What is Future Contract?

Future Contract is a standardized contract that traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price.

The future date is called the delivery date or final settlement date. The pre-set price is called the futures price. A futures contract gives the holder the obligation to buy or sell. Both parties of a "futures contract" must fulfill the contract on the settlement date.

Example: If you're a baker and you need to have wheat to bake your special walnut wheat sourdough bread next summer, and you're not sure that there's going to be enough wheat to sold in the market at that time so you can buy a futures contract to guarantee that you'll have the amount of wheat you wanted with a preset price.

Who trades futures?

Hedgers
Who have an interest in the underlying commodity and are seeking to hedge out the risk of price changes such as when the fluctuation of gold price, you may want it to set a price which you and the gold producer agreed upon.

Speculators
Who seek to make a profit by predicting market moves and buying a commodity "on paper" for which they have no practical to produce it becoming a finish products and they sell the contract to other producers when the prices of the contract has rises.

Role of Stock Exchange

There are a lot of Stock Exchange worldwide that its main activities are provides "trading" facilities for stock brokers and traders, to trade stocks and other securities.
Example of the Stock Exchange are

New York Stock Exchange

Tokyo Stock Exchange

Bursa Malaysia

NASDAQ Stock Exchange

Dollar Cost Averaging to Invest Successfully

Now we are having financial crisis which we often think that

• When is the best time to enter the market?
• Whether u can have a good entry and earned a favorable return for your investment?

How this method works?
Instead of invest a lump sum of money in a particular investment, the investor can allocating certain amount of funds for a certain period such as every month to invest on a particular investment.

Advantage
It spread the investment over a number of period which providing insulation against the risk such as the changes in market price.

Disadvantage
Requires investor to give up some expected return of benefit which when you can enter the market in a lower price.

Setting Up Your Own Dollar Cost Averaging Plan
1. Select the time horizon on how long you wanted to keep up with the dollar cost averaging
2. Decide exactly how much money you can invest each month
3. Select an investment
4. Decide the regular intervals such as weekly or monthly

An Example of a Dollar Cost Averaging Plan
Company “A” Shares (Invest date, Amount Invested, Shares price, Shares purchased)
Jan 2009, RM 2000, RM 10.00, 200 shares
Feb 2009, RM 2000, RM 8.00, 250 shares
Mar 2009, RM 2000, RM 12.50, 160 shares
Total RM 6000, RM10.17(Average), 610 shares owned

When the economy recovers in April, share price recover to RM 13 per share and you have earned RM 2.83 per shares.

Dollar Cost Averaging does help reduce market risk and you can take the opportunities to invest and set yourself up with a dollar cost averaging plan and get going.

2 Myths that Hold U from Investing

A lot of people think that investing (share, property, etc.. ) is

Myth 1: Risky
Most of the time is that these people have been stereotype or their family or friends may have lost huge amount of money in the share market especially during the financial crisis.

Myth 2: Gambling
People know that they can’t control the market (recession) so they taught they can only using the guess work to do it just like gambling. Maybe they are lucky they can enter in a lower price and get a favorable return.

Let me give u an example:
By driving a car with a car license, it is less risky than those who didn’t even drive a car before. Once u have gone through training and have the license, do u think that driving a car still risky? Do u know how to make a turning, and the magnitude of it?

Answer: Driving is still risky but it has been minimized and u surely know how to make a turning.

That’s why if u have the knowledge, investing is not gambling and less risky.
Warren Buffet Philosophy:
Risk comes from not knowing what you're doing