By Cedric Welsch
Future market trading is just like any type of stock trading. By diligently analyzing the market, investors predict that the price of a certain stock will rise by a certain amount. Therefore, by instinct they would like to buy as many units of the stock so that when its value rises, they would turn in a profit. In a perfect world, the fearless forecast wins and everybody is happy. However, there is no crystal ball to predict the rising and falling of stock value. If the opposite happens, they obviously lose a substantial part of their investment and that is that. As investors, they roll with the punches and stop for the day.
Fortunately, there is an easy way, and this is where future market trading comes in. This presents an opportunity for investors to minimize their possible loses by buying only a token value of the stocks, which is called, exercising an option. That way, their financial exposure is minimized. At the same time, it gives them a so-called advantage because by paying only a small amount per stock, which amounts to a token value, they control more units. In ordinary parlance, the simplest representation of a lever is a block of wood or chisel that a construction worker would position under a heavy rock. By turning the block, he or she finds an easy way to move the rock from one point to the other, until it gets to where it is supposed to be.
So too with leveraging a futures trade, the investor ends up with more units under his or her control and bidding. This is the primary reason why some people prefer future market trading. It is like taking hold of the TV remote in one’s living room. However, even a caveman can leverage. What is more difficult is to analyze stock trends. Obviously, this takes a lot of time, effort, and intellect. Nevertheless, like most anybody on a learning curve, there eventually comes a time when the person becomes a master of the game. Still, it is important not to become complacent or over confident when that moment arrives. In addition, the learning curve is relatively not as stiff because the individual is dealing with short-term stock behavior. Some may look at the expiry date on every option like a ticking time bomb, but market players who make use of their time wisely might actually find this Godsend.
Just as anywhere else, everyone should be careful with borrowing, which in this world is referred to as buying on margin. It is just as easy to get addicted to the use of credit cards as to borrow money from the stockbroker. Luckily, there are controls or regulations in place. Typically, investors can only borrow up to fifty percent of their total exposure. Future market trading owing to its unique attributes may look relatively simpler, but this is easier said than done.
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