Saturday, March 26, 2011

The Advantages Of Futures Trading

By Gomez Nasution

Commodities trading offers a great opportunity for others to make an investment in. Trading in futures contracts offers folk the unique opportunity to speculate in something aside from stocks. Though infrequently they also operate in an identical manner, commodities trading presents a different technique of earning earnings for the amount invested on it.

There are particular advantages that commodities trading offers to interested financiers. One of them is that such instruments are thought to be highly leveraged investments. For a stockholder to possess a futures contract, he only desires to invest a little fragment of the value of the contract. Most financiers only invest about 10 % of the contract's price in return for trading them. This way, financiers might possibly be able to trade bigger amounts of commodities than if he ever acquired the commodities outright.

If he forecast the movement of the costs of the commodities traded properly, the financier has a good chance of profiting ten-fold for an original investment of 10 percent of the particular futures contract's value. That's how leverage works to a benefit of the financier in commodities trading.

An additional benefit of commodities trading is that it's essentially a paper investment. Though commodities trading involves certain commodities, the investor does not need to worry about the way to look after the produce himself. Trading is done with the futures contract changing hands rather than the commodity itself. This makes it quite convenient since the financier does not have to worry about where to store and keep the commodities being traded for the meantime.

Another virtue of commodities trading is that commodities trading is that the futures contracts being traded are thought to be extremely liquid. This implies that there are big amounts of contracts being traded in the market on a regular basis. Orders can be placed quickly and they can be acquired or sold in a corresponding fashion. There are always many available purchasers and sellers for the futures contracts, whatever commodity it may be.

One good thing about the futures trading market is that it enjoys fairer trading as compared with stock and share trading. Trading in the futures exchange can be very vocal as trading is done in the midst of shouting of "Buy!" or "Sell!". Another thing is that it is more difficult to get insider information in futures trading that seems to be a big problem in the price manipulation in stock trading.

Commissions on futures markets tend to be smaller as compared to other trading markets. The commissions are usually paid after the position has ended. Depending on the level of service, the commissions for brokers can be as low as five dollars to as high as two hundred per transaction.

For a backer, it could be faster to earn income on commodities trading. Except for the leverage supplied by futures, the markets have a tendency to move quicker in comparison to money markets. But this may also work against the financier since the quick speed of the market can also lead to fast losses for the financier for incorrect predictions on their positions.

About the Author:

No comments: