Buying to profit from an expected price increase (Going Long)

Someone expecting the price of a particular commodity/currency to increase over a given period of time, can seek to profit by buying futures contracts. If correct in forecasting the direction and timing of the price change, the futures contract can later be sold for the higher price, thereby yielding a profit. If the price declines rather than increases, the trade will result in a loss. Because of leverage, the gain or loss may be greater than the initial margin deposit.

For example assume it is now January, the March Euro futures contract is presently quoted at $0.8750, and over the coming months you expect the price to increase. You decide to buy a contract of one lot by putting a margin (deposit) of US$1000.Further assume that by February the March Euro futures price has risen to $0.8950 and you decide to take your profit by selling.

Since each lot contract is for 125,000 Euros, your 2-cents/$0.02 per Euro, profit would be 125,000 x $0.02 or $2,500. Suppose however, that rather than rising to $0.8950, the March Euro futures price had declined to $0.8550 and that, in order to avoid the possibility of further loss, you elect to sell the contract at that price. On 125,000 Euros your 2-cents a Euro, loss would thus come to $2,500.

Selling to profit from an expected price decrease (Going Short)

Going short is instead of buying a futures contract, you first sell a futures contract at a price in the hope that you will buy the same contract at a lower price at a later stage, thus realizing profit (or loss in case prices move in the other direction).

For example, assume that in January you have indications that the price of gold will decrease over  the  next  several  months. In  the  hope  of

profiting, you sell one contract of April gold at a price of, say $275/oz.If by March, the price has declined to $267, an offsetting futures contract can be purchased at this price, realizing a gain of $8.00/oz making a total profit of $800 ( $8.00x100oz). A loss would be realized if the price has moved in the opposite direction