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6 Benefits 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 worth it” and more than just showing you the potential earnings, I’m going to show you the benefits of trading futures.

But before we get started with discussing the benefits of trading futures, it’s important to understand that no matter what market you choose to trade in, developing your knowledge day trading fundamental principles and market movements will be vital knowledge that will stay with you no matter which market you want to trade.

But let’s get into the benefits of trading futures as well as some of the disadvantages so that you can make an informed decision for yourself on whether trading futures is worth it for you or not.

A Brief Overview of Futures Trading

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 get into details with the definition of futures trading or how it works, I 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.

Related Read: forward vs future contract

6 Benefits Of  Trading Futures: Is Futures Trading Worth It?
The main advantage that futures have over any other asset is that futures are amazing for managing and hedging risk.

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. This is another major advantage of futures trading of trading other assets.

5.Futures are “easier” for beginners

Talking about 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. Trading Futures Contracts is more Tax friendly

Yeah, futures are more tax-friendly, for example, profits from an 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)

6 Benefits Of  Trading Futures: Is Futures Trading Worth It?
Another of the benefits of futures trading is that they are more tax-friendly, for example, profits from an ETF are treated as capital gains.

Related Read: Day Trading Side Hustle – Doing It Successfully

Disadvantages of Futures Trading

Up to this point in this post we have focussed on the benefits of futures trading. But to give you a balanced overview I would also like to point out some of the disadvantages or cons of futures trading. This way you can get a better picture of futures trading when considering if futures trading is worth it.

1. Leverage and Margin Requirements

And the first disadvantage or ‘negative’ of futures trading are the margin requirements and leverage (which is also one of the benefits of futures trading oddly enough).  Futures contracts typically require traders to post margin, which is a percentage of the contract value, as collateral. 

While leverage allows traders to control larger positions with a smaller amount of capital, it also amplifies both gains and losses. High levels of leverage can magnify losses and increase the risk of margin calls, where traders are required to deposit additional funds to cover losses or face liquidation of their positions.

2. Complexity 

One of the benefits of futures trading discussed above is that it can be ‘easier’ to get into. That being said you still need to know about market movements, how to place orders and plan out your risk management as well as how to use leverage.

Futures trading can be complex and require a thorough understanding of market mechanics, trading strategies, and risk management techniques. Novice traders may find it challenging to navigate futures markets effectively and may incur losses due to lack of experience or knowledge. 

And as you probably already know, my main philosophy when it comes to day trading (including futures) is to simplify trading as much as possible including technical analysis and indicators as well as overall strategy in order to become a more consistent and also profitable trader.

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3. Costs and Fees 

I did discuss earlier that the fees and commissions can be lower when trading futures in comparison to stocks but there are still some costs and fees which if you are not prepared for can be a disadvantage for someone with limited capital. And these fees can eat into your profits. 

Futures trading involves various costs and fees, including brokerage commissions, exchange fees, and clearing fees. These costs can reduce trading profits and erode overall returns, especially for high-frequency traders or those trading in smaller size contracts. 

4. Market Volatility 

Volatility can also be a good thing for traders but much like leverage it can be a ‘double-edged sword’ which can also incur losses as much as it can also make for a profitable trading environment.

Futures markets can be highly volatile, with prices subject to rapid and significant fluctuations. Sudden price movements can result from various factors, including economic releases, geopolitical events, and changes in supply and demand dynamics. 

High volatility increases the risk of slippage, where trades are executed at prices different from the expected price, potentially leading to increased trading costs and unexpected losses.

benefits of futures trading
Futures contracts are traded everyday in huge amounts which makes them very liquid which is another of the benefits of futures trading.

So, are Futures Trading Worth It?

Yes, it is if you meet the requirements discussed below. And don’t worry these requirements really are not that difficult especially for a trader who sees the value in futures trading and has the determination to succeed in trading futures.

So, yes trading futures is definitely worth it if:

i) you can commit the time required to learn futures trading and conduct research as well monitor the markets and carefully plan out and execute trades with the correct risk management.

ii) you have good risk tolerance; futures trading involves inherent risks, including the risk of substantial losses and margin calls. So you should assess your own level of risk tolerance and determine whether you can withstand the potential volatility and drawdowns associated with futures trading. 

As I said the requirements above are not too hard for anyone getting started in trading and if you can commit the time required to learn and practice and have the correct risk tolerance then, futures trading is totally worth it.

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.

Recommended Read: day trading futures for a living

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