The Benefits of Futures Trading

by | Dec 26, 2012 | Business

Futures trading is the method of trading contracts that are based on the future price of a commodity. Experienced stock traders are quickly turning to the use of trading futures in addition to their stocks to diversify their accounts and help increase their profits. For many people, this method of trading seems overwhelming, but to the person with experience in the market, there are many advantages.

Low Initial Investment

Unlike stocks, when you invest in futures, you only have to put down around 10 percent of the contract. This limited initial investment makes it more affordable for most anyone to take part in trading in the market. This also allows traders of all income levels to trade larger amounts than they would originally be able to, simply because the cash outlay is not high.

Low Commissions

There are typically no upfront charges when it comes to hiring a broker to handle your futures trading. The commissions are usually due when the contract is exercised and money changes hands. In addition to the elimination of upfront charges, the commissions are typically much lower than those on stock trading. This makes it more affordable to diversify your accounts and invest in a larger number of transactions.

Immediate Gains

Because futures are basically the trading of paper, there are no commodities that actually change hands; the profits you make are ready to spend right away. This allows you to use your gains immediately for another trade, rather than having to wait the time it takes to close out a deal and liquidate your stock. In a fast-acting market, this is beneficial for the person who wants to take advantage of another stock situation but does not have a large margin in his account to be able to deal again.

Stock traders who have a bit of experience in the market are quickly turning to futures trading as a way to make additional money without having to make a large investment. There are numerous benefits to this method of trading, many of which are financial. When investors can limit their upfront investment, pay low commission and realize immediate gains, the benefits greatly outweigh the uncertainty they possess. This enables stock traders to include futures in their portfolio, allowing them to have greater capital to make further investments in the future.

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