Should amateur investors try futures trading? – Q News from Costa Rica | Jewelry Dukan

Futures trading sounds complicated and intimidating to most new investors. But it’s actually a lot easier than most people think. In addition, futures training is a more dynamic and exciting way to invest.

There are of course some downsides. Increased volatility and the potential misfire of financial leverage could leave an amateur investor in a difficult financial position.

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So is it worth it? Should amateur investors try futures trading?

What are futures?

In case you are unfamiliar, futures trading refers to the buying and selling of futures contracts. Similar to options, futures contracts are a promise to buy or sell a specific amount of a specific asset at a specific time in the future. Unlike options, which can expire, futures contracts require a buyer and seller to fulfill their obligations at the time the contract is formed.

This framework aims to help people speculate on the future price of a given asset. If you think an asset will go up, you can turn that speculation into a bet that will allow you to buy the asset at a relatively low price in the future.

You can trade futures contracts on a variety of different types of assets, including commodities. Trading crypto futures is also possible, opening the door for cryptocurrency enthusiasts and forcing them to consider layers of new trading strategies.

Benefits of futures

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Why should a new investor consider futures trading?

  • speculative possibilities. If you have a prediction that a particular asset or currency will go up or down, you can finally monetize that speculation. If your bet is right, you could win big.
  • hedging options. Trading futures can also be used to hedge your bets and minimize the potential for losses. If you make a large investment in a particular asset, you can also trade a futures contract, which allows you to buy more of that asset at a different price in the future. It’s a convenient way to balance your portfolio.
  • gearing. Futures contracts allow you to take advantage of financial leverage, which means your potential gains are even greater. Because a futures contract is simply a promise to buy or sell assets in the future, you can (sort of) invest with money you don’t currently have.
  • Strategic flexibility. You can trade almost anything in futures and you can design your contracts in many different ways. Accordingly, futures trading has an incredible amount of strategic flexibility, making it a good potential addition to any portfolio.

Disadvantages of Futures

There are also some cons you should know about:

  • The disadvantages of financial leverage. Financial leverage gives you greater potential gains, but also greater potential losses. If you place a bad bet and face a margin call, it could hurt you.
  • Counterintuitive trading. Futures have additional layers of complexity that set them apart from stocks and other assets. Even if you have some experience trading stocks or similar assets, there is a learning curve to deal with.
  • Special knowledge required. Successful futures traders tend to be people with specialized knowledge of the area in which they trade. Trying to trade bitcoin futures without really understanding bitcoin basics could work against you.

How to reduce risk in futures trading

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If you want to mitigate the risks of futures trading, these are some of the best ways to do it:

  • Study first. Before you trade futures contracts, you should understand the basics of futures trading—as well as the basics of the commodity, currency, or asset in which you are interested. The more knowledge you have, the less likely you are to make a foolish or uninformed decision.
  • Start small. Don’t switch your entire portfolio to one futures trading platform. Instead, start small, with a minimal amount of money that you wouldn’t worry about losing.
  • Stick to a consistent strategy. In most cases, you should create an objective strategy and stick to it consistently. Don’t allow your emotions to manipulate your actions.
  • Don’t bet more than you can afford to lose. Finally, remember that futures trading is a sophisticated way of placing a speculative bet. Just like in the gambling world, you should never bet more than you can afford to lose.

The final result

So what’s the bottom line here? Should amateur investors trade futures?

Futures are more complicated and, in some ways, riskier than trading other types of assets. But that doesn’t mean they’re inaccessible or that newcomers should steer clear of them. It simply means doing your due diligence, being proactive about the potential risks and opportunities, and employing strategies that offer some level of protection to your portfolio.

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