12 Reasons Trading Futures is the Way Forward
Are you wondering what all the fuss is about over trading futures? Wonder no longer, as we’ve got it all down in a nutshell for you here! Read on…
What are Futures contracts?
Futures contracts promise the buying or selling of a set amount of asset, at a certain price, at a certain point in the future. They are a quick and cost-effective method of trading finance and commodities, and traders across the globe use futures to easily reduce risk in order to make good money on changing markets. Here, we go a little deeper and outline the main benefits of trading futures:
Ease of going short
Shake off those day trading restrictions! As a futures trader, you go short just as simply as you would go long, however often you like. You can express your opinion many times a day or week without the worry of day trading restrictions applicable to equities.
Transparency in price discovery
Price discovery happens thousands of times a day in futures markets, and occurs as a result of interaction between buyers and sellers during a regulated auction-type exchange. They then agree on a common price for any given asset. The efficiency of futures markets means ask and bid prices are available to all (making them transparent), and are instantly internationally updated. Changing supply and demand of and for the assets means prices are constantly fluctuating, but using this auction-type method, traders can find trades that they feel are efficient and fair. You can trade knowing you’re getting the best price and the same price as everyone else for the same asset.
No short sale restrictions
Futures traders do not have short sale restrictions ¬– you can take a short position as easily as a long position unlike equity day traders. For an equity day trader to be able to short a security, there must be available shares to trade and there are many reasons why shares may not be available.
Leverage
Leverage is the ability to control a large contract value with a reasonably small amount of capital (known as initial margin or performance bond, it’s usually 3-12% of a contract’s notional or cash value). It can initially seem risky, but when used with a risk management plan it can make a huge difference. Experienced futures traders understand how to harness the power of leverage, taking into account the associated risks and benefits. Give more power to your capital!
No short selling restrictions
You’ll never be locked out of trading or lose out on an opportunity because of restrictions. These scenarios can end up being costly to the trader dealing with cash equity products over futures.
There’s deep liquidity
Fundamentally, liquidity is the collective expression of traders’ opinions on the market and it is critical for traders to understand the market before jumping into a trade. Liquidity is really one of the most important elements in gauging opportunities in a market and futures markets offer deep liquid markets that allow traders to express their opinions in a very effective way. More participation in a market equals lower costs, stricter pricing and extremely efficient trades.
You can trade 24/7
Unlike Equity traders, futures traders can move almost 24 hours a day, six days a week when the other markets are closed. You can react to anything that happens, as it happens! Incidentally, this doesn’t mean you have to be at your desk 24/7; you can place stop orders ahead of time that can take advantage of opportunities when you’re otherwise engaged. Equity traders however, must wait until the market opens to take advantage of an opportunity or make an exit and they cannot trade outside U.S. market hours. Twenty-four hour access means you’re not vulnerable and can manage your risk, right around the clock.
No minimum account size
Trading futures, there’s no need to maintain minimum equity in your brokerage account. Just as long as you maintain the minimum margin conditions for your positions, you can trade however is best for your trading needs.
Portfolio diversification
One of the key elements of an investment portfolio is diversity – a diverse portfolio helps investors defend themselves from wide swings in key sectors and offsets exposure in any single position. Every investment portfolio is individual, and each trader’s diversification strategy should be carefully balanced to the portfolio’s requirements. Because futures are so liquid, they allow trading plans to be easily diversified and personalized to the individual’s eventual investment targets. Adding futures and options on futures contracts to a trader’s equity and bonds portfolio can be very beneficial as it gives traders the chance to protect themselves against market risk by sector, and can control exposure during times of predicted and unpredicted event-driven volatility.
Minimum Tick
Futures traders can be short the market just as simply as being long, meaning they won’t lose out on a market opportunity unlike equity day traders, who, in a down-trending market, may never get to take the short position, thus losing out.
Margin
Trading futures allows you to be able to trade larger notional amounts on the same margin, where an equity trader can only trade up to four times their maintenance margin excess on an intra-day basis. For example, if they have $25,000 maintenance excess available, they can only trade up to a value of $100,000. Exceeding this limit may mean reduced trading frequency and lessened buying power.
You can trade across all the major markets:
FX
Equity index, including new Bitcoin Futures
Interest rates
Energy
Metals
Agricultural commodities
Crazy about Futures Trading? We are! At https://ntrading.io we share and discover some of the latest and most proven futures trading products on the market, read through genuine product reviews, leave your opinion and more! For futures traders, by futures traders.
Find and hang out with us on:
Facebook @NatTrading
Twitter: @natural_trading
Reddit: Nat_Trading
Quora: Natra Jodd
Or drop us an email at [email protected]