If you are wondering “why trade futures“, the answer is here. A stock trader trades stocks only and a currency trader trades currency only. As the world becomes more connected, financial markets are becoming more inter-correlated than before.
Trading in futures empowers the trader to develop a big-picture view of the markets.
Why Trade Futures
Futures trading includes stock indices, currencies, commodities and bond. A strong move in the price of any market, will have an impact on the price of another market. No market is forever trending, and most of the time the action is in another market, while the current one “sleeps” or move sideways.
Advantages of Futures Trading
There are many advantages in trading futures that are not found in trading stocks:
1. There are no interest charges as there are when long of stocks and no dividends to pay as when short of stocks.
2. It requires much less work to keep up with price charts in the index, bond, commodity and currency futures versus the great amount of work to keep up with all the stocks in the stock market (i.e. related company news, company annual / quarterly earnings reports and price charts).
3. Large traders cannot manipulate futures price as they can to a stock.
4. The positions of large traders are published every week in the Commitment of Trader’s Report by the U.S. Commodity Futures Trading Commission. With this information, you can position yourself with the “Big Boys” and not against them.
5. Futures markets are inter-related. When bond falls, index futures rises. When US dollar weakens in the currency markets, the commodity markets experienced a bull-run. An awareness of the various futures markets will give an additional edge to stock traders.
Why Trade Futures And Not Stocks
Futures trading accounts are leveraged, due to the sheer size of the contract. It is not possible for any retail trader to fork out $100,000 for buying or selling a standard contract. Therefore, futures brokers only requires their clients to have a certain percentage of the $100,000 in their trading account. Usually, 10-20%. This offers the retail traders chance for large profits when they are right, and also large losses when they are wrong.
If you still find yourself asking “why trade futures”, then you might want to read more about the various types of futures contract.