Most investors today find it beneficial to open leveraged futures accounts to help them buy or sell assets at a predetermined price at a future date. These assets can be exchange-traded funds, coffee, cryptocurrencies, oil, and other essential commodities. The investor must first start by purchasing the futures contract. When the due date elapses, buyers must buy, and sellers must sell the asset regardless of the prevailing market price.
When buying or selling the asset, you don’t necessarily need to get the asset physically, but rather you can use it for hedging portfolio risk or speculating security prices. In terms of hedging portfolio risk, the investor gets the chance to prevent possible losses from price fluctuations. On the other hand, speculating security prices involves forecasting the possible direction of general commodity prices. To get a leveraged futures account, visit the website https://www.iocbc.com/accounts/futures-account. There are many benefits of trading futures, as explained below:
1. Market liquidity
Typically, futures markets are largely liquid since they involve multiple traders every day. The never-ending presence of both buyers and sellers in the market makes it easier and quicker to place market orders. When there’s a constant presence, there are also low chances of commodity prices fluctuating, especially during contract maturity. It’s also easy to clear out a significant position without a negative price impact. The constant presence of players in the futures markets has also been favored by prolonged marker hours, with some running 24/7.
2. They’re highly leveraged investments
Investors are required to put in margins equal to 10% of the entire value of the contract when trading futures. This margin plays a significant role in trading futures since it helps the investor avoid losses if there are market fluctuations in the opposite direction. Such losses are generally higher than the margins. If you’ve decided to trade futures, you’re in a better position to get greater stock value than originally purchasing them. If the required margin is 10%, you’ll get 10times profits if the market shifts in the right direction.
3. Relatively lower commissions and execution expenses
The commissions and execution expenses on futures trades are generally lower. Investors will be charged these fees after positions are closed. The average commission and execution fees paid by the investor goes to even 0.5% of the value of the contract. The fees vary depending on the services the broker provides. In some instances, you’ll have to pay even $50 per trade, especially if you work with full-service brokers.
4. Hedging or diversification is easier
Most investors struggle a bit when it comes to diversifying their investments. Futures trading helps investors to have diversified investments, which reduces the risk of losing all your money in case the prices fluctuate in the opposite direction. When you invest in varied commodities, you’ll be lowering unforeseen expenses.
5. It’s easier for speculators to make money
If you’ve got great judgment, it’s easier to make a lot of money trading futures. This is because you’ll be trading with ten times exposure compared to typical stocks. Additionally, stock market prices move quicker at a reasonable price growth compared to spot or cash markets. Although you can get money quickly, there’s still the risk of losing your hard-earned money.
In conclusion, these are the top benefits of trading futures. To start trading futures, it’s essential to understand how the futures market works and the trading basics.