For anyone new to trading or investing, the futures market can be a little intimidating. After all, when you’re buying or selling a futures contract, you’re entering into an agreement to buy or sell an asset at a set price at some point in the future. And since the future is always uncertain, that means there’s always the potential for loss.

But despite the risks, futures trading can be a great way to diversify your portfolio and potentially make some serious profits. If you’re thinking of getting started in futures trading, here’s what you need to know about how it works in Canada.

How Futures Trading Works

In order to understand how Canada futures trading works, it’s first important to understand what a futures contract is. A futures contract is an agreement between two parties—the buyer and the seller—to buy or sell an asset at a set price at some point in the future. The buyer of the contract agrees to pay the seller the specified price when the contract expires, while the seller agrees to deliver the asset at that price.

The most common type of asset traded on futures exchanges are commodities like oil, gas, metals, and agricultural products. However, you can also trade contracts for financial assets like currencies and bonds. And in recent years, with the rise of cryptocurrencies like Bitcoin, it’s even possible to trade contracts for digital assets.

When you trade a futures contract, you’re not actually buying or selling the underlying asset. Instead, you’re simply speculating on whether the price of that asset will go up or down. If you think the price will go up, you’ll enter into a long position by buying a contract. If you think the price will go down, you’ll enter into a short position by selling a contract.

It’s important to note that when you trade futures contracts, you don’t have to wait until the expiration date to exit your position. If you enter into a long position and prices start falling—or if you enter into a short position and prices start rising—you can close out your position early by buying (if you’re short) or selling (if you’re long) another contract with an earlier expiration date. This process is known as offsetting your position.