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Secure your future by trading futures

3rd June 2014 Print

In the world of investment, the futures market is a risky and complex financial hub. Futures trading is a type of investment which involves plenty of speculation—in particular, “guessing” whether the price of a commodity will go up or down in the future. It is challenging to understand, but once you have learned the basics of how it works and broken down its functions, trading futures can be easily done right from your trader workstation.

Those involved in trading futures are not particularly interested in the commodities and are mostly driven by the potential for profits. It seems like gambling, but these investors—called speculators—are instrumental in bridging the gap between the sellers and the buyers.

If trading futures is such a dangerous and speculative venture, why go into it? Well, the futures market is certainly not for those who are reluctant to undertake risk, but it can be extremely useful for other people. There are many advantages that futures trading has over other investment forms, such as ease of tax filing and a 60/40 split on your tax liability that is favorable to you. Here other advantages that trading futures can give you.

Low commission charges

Compared to other investment forms, futures trading in general charges investors lower for broker commissions. Commissions are also paid right after the position has ended. Depending on the level of service provided by the broker, the charges can be as low as $5 per side to $50 for full-service brokers. If you get a broker to manage and control the entering and exiting positions at his or her own discretion, you may only need to give a commission of $200 per trade.

Leverage

In order for you to own a futures contract, you would only have to put up a small fraction—usually just a tenth—of its value as margin. If you are able to correctly predict the market movement, your profits will be multiplied tenfold, which is excellent and better than buying a physical commodity such as gold bars outright.

Saved space

Futures contracts are made of paper, so all you’ll need is a sturdy folder or envelope to store your futures in. Even if you invested in 3,000 gold bars, you don’t have to literally store these in your basement. The actual commodities or physical goods you are trading for will only be exchanged when delivery between the producers and the dealers takes place. For investors, all you’ll get is a piece of paper, but make sure to hold on to it and keep it secure.

Make money, fast

A futures market has a tendency to shift or move faster than a cash market, so investors can make money more quickly especially if they speculated correctly. Likewise and because of the risky nature of futures trading, investors can also stand to lose money in a snap if their speculation is incorrect. You can say “you win some, you lose some” and that it’s all part of trading—the good news is, losses can be minimized by placing stop-loss orders.

Trading futures may sound risky now, but considering the quick profit turnaround, it could be your ticket to financial security in the future.

Sources:

http://www.moneycontrol.com/news/brokerage-recos-fo/basicsfuturesoptions_709886.html
https://www.mirusfutures.com/commodity_trading_education/futures/basics
http://lessons.tradingacademy.com/article/the-advantages-of-trading-futures/
http://www.investopedia.com/university/futures/
http://www.theoptionsguide.com/futures-trading.aspx