6 Reasons to Invest in Futures Market
The general public perception of trading futures is that it involves a high risk of investment and speculation. Some even regard investing in futures as a form of gambling. While futures do involve a high risk of loss, the irony is that they are also instrumental in reducing risk.
With proper planning, research, analysis and money management, futures trading can be highly profitable. Futures are also used to as a mechanism by companies to manage price risks. This is known as hedging.
Here are 6 reasons why you should consider futures trading as a tool of investment.
Unlike stocks, trading futures allows for leverage and does not require you to enter into a contract with a full value. You will only need to deposit a margin, usually between 5% – 10% of the total contract value. In this manner, you are able to trade larger amounts of commodities than compared to purchasing commodities outright.
2. Higher Returns
Since you are entering a position of a contract with only a margin, when the market movement is towards your favour, the profit can be of ten-fold of the margin. Due to this unique and great leverage, futures trading offers excellent return in comparison to other investment instruments, though the loss may also be substantial.
3. Being a Paper Investment
Futures trading is basically a paper investment. Even though futures trading involves commodities, you will not need to worry about the actual commodities itself, or changing hands of the commodities. This makes it convenient without the concern about the physical commodities and storage.
4. Highly Liquid
Trading futures are considered to be very liquid. There are large amounts of contracts traded in the market daily. You can place an order and they can be bought or sold very quickly. There will always be a significant available number of buyers and sellers for futures contracts.
5. Making Returns When Market Moves Both Ways
When you’re trading futures, you will have the option to go long or short. You will be able to profit whether the market is going on an upward trend or a downward trend. You may enter a long position in a bullish market and go short on a bearish market.
Apart from the high return of investments, futures trading may also bring you fast returns as opposed to the stock markets where significant returns can be seen after years of investing. This is due to the volatility of the futures market, especially in commodity markets like Crude Palm Oil.
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