Pros & Cons of Future Trading
Pros
- Futures can be used to speculate the price direction of the underlying asset.
- Big companies can prevaricate on the price of the raw materials to save themselves from high price movement.
- Only a fraction of leverage is required to enter into a futures contract.
Cons
- There’s a risk of losing the leverage if the price doesn’t move as per the requirement of the trader.
- Future contracts may cause a company to miss on the positive opportunities on price movement.
- Futures can double the profits but so are the losses.
How to work with Futures?
To work with futures, a high amount of leverage is required which means that the trader has to pay a certain fraction of the price initially and the rest is settled at the expiration of the contract on a future date. Depending upon the Future contract size, creditworthiness of the trader, and broker’s terms and conditions, the amount of initial leverage can vary. Moreover, at the expiration of the contract, the asset is required to be settled either with physical delivery or cash-settled.