3 Reasons Beginner Traders Should Choose Futures Over Stocks
The journey to becoming a successful trader in can seem overwhelming to beginners. They have to make a decision as to which platforms to use, which securities to trade, and which strategies to use. Furthermore, they also need to familiarize themselves with all the terms and tools that are necessary in order to effectively participate in a given trading market.
The good news for beginners is that not all forms of trading options in Singapore feature the same degree of complexities. This is because simple-to-understand trading alternatives like futures trading are available to beginners. In fact, opting for futures trading is so beginner-friendly that it makes sense to choose it over stock trading. The following are some of the reasons why you should definitely consider starting your trading journey on the futures market.
Understanding futures and how they work is easier
A lot of things usually go into affecting a company’s stock price. Sometimes, knowing exactly what will affect it, and getting access to relevant information — that is sometimes confidential — can be a challenge for newbies. To complicate matters, experts and insiders have access to some of the information that beginners don’t, something that puts most beginners at a competitive disadvantage.
The question as to “what are futures in trading?” is easier to answer. Since future contracts are simply contracts that are to be executed at a future date and which have an agreed price and an agreed date, futures trading is simply the act of exchanging these contracts. For example, one can agree to buy a given amount of oil for a certain price and at an agreed future date. That is a future contract, and that person can choose to trade that contract away to another person.
Getting information as to what affects a futures contract is relatively easier for beginners. Gaining access to this information is also less susceptible to unfair advantages since factors that affect futures pricing, like weather, tend to fall out of the control of human beings. Therefore, it offers a fairer playing ground for beginners both in terms of simplicity and access to crucial data and information.
High leverage opportunities
If you choose to trade in stocks, then you can only buy what you can afford. This means that if you need to deposit money that is enough to cover the total cost of the stocks. Since most beginners do not have large capital outlays, this usually limits the amount of money that a beginner can make in the stock market.
When it comes to trading in futures, you don’t have to put up the whole amount in order to hold a position. All you need to put in a small fraction of the total contract value. Therefore, you have a greater opportunity to make extraordinary profits in case the market moves in your favor. As a result, it offers the perfect opportunity for success for investors with a limited capital outlay. This is an advantage that you will not enjoy if you choose to trade in stocks.
Low execution costs and commission rates
One of the things that eat into a beginner’s earnings is execution costs and commissions. These costs tend to build up really fast, and for people who don’t have a lot of money in the market, they can end up erasing all the gains made. Therefore, the advantage that one can get in terms of lower commission rates and execution costs can be the difference between a successful trader and one who never makes it.
Generally, most trading platforms tend to have lower rates and costs for futures. As a result, when compared to stocks, futures tend to be more friendly to beginners. They also offer better odds for success since lower fees normally minimize the risks of drowning in trading costs.
Therefore, if you are a beginner who is looking for a way to make a significant profit in the market, or are simply looking for a convenient way to hedge or diversify your investments, you should definitely opt for trading in the futures market.
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