In the world of investing, there are numerous ways to generate profits. Although every strategy has its own set of pros and cons, trading that involves futures continues to be a popular option for investors today. As a result, the futures market has grown to become even larger and more accessible than ever before. So here are the reasons why this type of trading is so popular today.
Negotiated Price Transparency
When you purchase an asset or stock, you are buying it at a set price. If you see an asset’s price drop, it may be difficult to get a discount on the purchase price, or may even be impossible. Futures trading is different because the prices are open for negotiation. You’ll likely be able to negotiate a much lower price than the current price of the asset.
Most futures contracts have a minimum price that will be guaranteed by the exchange. This price transparency makes futures trading an attractive option because you can purchase an asset at a price that fits your budget.
Leverage May Help Boost Returns
When you make an investment, you put a certain amount of money into it. Futures trading lets you borrow money from a broker and use it to purchase more shares in the company.When you’re leveraging your trades, you’re essentially increasing the amount of money you’re putting towards the investment. While this can help boost returns, it can also lead to greater losses if the price of the asset drops.
Liquidity and Global Markets
When you buy or sell an asset, the trade may not go through right away. It may take some time to find a buyer or seller at the current price. The delay between the transaction and the execution is known as liquidity. Assets with high liquidity are easy to buy and sell, whereas assets with low liquidity may take longer to execute a sale.
The liquidity of an asset can have an impact on your profits or losses. It can also have an impact on the price you pay for an asset. If the asset you are trying to buy has low liquidity, you may have to pay a higher price because there are fewer sellers.
Electronic Trading Platforms
Many modern trading platforms have been designed with ease of use and accessibility in mind. In the past, platforms with this kind of trading were designed with experienced traders in mind.
As this kind of trading has become more accessible to beginners, online trading platforms have also become more user-friendly. Today, you can find trading platforms that offer a variety of modern features, such as live streaming of market data, built-in charting tools, and social trading capabilities.
Company Reputation
Lastly, futures exchanges require each company to post a certain amount of money to guarantee the futures contract. In the event that the company defaults on the futures contract, the exchange will use the funds to pay the trader.
However, exchanges also conduct research to determine the financial strength of the broker. Buying from a reputable company with a strong reputation for safety can help eliminate some of the risks associated with this kind of trading.