Why to invest in futures?
Trading in futures is something that many people often are weary of. The general understanding is that futures contracts are high risk and best stayed away from. It is often perceived to be akin to gambling and viewed critically.
While it is true that futures do involve a certain amount of risk, but at the same time there are also some great benefits of investing in them.
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Homework needs to be done
Even with the great benefits in futures contracts, one cannot simply make random dealings in them. Proper calculations, research, analysis along with management of funds is required. This would end giving out high profits.
It is also used by companies to perform what is known as ‘hedging’ which means managing the price risk.
Here are a few top reasons why investing in futures contracts is a good idea:
Low value Leverage
When investing in futures contract a person is not expected to enter a contract with complete value. Even if you deposit a margin of about 5-10% of the total value of the contract, you are still good to go.
And so you are able to trade in larger quantities of commodities with the leverage that futures contracts provide.
Since a person enters into a futures contract with just a marginal sum, when the contract turns in your favour the returns are many fold the amount of money invested. This is one of its best and unique features. As you can invest marginally in many futures contracts and gain huge benefits.
On Paper Investment
Though the futures contracts deal with wheat, corn and other such commodities, one almost never actually deals in them. This means most of the dealing is paper work. And so the worry of actually arranging of commodities or changing hands of commodities.
Investing in futures contracts is considered to be an easily liquefiable trade. Since there are many futures trades that take place on a daily basis, it is quite easy to buy or sell these futures contracts. In case one is in need of capital and needs to liquefy the order, it is easily possible. So the exchange of funds is quite easy.
Profits either ways
Investing in futures is considered a win-win situation. As it is possible to invest in them for a long term as well as short term. So if the market is bullish one can hold onto them for long term and invest for short term in a bearish market.
Because the futures market is highly volatile, it is possible to get fast returns as well. Getting returns in long term is also very much possible.