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. Take a deeper look at these basics to determine your best course of action when it comes to trading futures.
The Basics Of Trading
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
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?
With so many advantages, it’s no wonder that futures trading continues to grow in ((blog.city)). 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.
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Important Futures Trading Disclaimer
Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. You must review customer account agreement prior to establishing an account.
Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial. Carefully consider the inherent risks of such an investment in light of your financial condition. Though proper education, tools, and practice are necessary, they do not guarantee profitable results.
SP500Trader.com and the Delta Trading Group, Inc. are educational entities; be sure to consult with your financial advisers, brokers, and other professional services about the risk of trading. Though we offer a common language to learn about trading and risk, we are not a signal service. You must use your own discretion when doing any kind of trading in the any financial market. SP500Trader.com and the Delta Trading Group, Inc. are not responsible for interpretation, opinions, or losses by its members, liaisons, instructors, mentors, vendors, contractors, or administration, as none of these entities can guarantee your success.
Internet Trading Risks
There are risks associated with utilizing an Internet-based deal execution trading system including, but not limited to, the failure of hardware, software, internet connection, or services provided by third parties. Since SP500Trader.com and the Delta Trading Group, Inc do not control vendor signal power, its reception, or routing via Internet, configuration of your equipment or reliability of its connection. We are not be responsible for communication failures, distortions, or delays when trading via the Internet.
Accuracy of Information
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Your broker may have a contractual agreement not to seek redress for slippage, it’s obligation to execute stop loss orders at the stop loss price or better, will not apply to limit and stop loss orders during hours when it is closed. This also does not include bad price spikes. Bad price spikes are removed from the price charts quickly to alleviate confusion.