Futures are derivative contracts that derive value from a 澳洲幸运5开奖号码历史查询:financial asset, such as a traditional stock, bond, or stock index, and thus can be used to gain exposure to various 澳洲幸运5开奖号码历史查询:financial instruments, including stocks, indexes, currencies, a💖nd commoditi🍸es.

Futures are a common vehicle for hedging and managing risk; If someone is already exposed to or earns profits through 澳洲幸运5开奖号码历史查询:speculation, it is primarily due to their desire to hedge risks.

Future contracts, because of the way the🎐y are structured and traded, have many inherent advantages over trading stocks.

8 Advantages of Trading Futures

1. Futures Are Highly Leveraged Investments

To 澳洲幸运5开奖号码历史查询:trade futures, an investor has to put in a margin—a fraction of the total amount (typically 10% of the contract value). The margin is essentially collateral that the investor has to keep with their broker or exchange in case the market moves opposite 🐎to the position they have taken and they incur losses. This may be more than the margin amount, in which case the investor has to pay more to bring the margin to a maintenance level.

What trading futures essentially means for the investor is that they can expose themself to a much greater value of stocks than they could when buying꧂ the original stocks. Anꦺd thus their profits also multiply if the market moves in his direction (10 times if the margin requirement is 10%).

For example, if the investor wants to invest $10,000 into the S&P 500 index they can either buy 25 shares of the SPDR S&P 500 ETF (SPY) priced at around $400 per share, or 1 E-mini futures contract with a margin requirement of $10,000. If SPY increased to $401, the inve𓄧stor would have made $25. Over that same period, the E-mini contract would have increase♚d from $4000 to $4010 resulting in a $500 gain (1 index point = $50.00).

2. Future Markets Are Very Liquid

Future contracts are traded in huge numbers every day and hence futures are very liquid. The constant presence of buyers and sellers in future markets ensures 澳洲幸运5开奖号码历史查询:market orders can be placed quickly. Also, this entails that the prices do not fluctuate drastically, especially for contractsꦉ that are near maturity. Thus, a large position may also be cleared out quite easily without any adverse impact on price.

In add💙ition to being liquid, many futures markets trade beyond traditional market hours. Extended trading in stock index💝 futures often runs around the clock.

3. Commissions and Execution Costs Are Low

Commissions on future trades are very low and are charged when the position is closed. The total brokerage or commission is usually as low as 0.5% of the contract value. However, it depends on the level of service provided by the broker. An online trading commission may be as low as $5 per side, whereas 澳洲幸运5开奖号码历史查询:full-service brokers may charge $50 per trade.

4. Speculators Can Make Fast Money

An investor with good judgment can make quick money in futures because essentially they are trading with 10 times as much exposure as with normal stocks. Also, prices in the future markets tend to move faster than in the cash or spot markets.

A word of caution, however: Just as wins can come quicker, futures also magnify the risk of losing money. That said, it could be minimized by using 澳洲幸运5开奖号码历史查询:stop-loss orders. Because futures are highly leveraged, 澳洲幸运5开奖号码历史查询:margin calls might c🍰ome sooner for traders with wrong-way bets, making them potentially a more risky instrument than a stock when markets move ꦚfast.

5. Futures Are Great fo🐟r Diversification or Hedging

Futures are very important vehicles for hedging or managing different kinds of risk. Companies engaged in foreign trade use futures to manage 澳洲幸运5开奖号码历史查询:foreign exchange risk, interest rate risk by locking in an interest rate in anticipation of a drop in rates if they have a sizable investment to make, and 澳洲幸运5开奖号码历史查询:price risk to lock in prices of commodities such as oil, crops, and metals that serve as inputs. Futures and derivatives help increase the efficiency of the underlying market because they lower unforeseen costs of purchasing an asset outright. For example, it is much cheaper and more efficient to go long in 澳洲幸运5开奖号码历史查询:S&P 500 futures than to replicate the indღex by purchasing everyꦯ stock.

6. Future Markets Are More Efficient and Fair

It is difficult to trade on inside information in future markets. For example, who can predict for certain the next Federal Reserve policy action? Unlike single stocks that have insiders or corporate managers who can leak information to friends or family to front-run a merger or bankruptcy, futures markets tend to trade market aggregates that do not lend themselves to insider trading. As a result, futures markets can be more 澳洲幸运5开奖号码历史查询:efficient and give average investors a fairer shake.

7. Futures♒ Contr𓆉acts Are Basically Only Paper Investments

The actual stock/commodity being traded is rarely exchanged or delivered, except on the occasion when someone trades to hedge against a price rise and takes delivery of the commodity/stock on expiration. Futures are usually a paper transaction for investors interested solely on speculative profit. This means futures are less cumbersome than holding shares of individual stocks, which need to be kept track of and stored someplace (even if only as an electronic record). Companies need to know who owns their shares in order to pay out dividends and to record shareholder votes. Futures contracts don't need any of that record keeping.

8. Short Selling Is Easier

One can get short exposure on a stock by selling a 澳洲幸运5开奖号码历史查询:futures contract, and it is completely legal and applies to all kinds of futures contracts. On the contrary, one cannot always short sell all stocks, as there are different regulations in different markets, some prohibiting short selling of stocks 𝓰altogether. Sh♒ort selling stocks requires a margin account with a broker, and to sell short, you must borrow shares from your broker to sell what you don't already own. If a stock is hard to borrow, it can be expensive or even impossible to short-sell those shares.

The Bottom Line

Futures have great advantages that make them appealing to all kinds of investors—speculative or not. However, highly-leveraged positions and large 澳洲幸运5开奖号码历史查询:contract sizes make the investor vulnerable to huge losses, even for small movements in the market. Thus, one should strategize and do 澳洲幸运5开奖号码历史查询:due diligence before trading futures and understand bot♓h their advantages as well as their risks.