One of the most significant advantages of digitalization is that investing in the stock market has grown much easier, and one can easily do so from one’s bed with all the market information at one’s disposal. Thus, stock market trading has gained popularity. However, it may be wise to understand that there are various options for investing in the stock market with their own appeals. One such option is Futures Trading.
Futures are derivative contracts that agree to sell a security at a fixed price on a future date. Futures trading gains are important in markets that are volatile and are likely to have highs and lows. There are several excellent reasons for going for future trading. Some of the most important reasons include the following:
- Future trading is a great way of hedging funds.
The first and one of the most important benefits of futures trading is that it is a great way of hedging one’s investments. Even for investors of a more speculative nature, it is highly prudent to have some kind of security – and they can easily have this security by selling the futures.
- One can earn a handsome return on investment.
The chief reason for buying futures is that it can help earn quite a lot in a short time over a short time and for almost no investment at all. If one is sure that the price of a security is going to increase, one can easily buy the futures of the security rather than buying the security itself. That way, one only has to invest a fraction of the total price of a security (around ten percent that is to be kept with brokers as collateral).
- It is easy to trade in futures.
Another excellent reason for trading in futures is that it is easy and highly convenient. One can easily sell or buy futures contracts, even those nearing maturity, without any significant changes in prices. That can also help some investors to quickly get out of what they now think was a bad buy on futures. Thus, one can trade in and out only for a fraction of securities unless one is sure to make a gain on investment.
- Future trading has low commission and charges.
A significant aspect of stock trading is related to commissions and brokerage charges. These charges can at times eat away a significant portion of one’s earnings while also adding to one’s losses. A crucial reason for futures trading is that these deals tend to have low commissions and charges. However, in this respect, the choice of broker is also going to be a major consideration.
- Future trading can help one earn a lot quickly.
The last but not the least important reason for trading in futures is that it is a quick way to make a lot of money for people who have a clear understanding of markets. As mentioned above, one invests only a fraction of the actual price; thus, one’s savings can be spread over a greater number of futures than if one was to go for buying the same security. This also means that one will gain from the profits of more securities.
The Bottom Line
One can easily wrap the above discussion by concluding that futures trading is a lucrative idea compared with investments like non convertible debentures, mutual funds, etc.