Benefits of Futures Trading
Futures trading, as the name implies, adds the dimension of time to investing. Unlike stocks, which you buy in the present at a set price, futures trading allows you to speculate about what an asset will be worth at a specific time in the future.
As Learn-To-Trade.com explains, futures contracts are traded on futures exchanges worldwide; the CME Group and the Commodities Exchange Center in New York are the two main futures exchanges in the United States.
Futures contracts, which cover a wide range of commodities, such as agricultural products, livestock, energy, metals, and financial products, must be in a raw, unprocessed state. For example, investors can engage in futures trading in wheat, but not flour. Futures trading also occurs with gold, silver, corn, frozen orange juice, currency, and stock indexes. You can even trade weather futures.
Futures speculators take a long futures position when they think that the price of the underlying commodity will rise. They take up a short futures position when they believe the price of the underlying commodity will fall. A word of caution: unlike options, which entails a purchaser the right (but not obligation) to buy or sell a stock, with a futures contract, you are obligated to purchase or sell the contract at the set price, regardless of whether the price of the commodity has gone up or down if you do not exit your futures contract prior to expiry.
Many novice investors shy away from futures trading because of the uncertainty and speculative nature of trading in unfamiliar products; but it is these same factors that offer investors who are trained to understand these broader markets the potential to earn dramatic profits.
There are a lot of reasons why traders prefer futures over traditional equities and foreign exchange (forex). Futures markets are available in many underlying commodities and many futures markets are open for day trading 24 hours a day. In addition to being liquid, the commodity prices fluctuate enough to create volatility; this translates into both risk and potential profit.
There are many other benefits to futures trading. For instance, futures are highly leveraged investments. To own a futures contract, an investor might only need to put up 10% of the value of the contract; this means the investor can trade a larger amount of the commodity than if they bought it outright.
Other benefits to futures trading include trading easily online, providing hedging for your stock market portfolio from a falling market, transferring risk quickly and efficiently 24/7, and transaction costs being lower than the cost of trading stocks.
It is this flexibility, convenience, and variety that make futures trading popular for most sophisticated traders.
What Can You Do with Futures Trading?
Futures trading can serve investors in many ways and be used in conjunction with a variety of trading strategies and different financial objectives.
For the most part, the primary purpose of futures trading is to allow hedgers to protect their commodity prices. Depending on which direction you think different commodities are going to go, you can also use futures trading strategies to speculate on commodity price movement.
Like the broader stock market, there are inherent risks to futures trading, but taking a futures trading course in Toronto from Learn-To-Trade.com can help broaden your investing strategies, diversify your portfolio, increase your opportunities to profit, and manage your risks.
For example, certain commodity prices reach peaks or lows during different times of the year: buying cycles could be a result of supply and demand, weather, or seasonal tendencies.
When it comes right down to it, there are a lot of different strategies futures traders can use to capitalize on the markets. However, the futures market, with all of the different terms and strategies, can be confusing. Ultimately, it takes a lot of skill to succeed at futures trading.
The successful futures traders at Learn-To-Trade.com have developed a method that helps members make better trades and preserve capital. By taking the futures trading course in Toronto from Learn-To-Trade.com, members can avoid the same pitfalls that the majority of inexperienced investors experience.
If you want a comprehensive understanding of futures trading and the confidence and skills necessary to take advantage of the most popular investing vehicle, take a futures trading course from a professional trading firm like Learn-To-Trade.com.