Futures trading has some unique advantages over stock trading, mainly in terms of flexibility, risk management and efficiency of capital use. The following are the main advantages of futures trading:
1. Leverage effect, high capital utilization
Features:
Futures trading implements a margin system, and investors only need to pay a small part of the contract value (usually 5%~20%) to conduct large transactions.
Advantages:
Improve the efficiency of capital utilization and use less capital to leverage a larger transaction scale.
Suitable for investors with limited funds but high risk tolerance.
Example:
An investor has 1 million yuan in funds. If he participates in stock trading, he can only buy 1 million yuan of stocks at most. But in the futures market, through the margin system, it is possible to control contracts worth up to 5 million to 20 million yuan.
2. Two-way trading, both rising and falling can make profits
Features:
Futures allow investors to trade in both directions, and they can make profits by buying and opening a bullish position, or by selling and opening a bearish position.
Advantages:
There are still profit opportunities when the market falls, while stock trading can usually only make profits by buying first and then selling when the market rises.
Provide more trading strategies to adapt to different market conditions.
Example:
If investors expect the price of gold to fall, they can make profits by shorting gold futures in the futures market. When the stock market falls, ordinary investors can usually only passively hold or stop losses.
3. Risk management (hedging function)
Features:
Futures were originally designed to provide market participants with tools to hedge against price volatility risks.
Advantages:
Investors or companies can lock in future prices through the futures market and reduce the uncertainty caused by market price fluctuations.
Compared with stocks, futures are more suitable as a risk management tool.
Example:
An airline is worried about future oil price increases. It can lock in the current price by buying crude oil futures, thereby avoiding the risk of increased costs.
4. Low transaction fees
Features:
The fees for futures trading are mainly handling fees, which are charged per contract, and the fees are low and transparent.
Advantages:
Compared with the commissions, stamp duties and other fees that may be involved in stock trading, futures trading costs are lower.
For investors who trade frequently, futures have more cost advantages.
5. High liquidity (for mainstream futures products)
Features:
The mainstream futures products (such as crude oil, gold, and stock index futures) have active market transactions, high liquidity, and easy transactions.
Advantages:
Investors can quickly open or close positions, reducing the risk of blocked capital flows.
Especially in short-term speculation or rapid cashing, the futures market has more advantages.
6. High market transparency
Features:
Futures trading is conducted through centralized exchanges, prices are determined by public bidding transactions, and information is highly transparent.
Advantages:
Investors can obtain market prices in real time to avoid disadvantages caused by information asymmetry.
Compared with insider trading or non-public information that may affect stock prices in the stock market, the futures market is fairer.
7. More flexible trading hours
Features:
Some products in the futures market (such as foreign exchange futures and international crude oil futures) support 24-hour trading, and the domestic futures market also has night trading hours.
Advantages:
Investors can adjust their positions at any time according to global market dynamics to avoid the risk of emergencies.
Compared with the fixed trading hours of the stock market, futures trading is more convenient.
8. Diversification of underlying assets
Features:
The underlying assets of the futures market include commodities (such as gold, crude oil, agricultural products) and financial instruments (such as stock indexes, foreign exchange).
Advantages:
Provide diversified investment options, suitable for participants with different risk preferences and investment goals.
Investors can complete multiple asset allocations in one market.
9. High pricing efficiency
Features:
Futures market prices reflect expectations of the future trend of the underlying assets, so they are regarded as effective price discovery tools.
Advantages:
Investors can understand market expectations more accurately through the futures market.
For enterprises, futures prices provide a reference for actual production and procurement.
10. More arbitrage opportunities
Features:
There are many arbitrage strategies in the futures market, such as cross-period arbitrage, cross-market arbitrage, cross-product arbitrage, etc.
Advantages:
Investors can use price differences between different markets to conduct arbitrage transactions, thereby making profits under relatively low-risk conditions.
Such strategies are relatively rare in the stock market.
Summary:
Advantages of futures trading
Advantages Explanation
High capital utilization rate Leverage effect amplifies returns, using less capital to leverage large transactions.
Profits can be made in both ups and downs Two-way trading mechanism, there are profit opportunities in any market situation.
Risk management function Can hedge spot market risks and avoid the uncertainty caused by price fluctuations.
Low fees Low transaction costs, suitable for high-frequency traders.
Strong liquidity Mainstream futures products are actively traded and easy to buy and sell.
Flexible trading time Supports night trading and 24-hour trading of some products, which is convenient for adjusting positions.
Diversified targets Provide more investment products, such as commodities and financial instruments.
Transparent information Market prices are determined by open bidding, with high fairness.
Abundant arbitrage opportunities Provide cross-period, cross-product and cross-market arbitrage opportunities.
Suitable for people
Futures trading: suitable for investors with certain risk tolerance and professional knowledge, especially hedging risks, speculative profits and short-term traders.
Stock trading:
Suitable for investors with low risk appetite and pursuit of long-term stable returns.
Choosing a suitable trading method based on your risk preferences and investment goals is an important prerequisite for successful investment.
