Why Trade Futures?

Have you ever considered investing in the futures market? Some people have seen television footage of men in coloured jackets furiously trading among themselves, but it is not as complex as it may appear, and is certainly not restricted to professional investors. If you’re looking for a relatively simple investment vehicle, one that can return a respectable profit on your investment, then futures trading does offer some benefits for the small investor:

Leverage

Leverage means that you can control a contract that has a large value with a relatively small margin. Leverage is a sword that cuts both ways. It multiplies both gain and losses. It does allow the small investor to potentially realise significant profits and this is a major appeal of trading futures.

Simplicity

The futures market works differently than the other types of investment markets. In its simplest form, the underlying principle of this market is that investors, based on the research they conduct on a particular item, try to anticipate whether the future price of the item will go up or whether it will go down. They then buy and sell contracts for commodities based on their research.If a futures trader determines the right direction of the price, he or she wins. If an incorrect guess is made, the trader will lose money. It’s this simplicity that also attracts the beginner to this market.

Choice of markets

Futures markets cover a huge range of commodities and financial instruments. There are always plenty of markets that offer trading opportunities.

Ability to profit from price rises and price falls

Unlike stocks, you can sell a futures contract (and profit from falls) as easily as you can buy a futures contract. When stocks are falling, it is difficult for the traditional stock investor to make a profit. This means that futures trading returns are not correlated with other financial instruments. This provides flexibility to the speculator.

Easy to participate in

Another feature of the futures market that appeals to the beginner investor is that there is no specialized training needed in order to participate. Investors in this market do not need to first complete a specific training course or secure an advanced degree. The barriers to entry are extremely low compared to other businesses. As discussed, futures trading does not require a huge amount of capital due to leverage.And because no formal training is required, anyone can participate in this type of trading. It does not matter if the trader is by day a plumber, a stay-at-home mother, a banker, a teacher or a scientist.As long as a person is confident and comfortable with their researching capabilities, and they have the funds necessary to cover such things as their losses, margins, and other fees, they can open their own trading account and begin trading in this market.Another benefit that appeals to the beginner is that investing in the futures market is something that people can do on their own and in their spare time. The only time required is to analyse the market and to place trades. However, they do need to have time to keep an eye on the market - futures are not a “set and forget” investment.Unlike traditional businesses, there is minimal regulation. You don’t need a business permit, premises, employees or stock to sell. You can simply close your positions if you wish to go on holidays.

A warning

Most beginners lose their money. Futures trading is zero sum - every dollar won corresponds to a dollar lost by someone else. The percentage of winners and losers has not changed significantly over time, despite computer technology and lower costs, the percentage of winners is about the same as it was in 1890.It is important to have a strategy - trading by the seat of your pants will lead to you becoming another one of the many beginners who lose money in futures.Futures trading is fun, fast, but definitely not for everyone!