Futures Trading

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Q.1 How does geopolitical risk affect commodity futures markets?

Geopolitical events, such as conflicts or trade disputes, can disrupt supply chains and impact commodity prices.

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Q.2 What is a "futures commission merchant" (FCM)?

An FCM is a financial institution that acts as an intermediary between traders and futures exchanges, providing clearing and settlement services.

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Q.3 How do traders use calendar spreads in futures trading?

Calendar spreads involve simultaneously buying and selling futures contracts with different expiration dates to profit from price differentials.

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Q.4 What is the "basis risk" in futures trading?

Basis risk arises when the relationship between the cash and futures prices of an underlying asset changes.

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Q.5 How does weather impact commodity futures markets?

Weather conditions, such as droughts or hurricanes, can affect crop yields and energy supply, impacting commodity prices.

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Q.6 What are the key economic indicators that influence futures markets?

Indicators include GDP, employment data, inflation rates, and central bank policies.

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Q.7 What is a "futures spread trade" in trading strategies?

A futures spread trade involves taking opposing positions in related futures contracts, such as long and short positions in different contract months.

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Q.8 How does the "cost of carry" concept apply to futures trading?

The cost of carry considers expenses like storage costs and interest rates when calculating the relationship between cash and futures prices.

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Q.9 What is a "commodity trading advisor" (CTA)?

A CTA is a professional who manages investments in futures and commodities on behalf of clients.

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Q.10 How does the futures market influence the energy sector?

Energy futures, like crude oil and natural gas, impact energy companies, fuel prices, and energy-related industries.

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Q.11 What is the role of "position limits" in futures trading?

Position limits restrict the number of futures contracts an individual or entity can hold to prevent market manipulation and excessive speculation.

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Q.12 How do traders use moving averages in technical analysis?

Moving averages help identify trends by smoothing out price data and providing signals for potential entry or exit points.

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Q.13 What is a "speculative bubble" in futures markets?

A speculative bubble occurs when prices of a particular asset or futures contract rise dramatically, often followed by a sharp decline.

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Q.14 How does the futures market impact the real estate sector?

Interest rate futures can influence mortgage rates and housing affordability, affecting the real estate market.

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Q.15 What are the main advantages of trading financial futures contracts?

Advantages include diversification, risk management, and the ability to gain exposure to various financial markets.

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Q.16 How does the futures market impact the technology sector?

Technology-related futures, like tech stock index futures, can reflect market sentiment and impact technology companies.

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Q.17 What is a "futures roll" or "roll yield"?

The futures roll is the process of transitioning from one futures contract to another with a later expiration date, potentially resulting in roll yield.

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Q.18 How do traders use Fibonacci retracement levels in technical analysis?

Fibonacci retracement levels help identify potential support and resistance levels based on mathematical ratios.

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Q.19 How does the futures market impact the agricultural sector?

Agricultural futures, like grain and livestock contracts, provide farmers and food producers with tools for risk management.

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Q.20 What are the key components of a trading plan in futures trading?

Components include risk tolerance, entry and exit strategies, position sizing, and trade management rules.

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Q.21 How does the futures market influence the transportation sector?

Futures tied to fuel prices and transportation indexes can impact airlines, shipping companies, and transportation-related industries.

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Q.22 What is a "trading pit" in the context of futures trading?

A trading pit is a physical area on a futures exchange floor where traders conduct open outcry trading, using hand signals and shouting.

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Q.23 How do traders use the "commitments of traders" (COT) report?

The COT report provides insights into the positions of large traders (commercial and non-commercial) and can inform trading decisions.

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Q.24 How does the futures market impact the metals and mining sector?

Metals futures, like gold and copper, can reflect economic conditions and demand for industrial and precious metals.

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Q.25 What is the role of a "trading system" in futures trading?

A trading system is a set of rules and criteria that guide a trader's decision-making process, including entry and exit signals.

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Q.26 How do traders use "order types" in futures trading?

Order types, such as market orders, limit orders, and stop orders, help traders execute trades with specific conditions.

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Q.27 How does the futures market impact the healthcare sector?

Healthcare futures, tied to indexes or pharmaceuticals, can respond to healthcare policies, drug developments, and industry trends.

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Q.28 What is "slippage" in futures trading?

Slippage occurs when a trade is executed at a different price than expected due to market volatility or order execution delays.

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Q.29 How do traders use "volatility" in futures trading strategies?

High volatility may lead to trading opportunities, while low volatility may require different strategies like options spreads.

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Q.30 How does the futures market impact the consumer goods sector?

Futures tied to consumer goods, like cotton and coffee, are influenced by consumer demand, weather, and supply chain factors.

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Q.31 What is the concept of "scalping" in futures trading?

Scalping involves making numerous small trades throughout the day to profit from short-term price movements.

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Q.32 How do traders use "position sizing" in futures trading?

Position sizing determines the quantity of contracts or lots to trade based on risk tolerance and account size.

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Q.33 How does the futures market impact the financial services sector?

Financial futures, like interest rate and stock index futures, influence banking, insurance, and investment industries.

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Q.34 What is the role of a "futures contract specification" document?

Contract specifications detail contract size, expiration date, tick size, and other terms to ensure standardized trading.

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Q.35 How do traders use "stop-loss orders" in futures trading?

Stop-loss orders automatically sell a position when the price reaches a predetermined level to limit losses.

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Q.36 How does the futures market impact the hospitality and tourism sector?

Futures related to travel and tourism can respond to economic conditions, global events, and consumer trends.

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Q.37 What is the concept of "gap trading" in futures markets?

Gap trading involves profiting from price gaps that occur between the closing and opening prices of consecutive trading sessions.

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Q.38 How do traders use "trailing stop orders" in futures trading?

Trailing stop orders adjust with price movements, locking in profits as the price moves in the trader's favor.

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Q.39 How does the futures market impact the telecommunications sector?

Futures related to telecom companies can reflect technological advancements, competition, and industry regulations.

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Q.40 What is the "initial margin" requirement in futures trading?

Initial margin is the minimum amount of capital a trader must deposit to initiate a futures position.

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Q.41 How do traders use "fundamental news" in futures trading?

Fundamental news, like economic reports and geopolitical events, can impact futures markets, leading to trading opportunities.

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Q.42 How does the futures market impact the entertainment and media sector?

Media futures may respond to advertising trends, content production, and shifts in consumer behavior.

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Q.43 What is the "maintenance margin" in futures trading?

Maintenance margin is the minimum account balance required to keep a futures position open, often lower than the initial margin.

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Q.44 How do traders use "options on futures" in trading strategies?

Options on futures provide strategies for hedging, income generation, and speculation on future price movements.

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Q.45 How does the futures market impact the automotive industry?

Futures tied to automotive companies and commodities like oil and steel can reflect industry dynamics and consumer demand.

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Q.46 What is the concept of "pair trading" in futures markets?

Pair trading involves simultaneously taking long and short positions in two related assets to profit from relative price movements.

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Q.47 How do traders use "economic indicators" in futures trading?

Economic indicators, such as unemployment rates and GDP growth, provide insights into economic health and can affect futures markets.

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Q.48 How does the futures market impact the aerospace and defense sector?

Futures linked to aerospace companies can respond to defense contracts, geopolitical events, and industry innovations.

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Q.49 What is the role of a "futures trading platform" in trading?

A trading platform provides the interface for placing orders, accessing market data, and managing trades in the futures market.

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Q.50 How do traders use "correlation analysis" in futures trading?

Correlation analysis assesses the relationship between different assets or markets to inform trading decisions and diversification.

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Q.51 How does the futures market impact the pharmaceutical and healthcare sector?

Pharma futures can react to drug developments, regulatory changes, and healthcare trends.

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Q.52 What is the concept of "reversion to the mean" in futures markets?

Reversion to the mean suggests that asset prices tend to return to their historical average over time, potentially offering trading opportunities.

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Q.53 How do traders use "sentiment analysis" in futures trading?

Sentiment analysis gauges market sentiment and investor psychology to identify potential price reversals or trends.

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Q.54 What is Performance Bond Call Program in Futures And Options Trading Market?

In Futures and Options Trading Market, Performance Bond Call Program refers to the demand for additional funds because of adverse price movement.

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Q.55 What Is Forward (cash) Contract?

Forward (Cash) Contract refers to the cash contract in which a seller agrees to deliver a specific cash commodity to a buyer sometime in the future. Forward contracts are privately negotiated and are not standardized.

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Q.56 What is Position Trading?

Position Trading is an approach to trading in which the trader either buys or sells contracts and holds them for an extended period of time.

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Q.57 How should we declare Select-option as a Parameter?

Call Option is an option that gives the buyer the right, but not the obligation, to purchase the underlying futures contract at the strike price on or before the expiration date.

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Q.58 What is Loan Rate?

Loan Rate is the amount lent per unit of a commodity to farmers.

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Q.59 What is the main characteristic of forward market?

Parties exposed to credit risk

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Q.60 What defines a futures contract

A marketable obligation to buy or sell a specified quantity of a particular asset during a given period for a given price.

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Q.61 What is the characteristic of a liquid asset

It can be converted into cash with little chance of loss

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Q.62 What is meant by forward market?

The forward market is the informal over-the-counter financial market by which contracts for future delivery are entered into. Standardized forward contracts are called futures contracts and traded on a futures exchange.

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Q.63 What is difference between future and forward?

Futures contracts are traded on exchanges, making them standardized contracts. Forward contracts are private agreements between two parties to buy and sell an asset at a specified price in the future.

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Q.64 What is futures trading?

Futures trading involves buying or selling contracts for the future delivery of a commodity, financial instrument, or index at an agreed-upon price.

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Q.65 What is a futures contract?

A futures contract is a standardized agreement to buy or sell a specified quantity of an underlying asset at a predetermined price and future date.

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Q.66 What is the difference between futures and options trading?

In futures trading, both parties are obligated to fulfill the contract, while in options trading, the holder has the choice to exercise the contract.

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Q.67 Why do traders use futures contracts?

Traders use futures to hedge against price fluctuations, speculate on price movements, and gain exposure to various markets.

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Q.68 What is the role of a futures exchange in trading?

Futures exchanges provide a platform for trading futures contracts, ensuring transparency, liquidity, and standardized contract terms.

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Q.69 What are the common types of futures contracts?

Common types include commodity futures, financial futures, and stock index futures.

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Q.70 What is a margin in futures trading?

Margin is a deposit required to cover potential losses in a futures position. It acts as collateral for the trader's obligations.

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Q.71 How do long and short positions work in futures trading?

Long positions involve buying a futures contract with the expectation of a price increase, while short positions involve selling with the expectation of a price decline.

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Q.72 What is a futures settlement price?

The settlement price is the closing price of a futures contract on the last trading day, used to calculate gains or losses.

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Q.73 What is the concept of "marking to market" in futures trading?

Marking to market refers to the daily adjustment of a futures position's value based on the day's price changes.

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Q.74 How does leverage work in futures trading?

Leverage allows traders to control a larger position with a smaller amount of capital, amplifying both gains and losses.

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Q.75 What is the "notional value" of a futures contract?

The notional value represents the total value of the underlying asset covered by the futures contract.

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Q.76 What are the main risks associated with futures trading?

Risks include price volatility, leverage risk, margin calls, and market risks related to economic factors.

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Q.77 How can traders manage risk in futures trading?

Risk management strategies include stop-loss orders, diversification, and position sizing.

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Q.78 What is a forward contract, and how does it differ from a futures contract?

A forward contract is similar to a futures contract but is not standardized and is typically used for custom or OTC transactions.

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Q.79 What is the role of a futures broker in trading?

A futures broker facilitates futures trading by executing orders on behalf of clients and providing research and trading platforms.

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Q.80 What is the expiration date of a futures contract?

The expiration date is the date on which a futures contract matures and must be settled or rolled over to a new contract.

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Q.81 What is the concept of "basis" in futures trading?

Basis refers to the difference between the cash price of the underlying asset and the futures contract price at a specific point in time.

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Q.82 How do traders use technical analysis in futures trading?

Technical analysis involves studying historical price and volume data to make trading decisions based on chart patterns and indicators.

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Q.83 What is a "circuit breaker" in futures trading?

A circuit breaker is a mechanism that temporarily halts trading in response to extreme price movements to prevent excessive volatility.

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Q.84 How does the futures market influence commodity prices?

The futures market can influence commodity prices by providing a platform for hedging and price discovery.

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Q.85 What is a "speculator" in futures trading?

A speculator is a trader who enters futures contracts primarily for profit through price fluctuations rather than for hedging purposes.

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Q.86 What is the role of the Commodity Futures Trading Commission (CFTC)?

The CFTC regulates futures and options markets in the United States, ensuring transparency and fair practices.

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Q.87 How does the "delivery" process work in futures trading?

Delivery occurs when a futures contract is held until expiration, and the seller delivers the underlying asset to the buyer.

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Q.88 What is a "futures spread" in trading?

A futures spread involves simultaneously buying and selling two related futures contracts to profit from price differentials.

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Q.89 How does interest rate risk affect financial futures trading?

Interest rate risk refers to the impact of changing interest rates on financial futures contracts, such as bond or interest rate futures.

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Q.90 What are the main commodities traded in commodity futures markets?

Common commodities include crude oil, gold, corn, soybeans, and natural gas.

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Q.91 How do traders use fundamental analysis in futures trading?

Fundamental analysis involves evaluating economic, supply and demand, and geopolitical factors to make trading decisions.

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Q.92 What is a "contract month" in futures trading?

A contract month represents the specific month in which a futures contract expires, and trading switches to a new contract.

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Q.93 How does rollover or "rolling over" work in futures trading?

Rollover involves transitioning from an expiring futures contract to a new contract with a later expiration date to maintain exposure.

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Q.94 What is the impact of supply and demand on commodity futures prices?

An increase in demand or a decrease in supply typically leads to higher prices, while the opposite can result in lower prices.

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Q.95 What is the role of a "clearinghouse" in futures trading?

A clearinghouse acts as an intermediary, ensuring the financial integrity of futures transactions and guaranteeing trades.

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Q.96 How does seasonality affect certain commodity futures markets?

Seasonal factors, such as weather conditions, can influence supply and demand patterns, affecting commodity prices.

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Q.97 What is the "open interest" of a futures contract?

Open interest represents the total number of outstanding futures contracts for a particular asset or contract month.

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Q.98 What is a "contract size" or "tick size" in futures trading?

Contract size specifies the quantity of the underlying asset covered by one futures contract, and tick size is the minimum price movement.

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Q.99 How does the futures market impact the foreign exchange market?

Currency futures can influence foreign exchange rates, providing a platform for hedging and speculation.

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Q.100 What is the role of arbitrage in futures trading?

Arbitrage involves exploiting price discrepancies between related assets in different markets to make risk-free profits.

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Q.101 How do futures contracts settle?

Futures contracts can settle through physical delivery of the underlying asset or cash settlement, depending on the contract terms.

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Q.102 What is the significance of the "last trading day" in futures contracts?

The last trading day is the final day on which trading occurs for a particular futures contract before it expires.

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Q.103 How does a trader calculate the profit or loss on a futures trade?

Profit or loss is calculated based on the price difference between the entry and exit points, factoring in contract size and leverage.

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Q.104 What are the key advantages of trading futures contracts?

Advantages include liquidity, leverage, diversification, and the ability to profit in both rising and falling markets.

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Q.105 How does the futures market impact agricultural commodity prices?

Futures markets provide farmers with a mechanism to hedge against price fluctuations and manage risk.

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Q.106 What is a "commodity pool" or "commodity pool operator" in futures trading?

A commodity pool is a collective investment fund, and a commodity pool operator manages and trades on behalf of investors.

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Q.107 How do traders use options on futures contracts?

Traders use options to hedge against price movements or to speculate on the future price direction of the underlying futures contract.

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Q.108 What is the significance of "speculative limits" in futures trading?

Speculative limits are position limits imposed by regulators to prevent excessive speculation and maintain market stability.

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Q.109 How does the futures market impact interest rate-sensitive industries?

Changes in interest rates, reflected in futures prices, affect industries like banking, real estate, and construction.

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Q.110 What is the role of technical indicators in futures trading?

Technical indicators, such as moving averages and RSI, help traders identify trends and potential entry or exit points.

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