If you’ve been trading in the market for a long period of time, you might be considering the possibility of moving into futures. Not only do futures offer a multitude of benefits that traditional equities can’t match, but they also come with the possibility of quick and significant returns. Delta Trading Group wants you to take a deeper look at these basics to determine your best course of action when it comes to trading futures.
The Basics Of Trading | Delta Trading Group
Futures trading involves trading contracts to buy or sell an asset at a specific point of time in the future. The contracts typically involve physical commodities, such as gold or oil, or financial instruments. The goal is to accurately predict the direction that the price of the asset will move over a period of time. Futures trading differs greatly from equities trading, as one of the major attractions for traders is the concept of leverage.
In a futures trade, the investor usually puts in a margin. This is a fraction of the overall value of the contract, typically around 10 percent. The margin covers the investor should the market move against the position taken. Leverage allows investors to increase profits (or losses) much faster as futures contracts offer ten times the exposure to the stock, increasing profits by ten times. The risk comes if the market moves in the wrong direction, but this can be alleviated to a degree by using stop loss orders.
Benefits Of Futures Trading | Delta Trading Group
Aside from leverage, there are other attributes that make futures trading a wise choice for some investors. Futures are taxed differently than traditional stock trades and are covered under a separate section of the IRS code. Futures contracts also allow professional traders and large firms to hedge against future changes, and minimize their exposure to other positions. A futures contract allows traders to lock in lucrative prices and interest rates.
Futures are traded in large numbers, offering investors extraordinary liquidity. Contracts can be moved with minimal price disruption. Most futures markets are open 24/7, allowing traders to grab opportunities as they open. This is a great advantage over having to wait until the stock market opens each morning.
Are You Ready To Trade Futures? | Delta Trading Group
With so many advantages, it’s no wonder that futures trading continues to grow. Futures are a powerful investment tool, and it’s important that traders are prepared before moving forward. Ask yourself the following questions to gauge your understanding of futures trading, and if it’s the right channel for you:
- Do I understand both technical and fundamental analysis?
- Do I follow a well-developed trading plan or process?
- Do I understand the basic concepts of trading futures?
- Can I control my emotions when it comes to making suboptimal trading decisions?
- Do I have sufficient capital?
- Am I a strong money manager?
Answering yes to the questions shows a strong inclination of readiness to enter the futures market. Negative answers might require re-evaluation. Understanding your level of readiness provides a base for you to begin.