Summary:
Futures offer the opportunity to immediately benefit from price fluctuations in a range of markets or to protect existing positions. Due to these and other factors, stock futures are far superior to simply buying or selling stocks. The main arguments are listed in the article and mentioned in detail.
Futures trading provides a chance to quickly profit from price changes in a variety of markets or to safeguard current positions. Because of these and other variables, stock futures have significant advantages over just purchasing or selling equities. Here are the top justifications.
Lower Capital Needed
Futures can be a fantastic option if you have little money to invest or if you just don't want to put up as much money. You must add a small portion of the tradeable value because futures are leveraged.
Leverage
If you choose the right time to place your trade, leverage is one of the main reasons investing in futures is preferable to buying stocks. Your returns can be significantly increased because futures may only require 5% to 10% collateral.
Keep the Risk in Mind
Leverage, of course, works both ways. You may lose much more money if your position changes against you than if you bought a stock. It's possible to lose more money with a futures contract than you initially invested.
Every day, futures holdings are "marked to market", and the gain or loss is applied to or deducted from your account. However, in most circumstances, buying a stock will need you to invest more money into the position than receiving a margin call for a futures position.
Liquidity
Markets for futures are very liquid. In addition to almost quick trade execution, futures markets are almost always open. The futures markets are open almost constantly, unlike the stock market, which is only open from 9:30 a.m. to 4:00 p.m. EST.
This implies that stock traders must wait until the next morning to act upon news that could impact the market. Contrarily, those who trade futures typically have quick access to the market. One of the main benefits of trading futures versus trading equities is this.
Market That Is More Effective Than Stocks
The average trader will never have access to inside knowledge on the stock market, at least not promptly. However, the only available information in the futures market is price. Every futures trader simultaneously observes the identical price movement in the market, giving everyone the freedom to choose their course of action. And also, the futures brokerage costs are less and sometimes zero compared to stock.
Futures: Superior to Stocks?
If you're willing to take the risk, futures trading can provide much larger returns than stocks, but they can also result in sizable losses. If you're interested in trading futures, you might want to first speak with a financial advisor to understand the risks and benefits and determine whether they align with your objectives.
