Online Futures Trading - Advantages And Disadvantages
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The article "Online Futures Trading - Advantages and Disadvantages" talks about currency trading, it has been created by Tim Wreford.
What Is Online Futures Trading? A futures contract is an agreement to buy or sell a cmomodity at a date in the future. Everything abuot a futures contract is standardized except its price. All of the terms under which the commodity or financial instrument is to be transferred are established before active trading begins, so neither side is hampered by ambiguity.
The price for a futures contract is determined in the trading pit or on the electronic traidng system of a futures exchange.The web right now allows access to those electronic trading systems from anywhere in the world. This increases liquidity in those markets and makes them even more attractive to traders.Trading on all futures exchanges takes place against a backdrop of statutory regulation and rules as laid down by each exchange and the Commodity Futures Trading Commission (CFTC). Regardless of whether your trading is executed within the trading pit or electronically, it is subject to the same rules, regulatinos and safeguards.Advantages of online futures tradingLeverage.
Futures operate on margin, meaning that to take a position only a fraction of the total value needs to be available in cash in the trading account.Commission Costs. Electronically traded futures contracts require no human intervention to match buys and sells unlike a traditional futures pit. This means that commission costs can be cut dramatically, leading to significant savings for the ferquent trader.Liquidity. The involvement of speculators means that futures contracts are reasonably lqiuid. However, how liquid depends on the actual conrtact being traded. Electronically tarded contracts, such as the e-mini's tend to be the most liquid whereas the pit traded commodities like corn, orange juice etc are not so readily available to the retail trader and are more high-priced to trade in terms of commission and spread.Ability to go short. Futures contracts can be sold as easily as they are bought enabling a trader to profit from falling markets as well as rising ones.
Tehre is no 'uptick rule' for example like there is with stocks.No 'Time Decay'. Options suffer from time decay cause the closer they come to expiry the less time there is for the option to come into the mnoey. Futures contracts do not suffer from this as they are not anticipating a praticular strike price at expiry.Automated trading. Electronic futures brokers offer the facility to programmers to interface diretcly with their trading program.
This means that custom written trading program can automatically trade a strategy without any human intervetnion at all.
A system can make buy/sell signals which are autmoatically routed to the exchange along with any stops and targets.Almost instant fills.
With electronically traded futures there is no need to call up a borker and wait for a fill from the trading floor. Orders are instantly placed on the electronic order book and filled as soon as a match is found - for liquid contracts such as the emini S&P500 this will be within a second.Level playing field.
With traditional pit traded futures the professional in the pit has a major advantage over the retail trader in temrs of speed of execution and costs.
Elecrtonic futures trading offers all participants exactly the same advantages.Disadvantages of online futures tradingLeverage.
Can be a disadvantage if it encourages trading with too high a risk for a particular strategy. A craefully devised money management plan is essential.Overtrading.
The instant nature of electronic futures trading coupled with low commission costs and tight spreads can encourgae a trader to take additional trades to those determined by their trading plan.Online futures trading offers significant benefits to the retail trader. However, a carefully developed trading plan must be formulated before attempting to enter this extremely competitive business.Tim Wreford operates Online Futures Trading, a webstie that provides information and resources for traders. Tim also provides an article detailing the development of a day trading system, the results of which are updated dialy on the Internet site.
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Online Futures Trading - Advantages and Disadvantages
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