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5 Advantages of Trading Futures

October 15, 2018 by Daniels Trading| Futures 101

In comparison to other securities, futures exhibit many characteristics that offer traders unique opportunities. Whether you’re an intraday, day, or swing trader, these markets are attractive venues for the pursuit of nearly any financial goal. Unless you’re a traditional “buy-and-hold” investor, there are several key advantages of trading futures that make them especially alluring. The five primary advantages are:

  • Flexibility
  • Diversity
  • Beneficial market conditions
  • Cost effective
  • Low barriers to entry

In the financial arena, spotting opportunity is the name of the game. Futures facilitate a wealth of trade-related functions, from capital preservation to active speculation.
Learn 21 futures and options trading strategies in this complimentary, easy-to-read guide. Download Now >>

Flexibility and Diversity

The futures markets furnish traders with the ability to engage a wide variety of asset classes using almost any methodology. The flexibility of strategy application and the diversity of product offerings are two of the most prominent advantages of trading futures.

The flexibility of trading options is especially attractive to active traders. A trader isn’t limited to securing profits from long positions alone — profiting from bear markets is equally viable. Being able to secure marketshare from both long and short positions is a major bonus that’s not readily available in the conventional stock or bond markets. In addition to the freedom to buy or sell, the availability of enhanced leverage gives less capitalized traders a chance to increase their market exposure.

Another of the many advantages of trading futures is the diversity of product offerings. Standardized contracts are available facing a broad spectrum of asset classes. Ag commodities, energies, metals, equities indices, and interest rate markets are all accessible. No matter your preferred asset, an associated futures contract stands ready for trade.

Beneficial Market Conditions

Posting sustainable gains in subpar market conditions can present a monumental challenge to active traders. Extended periods of slow price action, low traded volumes, or market turbulence often prove detrimental to the bottom line. Fortunately, futures markets regularly supply two components critical to successful active trade:

  • Liquidity: A robust depth-of-market ensures that orders are filled efficiently, minimizing slippage and aiding in market entry/exit.
  • Volatility: Consistent fluctuations in contract pricing provide regular trading opportunities and the ability to realize profit from discrepancies.

Simply put, an ideal target for active trading consistently exhibits volatility and a high degree of liquidity. When paired together, these two characteristics are fantastic advantages of trading futures.

Cost Effective

Running a successful business boils down to taking in more money than is going out. Profitability equals total revenue minus the cost of sustaining operations. For active traders, expenses are broken down into two categories: capital loss and sunk costs.

In the trade of futures, capital losses are certain to occur and must be dealt with proactively via the principles of money management. However, sunk costs are relatively mild in comparison to other forms of capital investiture. The three costs that futures traders must account for are:

  • Data fees
  • Exchange/clearing fees
  • Brokerage commissions

The beauty of the futures cost structure is that aside from monthly fees to stream exchange-based data, the other duties are paid on a per-trade basis. Exchange, clearing, and brokerage fees are automatically calculated and assigned. In most cases, they represent only a minute portion of the final position size. This is very different from ETF or standard mutual fund costs, which add on significant management and transaction fees.

Low Barriers to Entry

Perhaps the biggest upside of the futures markets are their low barriers to entry. Really, all a trader needs to participate is some risk capital, internet connectivity, and the services of a reputable brokerage firm.

The evolution of information systems and internet technologies has brought the capital markets online to the masses. No longer does a trader need to be a high-net worth investor or exchange seat owner to participate. With a few thousand dollars, computing power, internet connectivity, and a desire to succeed, anyone can join the ranks of active futures traders.

Capitalizing on the Advantages of Trading Futures

While becoming involved in the futures markets is straightforward, you need to take some care before committing your time and capital.

Securing the services of a competent, experienced, and knowledgeable broker is a great first step on your road to becoming a profitable futures trader. For more information on how futures can work for you, contact the team at Daniels Trading to schedule a free consultation.
Ready to think like a technical trader? Download our free guide to learn how to identify chart formations and take action when the time is right.

Filed Under: Futures 101

About Daniels Trading

Daniels Trading is an independent futures brokerage firm located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading is built on a culture of trust committed to the firm’s mission of Independence, Objectivity and Reliability.

Risk Disclosure

THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.

THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.

TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.

YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.

GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.

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Risk Disclosure

THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.

THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.

TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.

YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.

GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.

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