 |
| advantages of futures trading |
There
are certain advantages that futures trading offers to interested investors. One
of them is that such instruments are considered highly leveraged investments.
In order for an investor to own a futures contract, he only needs to invest a
small fraction of the value of the contract. Most investors only invest about
ten percent of the contract's value in exchange for trading them. This way,
investors may be able to trade larger amounts of commodities than if he ever
bought the commodities outright.
If
he predicted the movement of the prices of the commodities traded correctly,
the investor has a great chance of profiting ten-fold for an initial investment
of ten percent of the actual futures contract's value. That is how leverage
works to the advantage of the investor in futures trading.
Another
advantage of futures trading is that it is basically a paper investment.
Although futures trading involves certain commodities, the investor doesn't
have to worry about how to take care of the produce himself. Trading is done
with the futures contract changing hands instead of the commodity itself. This
makes it quite convenient since the investor doesn't have to worry about where
to store and keep the commodities being traded for the meantime.
Another
advantage of futures trading is that futures trading is that the futures
contracts being traded are considered very liquid. This means that there are
huge amounts of contracts being traded in the market on a daily basis. Orders
can be placed quickly and they can be bought or sold in a similar fashion.
There are always quite a number of available buyers and sellers for the futures
contracts, whatever commodity it might be.
One
good thing about the futures trading market is that it enjoys fairer trading as
compared with stock and share trading. Trading in the futures exchange can be
very vocal as trading is done in the midst of shouting of "Buy!" or
"Sell!". Another thing is that it is more difficult to get insider
information in futures trading that seems to be a big problem in the price
manipulation in stock trading.
Commissions
on futures markets tend to be smaller as compared to other trading markets. The
commissions are usually paid after the position has ended. Depending on the
level of service, the commissions for brokers can be as low as five dollars to
as high as two hundred per transaction.
For
an investor, it may be quicker to make money on futures trading. Aside from the
leverage provided by futures, the markets tend to move more quickly as compared
to cash markets. But this can also work against the investor since the quick
pace of the market can also lead to quick losses for the investor for incorrect
predictions on their positions.
