Why Trade Futures? Facts on Futures Series: Mon Jan 20, 2025

You can watch the video and/or review the article below.

Most traders start with Forex, due to the lower cost of entry, or individual stocks whether directly or through options. I can’t tell you how many traders I speak to though who deep down want to be able to actively trade futures. And it’s possible!

Facts on Futures Series Part 2: Why Trade Futures

Whether you’re brand new or been trading them for awhile, I want to make sure you know the key facts about futures. So Why Trade Futures? Here are eight great reasons!

1. 24/6 Access

Futures have 24 hour a day access, nearly six days a week. You can act on them outside of non U. S. hours. So this is helpful for our Australian traders, UK, and anywhere around the globe.

And it doesn’t mean that you have to stay glued to your screen! Don’t equate constant availability and open access of a market to the idea of “well, I need to sit there and trade every opportunity.” Not at all.

It’s just knowing that depending on your work schedule, maybe you’re a West coast trader and you’ve got to get up early to trade, or maybe like I said, you’re out in Australia or somewhere where you want to trade in your afternoon, which is the middle of the night here in the States. This gives you that opportunity.  

2. Deep Liquidity

This is one of the most important reasons. The greater the liquidity, the greater the chance of the trade being completed. And that’s important because you want that fast action.  

3. Leverage

You have the ability to control a large contract value with low capital.  For example, the ES, this stands for the E mini S& P 500 futures. This is the most liquid, most traded futures market on the planet!

And it allows you to trade the movement of the S& P 500, which is the collection of the 500-ish largest stocks in the U. S., basically the largest stocks in the world. And you can do this with greater capital efficiency. 

Now you always want to use a greater risk management plan when you trade. Just because you have leverage and you can trade a larger portion and have more control with a small amount of money doesn’t mean you should go crazy. 

Because there’s these things called margins you have to be careful of meaning. There’s a certain amount of money required in your account to be able to trade one contract of any specific future. All that information is specific to each exchange.

4. Ease of Going Short

This is something I hear about from our stocks traders that, either they’re scared to go short because they don’t think the trade will get filled, or they’ll have a lot of slippage.

Taking a short position is just as easy as a long position on most heavily traded futures contracts, and day trading restrictions don’t apply to those shorts the way they do to other markets. Now again, always check with your specific brokerage, your account, and for the futures you are trading. 

5. Efficiency

Because there’s a tight bid offer spread, this can lower costs associated with getting into and out of position. So again, reduces the slippage, There’s less time delay. And generally, futures have better commission rates.

6. Diversification

Futures can help you during times of market volatility. They can be traded directly as your main instrument, or they can be used as a hedge, to protect against sector exposure. 

So if you are a stock trader or you are trading ETFs based on particular sectors, perhaps technology or smaller ETF, like microprocessors, right? In this day and age of AI, these are the stocks like Nvidia, that are leading the market.  If there’s any sort of uncertainty or volatility, you can use futures to help protect your positions.  

7. No Management Fees & 8. Tax advantages

These last 2 get specific back to your particular exchange, brokerage, rules. So always, always do your due diligence and check with those resources.

Now that we’ve gotten more clear on why to even consider trading futures, I’ll be back diving deeper into the S&P 500 futures and it’s futures trading opportunities, stay tuned!