Course index:
- Basic Concepts of Money and Personal Finance
Introduction to the value of money, the importance of saving, and spending control. - Budgeting and Financial Planning
Create a personal budget, manage income and expenses, and set financial goals. - Inflation and Purchasing Power
Explanation of how inflation affects the value of money over time. - Interest Rates and Time in Finance
Differences between simple and compound interest rates and their importance in investments. - How to protect your savings. Protect yourself from scams.
How to protect your money from the scams that abound today - Basic Savings Instruments
Explanation of savings accounts, term deposits, and how they work. - Introduction to the Stock Market
Basic concepts of the stock market and its role in the global economy. - Actions: What They Are and How They Work
Explanation of stocks, types (common and preferred), and how to invest in them. - Bonds: What They Are and How They Work
Differences between corporate and government bonds, and their importance in diversification. - Risk vs. Return on Investments
Concept of risk and how it affects investment choices. - Diversification and Creation of Basic Portfolios
Basic diversification principles to reduce risk in an investment portfolio. - What is an ETF and How Does it Work?
Introduction to ETFs (exchange-traded funds) and how they track market indices. - What is a Mutual Fund?
An explanation of mutual funds and their benefits for beginners. - Financial education for the family
All the information you need to make ends meet. - Economic Cycle and its Impact on Investments
How the stages of expansion and contraction in the economy affect investments. - Growth Stocks vs. Value Stocks
Learn about different types of actions and what to expect from each one. - Fundamental Analysis of Stocks
Explanation of how to analyze a company's value based on its fundamentals. - Basic Technical Analysis: Charts and Patterns
Introduction to basic technical analysis tools, such as trend lines and candlestick patterns. - Options: What They Are and How They Work
Basic concepts of call and put options and their uses in investments. - Futures: What They Are and How They Work
Introduction to futures contracts and their application in investment and speculation. - Introduction to Cryptocurrencies
What is digital money, how it was created, and the characteristics of Bitcoin and other cryptocurrencies. - Blockchain and its Importance in Finance
How the technology behind cryptocurrencies works and their applications in finance. - Risks in Cryptocurrency Trading
Volatility, fraud, and regulations in the cryptocurrency market. - Leverage Principles and its Risk
What it means to trade with leverage and the associated risks. - Investor Psychology and Emotion Management
How emotions influence investment decisions and tips for managing them. - What is Algorithmic Trading
Basic explanation of the use of algorithms to perform operations in the financial market. - Financial Analysis of Companies
Introduction to basic financial statements and their interpretation for valuing companies. - Investing in Commodities: Gold, Oil, and Other Goods
How commodity investments work and their role in diversification. - Advanced Investment Strategies: Hedging and Derivatives
Introduction to strategies for managing risks through financial derivatives. - Creating and Managing a Complete Portfolio
Practical application of prior knowledge to build and manage a diversified portfolio.
If you've ever heard of financial futures and thought they were complicated, don't worry, I'll explain them in a super-simple way. Financial futures are like a deal you make with someone to buy or sell something in the future, but at a price you agree on today. That "something" can be a stock, a stock index, an exchange rate like the dollar, or even interest rates, but we're not going to talk about commodities like wheat or oil yet; we'll leave that for later.
It's like telling a friend, "I'll buy you this cell phone for 200,000 pesos in three months, no matter what." The good thing is that this trade can help you make money or protect you if things change, but it also has its risks. In this lesson, I'll tell you what futures are, how they're used, what they're for, what their risks are, and how you can use them to protect yourself or to bet on rising or falling prices. Let's take it easy, step by step, so you understand everything.
How do financial futures work?
Let's imagine you want to make a deal on the dollar. Today the dollar is at 1,000 pesos, but you think it will be more expensive in three months, around 1,200 pesos. So, you make a financial future: a contract that says you'll buy 1,000 dollars in three months at 1,050 pesos each, regardless of what the dollar is worth at that time.
If the dollar rises to 1,200 pesos in three months, you'll make a profit because you'll buy it cheaper and sell it at a higher price. But if it drops to 900 pesos, you lose because you still have to buy it at 1,050. That contract is binding, meaning you can't back out; you have to comply with it no matter what. That fixed price you agree on is called the "futures price," and the day the contract expires is called the "expiration date."
To trade futures, you do so in a special place called a futures market, like the Rofex in Argentina. There, you put up a small amount at the beginning, called the "initial margin," as a deposit to enter the game. You don't pay everything at once, just a portion, but then you have to adjust based on how the price moves, with something called a "maintenance margin."
For example, if the price of the dollar changes every day, they'll ask you to put up more money or they'll give you a refund if you're winning. This is because the contract adjusts daily, so there are no problems at the end. It's like a game where you come in with little, but you have to be aware of the changes every day.
What are financial futures for?
Futures have two main uses, and I'll explain them to you easily. First, they are used to protect yourself from price changes, what's called "hedging." Suppose you're a company that needs dollars in three months to pay for something, and today the dollar is at 1,000 pesos. If the dollar rises to 1,200, you're going to spend more than you planned. So, you make a futures contract to buy dollars at 1,050 pesos in three months. If the dollar rises, you're saved because you buy it cheaper than it's worth. If it goes down, you'll still pay 1,050, but you're not as worried because your priority was to be safe. Companies often use this to avoid price surprises.
The second use is for betting that prices will change, what's called "speculation." Here, you're not interested in using the dollar or the stock; you just want to make money from the movement. For example, if you think the dollar is going to rise, you buy a future. If it rises as you expected, you earn the difference between the agreed-upon price and the final price. If it goes down, you lose, because you still have to fulfill the contract. This is riskier, but you can win big if you get it right. Futures allow you to win with little, but you can also lose more than you put in if you don't know how to manage it.
So, futures are useful for two things: be careful if you're afraid of prices changing, or bet to make money if you think you can predict how they'll move. Depending on what you want to do, you can choose one way or another to use them, but always be careful.
How are financial futures traded?
Trading futures seems difficult, but it's easier than it seems if you go slowly. First, you have to Open an account with a broker that lets you trade futures, such as Rofex or international brokers. They'll ask you to put up an initial deposit, the margin I mentioned earlier, which can be 10% or less of the total contract value. For example, if the contract is to buy $10,000 at 1,050 pesos each, that would be 10,500,000 pesos, but you only put up a margin, about 500,000 pesos.
After, You choose which future you want to trade: it can be a dollar future, a Merval index future, an interest rate future, or a stock future. Each contract has a fixed size, such as $1,000 or 100 Merval points, and a maturity, such as one month or three months. Once you enter, the contract price adjusts daily based on how the market moves. If the price goes up and you're making a profit, they add money to your account; if it goes down, they take money out and may ask for more margin. This is called "daily settlement." You have to keep checking every day to make sure you don't run out of money in your account, because if not, they'll cancel your contract and you could lose everything.
When the expiration date arrives, you have to comply: if you bought a futures contract to buy dollars, they'll be delivered to you at the agreed price, and if you sold one, you have to deliver them. But many don't make it to the end: You can close the contract early by selling it, and you'll keep any profit or loss you've made up to that point. This is what most people do, because they don't really want the dollars, they just want to make money off the movement. It's key to start with a small contract and practice a lot before moving into bigger deals.
What are the risk factors of futures?
Futures can be great, but they also have their dangers, and it's best to know them before you jump in. One of the biggest risks is that you could lose more money than you initially invested, because the margin is only part of the contract. For example, if you bought a future worth $10,000 at 1,050 pesos each and the dollar drops to 900 pesos, you have to pay the difference, which would be 150 pesos per dollar, or 1,500,000 pesos, even if you only put up 500,000 pesos in margin. This is called the "leverage effect," and it makes your losses bigger than you thought. We will look at this in detail in a future lesson.
Another risk is that Prices move quickly and not always as you expect. If the dollar or the Merval move against you due to unexpected news, such as a government decision or a crisis, you can lose a lot in a day. Plus, you have to put up more money if they ask for extra margin, and if you don't have it, they'll close your contract and you'll lose everything. There's also the issue of timing: if you don't sell before expiration and the price hasn't moved in your favor, you earn nothing and lose the margin you put in. Futures are risky if you don't know what you're doing, so it's best to learn well first.
Finally, Futures are not for everyone, because you need to be very attentive and have discipline. If you get nervous or make hasty decisions, you can lose quickly. Also, if you don't understand how the market you're trading works, such as the dollar or interest rates, you'll have a hard time predicting where prices are headed. It's important to start small and not use money you need for other things, because you could end up with nothing if things go wrong.
How to use futures to protect yourself (hedging)?
One of the most useful ways to use futures is to hedge your investments. This is ideal if you have a business or investment and don't want price fluctuations to ruin your plans. Coverage is like insurance: it guarantees you a fixed price so you won't be affected by price increases or decreases. Let's give an example to make it clear.
Suppose you own a company that imports cell phones from the United States, and in three months you have to pay $10,000. Today the dollar is at 1,000 pesos, but if it rises to 1,200, you'll spend 2,000,000 pesos more than you planned. To avoid this, you buy a futures contract to buy $10,000 at 1,050 pesos each in three months. If the dollar rises to 1,200, you're saved because you buy at 1,050 and spend less than it would be worth. If it drops to 900, you pay a little more than you could, but you don't care so much because your idea was to be safe, not to make money.
This gives you peace of mind, because you know how much you're going to spend no matter what happens.
Another example is if you own Merval stock and are afraid the market will fall. You can sell a Merval future: if the index falls, the future makes you earn what you lose on the stock, so you don't lose out. Hedging is there to avoid surprises, but you still have to pay the margin and be aware of daily adjustments. It's a way to sleep more peacefully, although it doesn't always make you gain more.
How to use futures for betting (speculation)?
The other use of futures is to bet on price changes, i.e., speculation. Here, you're not interested in using what you buy or sell; you just want to make money from the price movement. Speculation is like a game where you try to guess whether the price will go up or down, and if you get it right, you win big. But if you make a mistake, you can lose quickly, so you have to be careful.
Let's look at an example to help you understand how futures are used. Imagine Juan, a young man who wants to try futures. He has 50,000 pesos to invest and decides to bet that the dollar will rise. Today, the dollar is at 1,000 pesos, and Juan buys a future to buy 1,000 dollars at 1,050 pesos each in two months. He sets an initial margin of 20,000 pesos. If the dollar rises to 1,150, Juan earns 100 pesos per dollar, or 100,000 pesos, less the margin, and keeps a profit of 80,000 pesos. If it drops to 900, he loses 150 pesos per dollar, or 150,000 pesos, and has to put in more money to cover the difference.
Now Juan tries hedging. He owns a business and needs $5,000 in three months to pay for something. The dollar is at 1,000 pesos, and Juan doesn't want to risk it rising. He buys a futures contract to buy $5,000 at 1,050 pesos each, with a margin of 25,000 pesos. If the dollar rises to 1,200, Juan is saved because he buys at 1,050 and spends less than it would be worth. If it goes down to 900, he pays a little more, but he doesn't care because his idea was to be safe. Juan learns that futures are useful for protection or betting, but always with caution.
Tips to keep your futures simple
Before I finish, I'll leave you with some tips to help you avoid confusion. Don't mess with futures if you don't fully understand how they work, because you can lose more than you put in. Practice with a demo account or small contracts to learn. Always check how much margin they ask for and make sure you have extra money in case they ask for adjustments. Check the market every day to avoid surprises.
Also, Don't use money you need for other things, like rent or food. Start small, like 10,000 or 20,000 pesos, and move up when you're more confident. Learn little by little: watch videos, talk to someone who knows, and don't rush. If you make a mistake, it's okay, but always have a plan so you don't lose everything at once. Futures can be useful, but you have to use them wisely.
To close: Futures are a tool for you
Financial futures are like a deal you make to buy or sell something in the future at a fixed price. They serve to protect you from price changes, like insurance, or to bet and win if prices move the way you want. They operate in special markets, with an initial margin, and you have to be careful because prices change every day. They're risky because you can lose more than you put in, but they also give you the chance to win a lot with a little.
If you use them for hedging, they give you peace of mind; if you use them for speculation, you can make a nice profit, but be careful. With practice and patience, you can learn to use them and get the most out of your money. Are you up for trying them? Start easy and you'll see it's not that difficult!
One final piece of advice: if you feel futures aren't for you, don't worry. Most of us share your opinion. Does it sound like going to the casino? Believe me, it's a bit like that, especially when you're speculating, not so much when you're hedging. In short, learning takes up little space, and once you understand this tool, you can decide whether to delve deeper into it or not.
Next course date
Questions for you to reflect on
What aspects do futures have in common with options? You can review the last lesson.
What risks do futures have?
As an investor, do I always need to invest in these types of contracts?
A brief overview of The Pocket Investor
The Pocket Investor is a project that combines experience and passion for financial education to help you transform your relationship with money. Through personalized mentoringWe help you design investment strategies tailored to your goals and needs, optimizing your portfolio to address challenges like inflation and the dollar.
The books on finance and investment, including the popular The Argentine Pocket Investor - El Inversor de Bolsillo argentino, are practical tools that explain complex concepts in a simple way, bringing the world of investments closer to anyone interested in financial growth.
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