The Benefits of Futures Trading

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There are numerous benefits that an investor can reap from trading futures contracts as compared to other investments. The fact that futures are highly leveraged investments makes it possible for investors to only put a tiny fraction of the contact's value for them to own a futures contract. This usually revolves around a 10 % margin. This means that a trader can actually trade a larger amount of commodities than if he bought it directly. If they predicted the market trend accurately, the profits will be multiplied ten fold considering one had a made a 10 % deposit. This is indeed a handsome return compared with trading in physical commodities such as coins, gold bars or mining stocks.

The margin set out for holding a futures contract is taken in form of a security bond. If the market happens to go against the trader's position, the investor may end up losing some or more than what's put up on the margin. Again, if the market rhymes with the trader's position, a profit is inevitable and one is able to get the margin back. Futures contracts are a form of paper investment and one does not necessarily have to store tons of gold or thousands of liters of orange juice. The commodity being traded is only needed during the delivery of the contract.

Futures trading markets are fairer as compared to other markets such as stocks and shares because of how investors are walled from getting inside information. The market is even made more efficient by open out-cry trading pits. All the official trading reports are usually released at the end of trading so that investors can put them in to account before resuming trading the following day. The liquidity of futures markets makes it hard for prices to unreasonably jump to a different level especially on those contracts expiring in the next few weeks.

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Another benefit of futures trading is that the transaction costs may be significantly lower due to the higher liquidity as well as lower brokerage fees (depending on the investor). You can read more about futures trading here.

[jannieoh]

forwards: InvestoPresto: Forwards
futures: Investopresto: Investment Education-Futures I
Advanced futures: InvestoPresto: Futures II