Benefits and Disadvantages 

Benefits 

 

The most important advantages of futures trading are:

 

 

High leverage

Futures contracts are highly leveraged financial instruments. Traders have the possibility to enter the market with a fairly small investment (margin) and end up with large profits. As always though, the coin has two sides. A trader can either generate large profits but if the predictions turn out to be wrong, then he will end up with large losses. However, the reason that futures trading are tempting for traders is that it provides the opportunity to receive excellent return.

 

 

Low commission charges

The commission charges by brokers for futures trading are fairly low and only when the trader closes his/her position the commission is paid. The commission charges differ depending on the services offered by the broker, which range from as low as $5 up to $200.

 

 

 

Disadvantages

 

The greatest disadvantage when trading of futures margin is that losses must be completed on a daily basis. If at the end of each day the trader manages to hold his position open without running out of margin, then he will generate profit. On the other hand though, if the margin runs low, the position will be lost and the trader will be asked to top-up the margin in his account.