Why is futures trading helpful to UK investors?
Futures trading involves buying or selling contracts for future delivery of a commodity, security or currency. It can speculate on price movements or hedge against price risks in the underlying asset. UK investors often use futures to speculate on the price of commodities such as oil, gold or coffee. They can also use futures to hedge against price risks in their portfolios, for example, by taking a short position in a commodity future if they are worried about falling prices.Visit this site to start investing in futures today.
It provides exposure to new markets and asset classes
Futures contracts are available on various assets, including commodities, energies, precious metals, stock indices and currencies. UK investors can use futures to gain exposure to new markets and asset classes they may not have access to through traditional investing channels.
It allows investors to take advantage of price movements
Investors can speculate on whether the underlying asset price will rise or fall by taking a long or short position in a futures contract. It can allow investors to make profits from price movements that would not be possible through traditional investing.
It helps investors manage risk
Futures contracts are a derivative, meaning their price is derived from the underlying asset price. Futures prices can be more volatile than the underlying asset, which traders can use to their advantage. By carefully managing their risk, investors can use futures to protect their portfolios from market volatility.
It provides leverage
Futures contracts are usually traded with leverage; therefore, investors can control a considerable contract value with a relatively small amount of capital. It can magnify profits and losses, so it is important to use leverage carefully.
It is a liquid market
The futures market is one of the most liquid markets in the world, with millions of contracts traded daily. Therefore, investors can quickly enter and exit positions, and someone is always willing to take the other side of a trade.
It is a regulated market
The futures market is highly regulated, which provides more excellent protection for investors than some other types of investing. For example, all futures contracts are centrally cleared, which means that counterparty risk is reduced.
It has low transaction costs
The vast majority of futures contracts are traded electronically, which reduces transaction costs. In addition, the high liquidity of the futures market means that spreads are typically very low.
It is a flexible market
Investors can customise futures contracts to meet their specific needs. For example, investors can choose the contract size, expiration date and delivery method to suit their requirements.
It is a global market
The futures market is a global market, with contracts traded worldwide. Therefore, UK investors can take advantage of price movements in different markets and benefit from the 24-hour trading day.
It is a mature market
The futures market has been in existence for over 100 years and is, therefore, a mature market with a long history of price data. It gives investors a good understanding of how prices have moved in the past, which can be used to make informed investment decisions.
Risks of investing in futures
Volatility
As futures contracts are a type of derivative, their prices can be more volatile than the underlying asset. Investors can lose money quickly if they don’t manage their risks appropriately.
Counterparty risk
When investors buy a futures contract, they enter into a contract with another party. If this party defaults on the contract, the investor may not receive the total value of their investment. To reduce this risk, you must trade with a reputable counterparty.
Regulatory risk
The futures market is highly regulated, which provides more excellent protection for investors than some other types of investing. However, regulatory changes can occasionally occur, which may adversely affect investors.
Market risk
The futures market is global, meaning that events can affect prices worldwide. It can make it difficult to predict price movements, and investors may incur losses if they don’t manage their risks appropriately.
