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6 Advantages Of Trading Futures: Is Futures Trading Worth It?

One of the most common questions I always get from people who are interested in starting their trading journey is “Is Futures Trading Worth it?” I mean, the obvious answer is yes. But what most people don’t answer is “why it’s?” and despite just showing you an earning, I’m going to show you the advantage of trading futures.

Futures are simply a derivation of financial assets, they are mostly used to gain exposure to some financial instruments. The main advantage that futures have over any other asset is that futures are amazing for managing and hedging risk. Most traders are into futures mainly because of their desire to reduce risk.

I’m not going to go over the definition of futures trading or how it works, already have written about it many times. Futures contracts are structured in a different way and this gives some advantages, like versatility and the opportunity for new traders. While trading futures can give a lot of opportunities to manage risk, they have a lot more benefits over traditional stocks and forex. I talk more about some of the most popular futures Trading Strategies here.

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adventage of trading futures

Advantages Of Trading Futures

Despite what I have already told you, there are a lot of benefits of trading futures. And these include longer trading hours, lower trading costs, and better leverage.

  1. Futures Market are more liquid. Since futures are traded in contract and in huge, HUGE amounts every day, makes them more liquid. This represents less fluctuation in the chart, beginner traders may have more chance to react while trading.
  2. Futures are better for diversification and hedging. As I said before, futures are really great for managing risk. For example, we all know how risky forex is, and the companies involved with it use futures to manage and hedge that risk. And are good for diversifying a portfolio.
  3. Short Selling is a lot easier. First of all it’s completely legal. You can get a short exposure on a stock by selling a futures contract.
  4. Commissions are LOW. Usually, the commission on futures is lower than traditional stock and other assets, and they are charged after the position is closed.
  5. Futures are “easier” for beginners. Talking bout the liquidity, and the way futures prices fluctuated fewer makes them a good option to start trading and making money. Traders have more chances to react.
  6. Tax friendly. Yeah, futures are more tax-friendly, for example, profits from ETF are treated as capital gains. Futures fall under Section 1256 of the tax code. Another possible advantage is that they are easier to fill, you don’t have to provide a list of all the trades you made through the year (in many cases)

Related Read: Day Trading Side Hustle – Doing It Successfully

So, are Futures Trading Worth It?

Yes, it is

If you’re a traditional stock trader, you may think of a futures contract as something esoteric. Many trader thinks the contract rollover is complicated. But the opportunity they can offer is huge and no one should ignore this. Probably the most attractive advantage, futures trading can offer to a casual investor is the opportunity to manage and hedge risk. On the other hand, the most attractive advantage for new investors is the price futures can have and the liquidity. Besides the lower commission.

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