Advantages of Futures Trading
Index 1.
Future Market
2.
Advantages of Futures Trading 1. Futures contracts are leveraged 2. Futures contracts are very liquid 3. Commission is lower compared to other investments
Future Market ď‚— A futures market or futures exchange is a central financial
exchange where people can trade standardized futures contracts; that is, a contract to buy the financial instrument or specific quantities of a commodity at a specified price with delivery set at a specified time in the future. ď‚— Futures contracts are an agreement between a buyer and a
seller to buy or sell the underlying asset at a specified price and date in the future.
Advantages of Futures Trading
1. Futures Contracts are Leveraged If you decide to trade on the futures market, you can make
leveraged trades. That means you can open a much larger position than the size
your trading account, by putting aside small collateral called “ margin”. Your broker calculated the margin requirement
automatically, so you don’t have to worry about it yourself.
ď‚— Once you close the position, the margin will be deposited
back to your account. ď‚— However, trading on leverage carries also a larger risk of
losing money, as it magnifies both profits and losses.
2. Futures Contracts Are Very Liquid Most of the futures contracts are very liquid and have a large
number of potential buyers and sellers in the market. More liquid assets are less volatile, as you can find potential
buyers very quickly if you are selling a futures contract; and potential sellers if you are buying a futures contract. This is especially true for contracts that are near the
expiration date.
3. Commission is Lower Compared to other Investments ď‚— When trading on the future market, brokers usually charge
the lower commissions compared to the other markets. ď‚— You can open a trade paying just a $5 fee with some discount
brokers. ď‚— It is especially important if you are a scalper or day trader
who opens many trades in a relatively short time.
Thank You