It is often said that it’s not what you trade, but how you trade that determines investor success. Discipline, risk control, and money management are often more important than the choice of stock, currency, option, or futures vehicles. Trading without a methodical plan is just a gamble…
Once the how to trade issues are perfected with entry and exit parameters, and both profit and loss management, the big money traders focus on futures over stocks for a few reasons…
- Access and Availability – Futures markets trade nearly 24 hours a day from Sunday night to the Friday close. Opportunities arise day and night from global forces that impact our interconnected financial markets.
- Liquidity – Many futures contracts have tight bid/ask spreads that lower actual trading costs. The deep pools of buyers and sellers can make entry and exit seamless.
- Risk Control – Priority number one for professional traders is controlling risk. A plan is in place for all contingencies with exit strategies at certain dollar or percentage amounts to live for another day. Futures markets trade extended hours so the trading plan can be more efficiently executed.
- Transparency – With most futures contracts now electronically traded the data is displayed for all to see. Consolidated markets bring together all of the buyers and sellers for price discovery into one tape.
- Leverage – Probably the biggest benefit of trading futures is the significant leverage. Only a small deposit of 5-10% of the contract cash value is required in futures markets. This leverage feature produces profits and losses sometimes very quickly requiring extreme discipline.
Futures contracts are used by smart money investors to maximize returns. Those with extreme confidence in predicting market moves leverage up the bet to get the best payoff.
