Many investors use canada futures trading to protect their investments against price fluctuations. Hedge funds and large corporations often use this method to manage the price risk associated with particular commodities. For example, purchasing a futures contract on oil is more cost-efficient than buying every individual stock. Investing in futures can also help you diversify your portfolio, as you can invest in many different markets at once. Here are five reasons why traders use futures:
Leverage: Futures allow for high leverage, which makes them much more appealing to traders than other investments. In the above example, a trader would bet Rs.1.5 lakh on the share price of Reliance. The leverage he would receive would be more than three times greater than his capital, and the risk involved is much lower. Further, futures do not exhibit time decay, so he or she may be able to profit from trades sooner than with stocks.
Profitability: The high leverage of futures contracts makes them highly volatile, and prices may drop or rise significantly. This can happen daily or even within minutes. In addition, futures contracts have an expiration date, and the contracted prices may become less attractive as the date approaches. If the market begins to fall, the trader must give delivery. Thus, even if the price goes up, the entire position can become worthless. In addition to the potential risks, futures trading requires a high level of capital to become profitable.
Traders should not trade too much in a single market. Rather, they should focus on several different markets. Diversification, as with stocks, can help you offset losses and increase your chances of success. But it’s important to note that diversification is not a good idea for every investor. For example, an investor could lose money if the value of his stock falls by 5% while trading in futures. Therefore, he should focus on a few markets before choosing a specific market to invest in.
Trading futures for the first time can expose you to significant risk. The fact that the market is unpredictable and that you run the risk of missing out on a favourable price movement is the primary drawback of using this method. Before making any investments in futures, traders should educate themselves as much as they can about the futures trading market. The process is also significantly simpler when compared to the complexities of other types of investing. In addition, the initial investment required to begin trading futures is relatively low. Futures trading is easier to get into than trading stocks because there are fewer requirements to get started.
Traders should only focus on one or two markets in their portfolios and should try to avoid taking on too many contracts all at once. The majority of traders will find that monitoring a few markets requires little effort on their part. However, in order to be successful, futures trading requires a significant investment of time and effort.
You need to gain an understanding of how the markets are trending by devoting some of your time to reading market commentary and charting. In addition, you should always be aware of the latest news and events, as these can have an impact on the choices you make when trading.