Futures trading can seem to be an appealing investment option for many traders who seek other ways to grow profits and accumulate wealth.
However, many traders have also lost a lot of money over futures trading. The primary disadvantage is quite obvious. The trader generally has limited control over the many factors that affect the futures of such contracts Forex Trading Market Hours.
In this article, we will discuss the things that make it difficult for traders to make a lucrative amount of money through futures contracts.
Popular futures choices
Crops are among the most popular futures contract choices. Corn, wheat, and soybeans are among the most common choices for contracts, along with orange and orange juice. Natural resource futures, like natural gas, oil, gasoline, and coal, are also popular.
Foreign currency trading has significantly grown in popularity during the new millennium. You could even invest in various interest rates, with the view to see these rates climb in the future Open Live Trading Account.
Controlling future events
The overriding danger of futures trading is the lack of control over future events. For instance, you’ve invested in orange juice futures. However, Florida suffers a drastic freeze, killing off half of the orange crop.
While supply and demand theory suggests that the price will increase, the scarcity or lack of supply can also result to heavy losses. Weather disasters or calamities, which you have no control over, can wipe out all types of crops.
You face similar risks with foreign currency futures, as a plethora of factors, all outside of your control, such as political issues or country borrowing defaults, could lower a country’s currency.
Complex issues for newbie investors
Apart from the risks of uncontrollable future events, added risks come with the complexity of futures contracts. Traders who do not fully understand these complexities can lose substantial money.
You must decide if you have the time and inclination to follow national and international weather, political and financial conditions on a regular schedule. New investors must also find seasoned and reputable professionals registered with the Commodity Future Trading Commission, as normally licensed stock brokers cannot trade futures contracts.
The leverage provided by futures contracts is both an advantage and disadvantage.
The advantage is that you can buy futures contract for only 5 percent or 10 percent of a contract’s value. The downside is that it involves the sometimes fast movement of futures prices.
Contract prices can tick up or down on a daily basis, sometimes even within minutes. If you stumble upon some rock of bad luck, you will receive a margin call one day from your broker telling you that your margin account has depleted below minimum levels, compelling you to transfer more cash to your account right off the bat.
Futures contracts come with definite expiration dates. Even if you have established predetermined prices for the assets is the contract, as the expiration date approaches, the prices can become much less attractive to others. At times, this condition can result to futures contracts expiring as worthless investments.