A future market or future exchange is a central financial exchange where people can trade. In which Futures contracts are an agreement between a buyer and a seller to buy or sell the underlying asset at a specified price and date in the future.
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Index • Future Market • Advantages of Futures Trading 1. Futures contracts are leveraged 2. Futures contracts are very liquid 3. Commission is lower compared to other investments
Future Market • A futures market or futures exchange is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy the financial instrument or specific quantities of a commodity at a specified price with delivery set at a specified time in the future. • Futures contracts are an agreement between a buyer and a seller to buy or sell the underlying asset at a specified price and date in the future.
1. Futures Contracts are Leveraged • If you decide to trade on the futures market, you can make leveraged trades. • That means you can open a much larger position than the size your trading account, by putting aside small collateral called “margin”. • Your broker calculated the margin requirement automatically, so you don’t have to worry about it yourself.
Once you close the position, the margin will be deposited back to your account. • However, trading on leverage carries also a larger risk of losing money, as it magnifies both profits and losses.
2. Futures Contracts Are Very Liquid • Most of the futures contracts are very liquid and have a large number of potential buyers and sellers in the market. • More liquid assets are less volatile, as you can find potential buyers very quickly if you are selling a futures contract; and potential sellers if you are buying a futures contract. • This is especially true for contracts that are near the expiration date.
3. Commission is Lower Compared to other Investments • When trading on the future market, brokers usually charge the lower commissions compared to the other markets. • You can open a trade paying just a $5 fee with some discount brokers. • It is especially important if you are a scalper or day trader who opens many trades in a relatively short time.