade alerts through our watch lists and Discord bots using Tradytics | Swing trade and day trade watch lists with hand-picked symbols that have the best chance of breakouts. These are stocks to watch |
INCLUDED | Trading courses • Live streaming • Discord • Real Time Teaching • Scanners & Bots Trade Rooms | Watch lists • Symbols • Support and resistance levels • Discord bots and scanners Trade Alerts | Swing trade watchlist • Day trade watchlist • Alert levels mapped out • Watch lists updated daily Watch Lists |
Common Forms of Derivatives
- Futures
- Forwards
- Swaps
- Options
Did you know that the derivative market is growing and offers products to fit nearly any need, budget, or risk tolerance? With everything from futures to forwards, swaps, and options, anyone with little training can make money trading derivatives.
Let’s break it down with a few examples.
Let’s Talk Futures Derivatives
Futures are exchange-traded derivatives —also known as futures—contracts that lock in the delivery of a commodity or security in the future at a price set today.
Traders utilize futures contracts for many reasons, such as to hedge their risk or even speculate on the price of an underlying asset.
Both parties (the buyer and seller) of the futures contract must fulfill their contractual obligations on the settlement date.
Regardless of the price at expiration, the buyer must buy, or the seller must sell at the pre-determined price.
Best Trading Companies
The Bullish Bears Team created a list of the best trading companies and brokers. Our reviews give detailed breakdowns of the positives and negatives of each based on your trading style.
View List
Derivative Trading Example
Let’s take a real-life example of someone making money trading futures derivatives. On November 6th, 2019, my company purchased a futures contract on oil. We’re anticipating an increase in demand and a price increase in December. We’re being wise and wanting to lock in a price before they go up. The contract, which expires on December 19th, 2019, costs me $62.22 a barrel. Our oil futures contract hedges our risk against a rise in price as the seller is obligated to deliver the oil to us at $62.22 a barrel by December 19th, 2019.
Hence, oil prices rose to $80 on December 19th, 2019. Unfortunately, the seller on the other side of the contract has to deliver the oil to me at $62.22 a barrel.
At this point, I have one of two options. I can accept the oil delivery from the futures contract’s seller. But what if I no longer need it? Since I have no use for the oil, I can sell the contract before expiration and keep the profits. How awesome is that!
In the scenario above, it’s possible both the buyer and the seller of the oil futures contract were hedging their risk or bets. We’re both trying to minimize the risk of being wrong or incurring loss by pursuing two coursesof action simultaneously.
My company needs oil in December, but I’m worried prices will skyrocket, so I buy a long position, hedging my bets. Conversely, the seller could be an oil company worried about falling oil prices.
Consequently, they want to eliminate that risk by selling or “shorting” a futures contract that fixed the price in December.
Speculating
We also have another possible scenario. What if both the buyer and seller of the futures contract were speculators?
Both have the opposite opinion about the direction of December oil. If both were speculators, it’s unlikely they would want to deliver or have to accept oil barrels at homes.
As speculators, they have a ticket out of jail card. Luckily, they can end their obligation to buy or deliver the underlying commodity. They accomplish this by closing or “unwinding” their contract before the expiration date with an offsetting contract.
Have I lost you yet? Don’t worry; I’ll explain this in detail below.
For example, the futures contract for West Texas Intermediate (WTI) oil equals 1,000 barrels of oil. What if the price of oil rose from $62.22 to $80 per barrel?
For starters, the trader with the long position- the buyer (me)- in the futures contract would have profited $17,780 [($80 – $62.22) X 1,000 = $17,780]. Yay!!! Conversely, the trader in the short position—the contract seller—would have lost $17,780.
Final Thoughts: Make Money Trading Derivatives
Not all futures contracts get settled at expiration by delivering the underlying asset. Who wants 1000 barrels of oil showing up at their doorstep? Not me, thanks. Because of this, most derivatives are cash-settled.
To summarize, the gain or loss in the trade shows up in the trader’s brokerage account. Along the same token, manyFuturescontracts are cash-settled.
These include interest rate futures, stock index futures, and even volatility and weather futures.
Can you make money trading derivatives? While trading derivatives may seem complicated at a glance, it doesn’t have to be. Now, I only talked about futures derivatives on oil. But you can easily trade options contracts on stocks like Facebook.One of the ways to limit risks with derivatives is by trading spreads, such ascall credit spreads. I would look into them if you’d like to get more into the world of options.
Related Articles
High Probability Trading
September 9, 2024
When trading based on probability, you use a structured and systematic method to increase your chances of success. As a result, this means focusing on
Read More »
What is Carry Trading
August 27, 2024
Many investors have never heard of the term carry trading. However, when this forex investment strategy affects the stock market, it’s suddenly in everyone’s Google
Read More »
Intermarket Sweep Order
August 19, 2024
Since its creation, the stock market has greatly evolved thanks to various new tools and strategies. They allow retail and institutional investors to trade efficiently.
Read More »
Institutional Traders
August 14, 2024
The majority of traders on the stock market are retail traders like you and me. Although we outnumber institutional traders, they control a significant portion
Read More »
Learn to Trade
High Probability Trading
Read More »
Bullish BearsSeptember 6, 2024
Learn to Trade
What is Carry Trading
Read More »
Loran ShkolnikAugust 23, 2024
Learn to Trade
Intermarket Sweep Order
Read More »
Loran ShkolnikAugust 16, 2024
Free Trading Courses
Enroll Now
Get Your Free Trading Courses
- We want to teach you
- Learn day trading, swing trading, options, futures, and price action
- Rated Best Value Courses by Investopedia
STOCK TRADING SERVICE
Our chat rooms willprovide you with an opportunity to learn how to trade stocks, options, and futures. You’ll see how other members are doing it, share charts, share ideas and gain knowledge.
Our traders support each other with knowledge and feedback. People come here to learn, hang out, practice, trade stocks, and more. Our trade rooms are a great place to get live group mentoring and training.
TRADE ALERTS “SIGNALS”
The Bullish Bears trade alerts include both day trade and swing trade alert signals. These are stocks that we post daily in our Discord for our community members.
These alert signals go along with our stock watch lists. Our watch lists and alert signals are great for your trading education and learning experience.
We want you to see what we see and begin to spot trade setups yourself.
REAL-TIME STOCK ALERTS SERVICE
We also offer real-time stock alerts for those that want to follow our options trades. You have the option to trade stocks instead of going the options trading route if you wish.
Our stock alerts are simple to follow and easy to implement. We post entries and exits.
Also, we provide you with free options courses that teach you how to implement our trades as well.
STOCK TRAINING DOESN’T NEED TO BE HARD
Stock training doesn’t need to be hard. But it sure feels hard when you don’t know where to turn for legitimate knowledge. There are tons of places to learn, but what makes us different?
Well, for starters, we’re just real everyday people who like trade stocks. We’re not gurus portraying a fancy lifestyle of cars and jets and beaches. Can you obtain those things with what we teach you? Sure you can. Is that what motivates us when teaching you how to trade?
Nope. What we really care about is helping you, and seeing you succeed as a trader. We want the everyday person to get the kind of training in the stock market we would have wanted when we started out.
WHY WE’RE DIFFERENT
What else makes us different? When it comes to the stock market, we’ve won, we’ve lost, we’ve lived, and learned. We’ve been through the ups and downs in the market and figured out what really matters. The Charts…Candlesticks = PRICE ACTION! We’ve created a site that passes all this knowledge on to you.
We don’t charge you an arm and a leg for the stock training we give you. We charge a modest amount that goes towards running our day-to-day operations and paying for our invaluable team moderators that are passionate about teaching YOU!
That’s about it. We could charge more, but we have a pay it forward, give back mentality. It’s not about the money. The best and most important thing for us is YOU. We want to feel good about what we do, and the results and reviews speak for themselves.
Those emails we get, the feedback, the success we see. That is what our educational trading community is all about. We hold no secrets back. Our trading edge is your trading edge.
STOCK TRAINING DONE RIGHT
We don’t care what your motivation is to get training in the stock market. If it’s money and wealth for material things, money to travel and build memories, or paying for your child’s education, it’s all good. We know that you’ll walk away from a stronger, more confident, and street-wise trader.
In our stock trading community, you’re going to get it all. Futures, options trading, and stocks. Not just penny stocks either. Small, mid, and large caps. Each day we have several live streamers showing you the ropes, and talking the community though the action.
There’s no catch, no smoke or mirrors. What you see is what you get. If you’re looking to change your life, or someone else’s, we’re here to help you reach that goal. Get started learning day trading, swing trading, options, or futures trading today!
Click Hereto start your 7-day free trial.
TRADING STOCKS IN THE BULLISH BEARS COMMUNITY
Yes, we work hard every day to teach day trading, swing trading, options futures, scalping, and all that fun trading stuff. But we also like to teach you what’s beneath the Foundation of the stock market.
Tell you the TRUTH about how the market works. The importance of controlling your emotions and having a proper mindset when trading. We’re really passionate about teaching you this stuff!
Money isn’t our #1 priority in life. YOU are. Our members come first. Making sure you get comfortable with trading is our priority.
We have members that come from all walks of life and from all over the world. We love the diversity of people, just like we like diversity in trading styles. It creates an environment much like a university or college.
TRADING ROOMS AND LIVE STOCK TRAINING
Each day our team does live streaming where we focus on real-time group mentoring, coaching, and stock training. We teach day trading stocks, options or futures, as well as swing trading. Our live streams are a great way to learn in a real-world environment, without the pressure and noise of trying to do it all yourself or listening to “Talking Heads” on social media or tv.
We will help to challenge your ideas, skills, and perceptions of the stock market. You will learn and grow as a trader. Every day people join our community and we welcome them with open arms. We are much more than just a place to learn how to trade stocks.
Feel free to ask questions of other members of our trading community. The Bullish Bears are a very helpful crew. We realize that everyone was once a new trader and needs help along the way on their trading journey and that’s what we’re here for. To give you a hand up along your trading journey.
Click Hereto try our trading community free for 7 days.
FREE ONLINE TRADING COURSES
If you’ve looked for trading education elsewhere then you’ll notice that it can be very costly.
We are opposed to charging ridiculous amounts to access experience and quality information.
That being said, our website is a great resource for traders or investors of all levels to learn about day trading stocks, futures, and options. Swing trading too!
On our site, you will find thousands of dollars worth of free online trading courses, tutorials, and reviews.
We put all of the tools available to traders to the test and give you first-hand experience in stock trading you won’t find elsewhere.
Our content is packed with the essential knowledge that’s needed to help you to become a successful trader.
It’s important to treat day trading stocks, options, futures, and swing trading like you would with getting a professional degree, a new trade, or starting any new career.
Invest the proper time into your Trading Education and don’t try to run before you learn to crawl. Trading stocks is not a get-rich-quick scheme. It’s not gambling either, though there are people who treat it this way. Don’t be that person!
STOCK TRADING COURSES FOR BEGINNERS
The Bullish Bears team focuses on keeping things as simple as possible in our online trading courses and chat rooms. We provide our members with courses of all different trading levels and topics.
If you’re a beginner, intermediate level, or looking for expert trading knowledge…we’ve got you covered.
We have a basic stock trading course, swing trading course, 2 day trading courses, 2 options courses, 2 candlesticks courses, and broker courses to help you get started. Free.
Just choose the course level that you’re most interested in and get started on the right path now. Become a leader, not a follower. When you’re ready you can join our chat rooms and access our Next Level training library. No rush. We’re here to help.
Click Hereto take our free courses.