Before knowing the advantages of Futures trading, let us discuss what Futures trading is all about.
Everyday, all of us use so many commodities like oil, petrol, maize, corn etc.
Initially farmers were dependent of the future prices and at times they had to bear huge losses due to fluctuation of market.
Then the concept of futures trading developed wherein people started speculating the price of commodities.
In this case, people speculate whether price of a commodity will increase or decrease in future.
Here.
People do not actually buy or sell the product.
They take a futures contact.
If they sell that means that they predict the fall in prices and if they buy it means that the prediction is made for a rise in the products in future.
There are two basic and most important terms to be known in this scenario.
The first one is hedgers.
Hedgers are the commodity producers, for an example, the farmer, the mining company or the oil company which produces the commodity.
And speculators are the private investors who predict the price of that particular commodity.
As compared with other types of investments, future trading contracts have below mentioned advantages: 1.
Fast profits or earnings: In case of futures trading, the probability of an investor to earn in less time is more.
The reason is that futures market is faster than cash markets.
Now, as it is an investment there is risk involved.
If a person can earn quickly here, it also means that if the speculation is incorrect then the chances of that person losing money also occurs fast.
One can though minimise the losses by opting for Stop loss order.
2.
Fairer than other markets: As compared to other stock and share markets.
Futures market is considered to be fairer.
The reason is that it is difficult to get inside information here.
Hence, all the dealing are transparent and fair.
Apart from this, there is a market report which is released at the end of the trading session.
This helps the investors to read and study the trend before they start investing again.
3.
Huge amount of contract and thus liquid market: Everyday, there are numerous contracts traded in this case.
This results in maintaining good liquidity in the market.
More and more people are opting for this trading as market orders can be booked in a quick manner as there are always people to buy or sell the commodities.
This also results in a much more stable market as prices can not suddenly jump or fall as transactions happen all the time.
4.
Small commission charges: Another saving for investors is that the commission charges are less as compared with other types of investments.
It basically is not a straight forward commission.
Commission depends on the kind of service given by the broker.
In fact, online trading commission in case of futures trading can be as low as $5 only.
With these advantages it becomes clearer as to why more and more people are investing in futures!!