The current futures marketplace offers many advantages to investors interested in preserving or increasing their wealth via capital investment in the financial system. Diverse asset-classes, high degrees of liquidity, limited fee structures and readily accessible markets have made futures a great way of diversifying an investment portfolio.
Is Investing in Futures Right For Me?
At first, taking the plunge into futures can be intimidating. Markets often move at near light speeds, with buyers and sellers using cutting-edge technologies as a means of surviving in the hypercompetitive atmosphere. Media-driven terms such as “flash crash” or “panic selling” further enhance skepticism among aspiring investors, often promoting uncertainty within the marketplace itself.
Some of the concerns surrounding futures investing are warranted. There is a risk factor present, and actively participating in the market is certainly not for everyone. However, through an intense scrutiny of your financial situation and the available resources, you can quantify the suitability of futures:
- Risk aversion: As stated above, futures investment involves a considerable degree of risk. Positions are typically executed implementing leverage, which may serve to enhance gains or magnify losses.
- Investment objectives: If your goals for an investment are guaranteed returns or constant periodic cash flows, other investment vehicles may be a better fit. The value of futures can fluctuate rapidly, producing robust yet inconsistent returns.
- Capital resources: Adequate risk capital is required to invest in futures. In order to have an acceptable probability of succeeding in the market, having enough capital to weather account drawdowns and satisfy margin requirements is 100 percent non-negotiable.
- Investment horizon: A key element of any investment is the investor’s time horizon. Short time horizons typically enhance risk of capital loss, while long time horizons give the investment strategy time to achieve its potential. In the event that an investment horizon is extraordinarily long or short, then other investments may be a better fit.
While it is true that futures products provide an abundance of opportunity, the performance of proper due diligence is a necessary undertaking for investors interested in entering the market. Given the proper mindset, resources, and guidance, the global futures markets may bring considerable value to any investment strategy.
Investing In Futures: Getting the Job Done
For most people, engaging the financial markets on a full-time basis is not a viable option. The scheduling constraints involved in working a 9 to 5 job and simultaneously investing in a self-directed capacity make achieving success in the marketplace improbable. This is where the biggest advantages to investing in futures lies: you don’t need huge quantities of time to participate in the market.
Several options are available to individuals interested in implementing a “hands-free” approach to the futures markets as part of their comprehensive investment plan:
- Managed futures: Managed futures are an efficient way of capitalizing upon opportunity in the marketplace. Seasoned industry professionals act on behalf of the investor, actively employing trading strategies developed from years of experience in various futures markets.
- Trade automation: Fully automated trading provides investors a means of attacking a wide variety of markets while implementing any number of specific strategies. Through the use of a computer-based trading module, transactions are conducted efficiently and automatically, without any need for manual intervention.
- Broker-assisted investing: Access to premium outlets for market-related support is a big part of staying on the lead lap in the futures industry. The market is always changing; being able to ask questions or modify a game plan simply by picking up the telephone or sending an email is an invaluable aspect of broker-assisted investing.
The hours needed for market study, decision-making and strategy development are extensive. However, through the commissioning of a dedicated full-service brokerage, the vast majority of the time quotient can be eliminated.
Selection of an experienced, committed, and trustworthy futures broker is a commonly overlooked part of satisfying one’s market related goals. Securing the services of a competent broker ensures access to the all-inclusive support and guidance necessary to profitably integrate futures into the investment portfolio.