Advantages of Futures
Leverage
In order to establish an equity position in a margin account, you must pay 50% or more of the account’s whole value. The needed initial margin amount for futures is normally set at 3-10% of the underlying contract value. This leverage allows you to earn higher returns in relation to the amount of money you put in, but it also puts you at danger of losing more than you put in.
Diversification
Futures can help you diversify your portfolio in ways that equities and ETFs can’t. They can provide direct market access to underlying commodities assets as opposed to secondary market items like equities. They also give you access to assets that aren’t generally available on other exchanges. Futures can also be employed if you’re searching for a way to control some of the risk associated with anticipated events that could influence the markets.
Short-term Investing
The margin requirement for long and short positions is the same in futures, allowing for a bearish posture or position reversal without additional margin obligations.
Benefits from Taxes
When compared to other short-term trading marketplaces, futures may provide a tax benefit. Profitable futures contracts are taxed 60/40, with 60 percent of profits being taxed as long-term capital gains and 40 percent as regular income. When it comes to stock trading, earnings earned on equities held for less than a year are taxed at 100% as regular income.
Futures come in a variety of shapes and sizes.
A vast range of financial and commodity-based futures are available to trade, ranging from indices, currencies, and debt to energy and metals, as well as farm products. The following are some examples of futures contracts that are available.
Futures in Finance
Financial futures include index contracts and interest rate (debt) contracts. Index contracts provide exposure to certain market index values, whereas interest rate contracts provide exposure to a specific debt instrument’s interest rate.
Futures on currencies
Currency contracts allow you to bet on the exchange rate of a real or cryptocurrencies.
Energy Futures Energy futures contracts give investors access to the price of common energy items utilized by businesses (for manufacturing, production, and/or transportation), as well as governments and consumers for personal consumption.
Metal Prospects
Metal contracts provide you a chance to bet on the price of particular metals that are used in manufacturing and construction by a lot of companies (e.g., gold for computers or steel for housing).
Futures on Grain
Raw grain materials used for animal feed and commercial processing into other products (e.g., ethanol and corn syrup), as well as processed soybeans, are covered under grain contracts.
Futures on Livestock
Livestock contracts provide you a chance to bet on the price of live animals used in the production, processing, and distribution of meat.
Futures of Food and Fiber
These contracts provide exposure to the prices of specific agricultural products (also known as Softs) that are cultivated rather than extracted or mined, as well as the prices of dairy products.
