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When speaking to people about trading and investing today,
I still find that many people still think of futures speculating as
high risk wild west gun slinging and this could not be further from
the truth. The truth is, in many ways, these are the lowest risk
markets in the world and really do make the most sense for many people
looking to get involved in market speculation.
Teaching exactly what futures are and how to trade them is what we do
in our week long course which is beyond the scope of this piece.
Before needing to know that, however, it is important that you
understand the four main benefits of the futures markets so you know
what you are getting into. Here they are:
1) The Tax Break: There is a major tax break when you trade futures.
It is the 60/40 long term capital gains benefit which is much more
attractive than stock trading. This makes a big difference and is
something many people simply don't know.
2) Leverage: Futures offer incredible leverage. Many people think that
they need to get involved in options to attain big leverage. The
futures markets offer much more leverage than stocks or options do. If
you think this means high risk, think again. If you use protective
stops, these markets become some of the lowest risk markets in the
world because in the high volume/liquid futures markets, you are more
likely for your stop to get filled where you want than you are in
stock trading.
3) Futures are Low Risk: When trading stocks, each day we can find
stocks gapping double digit percentage points on the open. If it is a
gap in your favor that's great but if it is not, your trading or
investment account can be ruined. When trading the high volume/liquid
futures markets, gaps like this don't happen. While there is always
the risk that a major gap can happen in any market, can you imagine a
10% gap in the 30 Year Bond, the S&P, the 10 Year Note, and many
more?? There are some futures markets that don't have much volume and
gap sometimes but we don't trade those.
4) Non-Correlated Market Opportunity: For me, the most important
reason to get involved in the futures markets is the fact that these
are the only markets in the world that offer Non-Correlated
Opportunity. There are always small exceptions but for the most part,
most stocks simply move in the same direction as the S&P over time. It
is not common that you will be short one stock and long another and
both will make a profit. In futures, however, you can be long the S&P
futures, short Crude Oil futures, long the Yen futures, short the 10
Year Note futures, and all these positions can be very profitable at
the same time. Also, when you trade the futures, you have a global
opportunity at your fingertips. Some of the futures markets I trade in
Europe have much more volume than any of the markets here in the US.
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