Online Futures Trading - Advantages and Disadvantages
What Is Online Futures Trading?
A futures contract is an agreement to buy or sell a commodity
at a date in the future. Everything about 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 trading system
of a futures exchange.
The internet 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,
regulations and safeguards.
Advantages of online futures trading
Leverage. 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 frequent
trader.
Liquidity. The involvement of speculators means that futures
contracts are reasonably liquid. However, how liquid depends on
the actual contract being traded. Electronically traded
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
expensive 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. There is no 'uptick rule' for
example like there is with stocks.
No 'Time Decay'. Options suffer from time decay because the
closer they come to expiry the less time there is for the option
to come into the money. Futures contracts do not suffer from this
as they are not anticipating a particular strike price at
expiry.
Automated trading. Electronic futures brokers offer the
facility to programmers to interface directly with their trading
software. This means that custom written trading software can
automatically trade a strategy without any human intervention at
all. A system can make buy/sell signals which are automatically
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 broker 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 terms of speed of execution and costs. Electronic
futures trading offers all participants exactly the same
advantages.
Disadvantages of online futures trading
Leverage. Can be a disadvantage if it encourages trading with
too high a risk for a particular strategy. A carefully devised
money management plan is essential.
Overtrading. The instant nature of electronic futures trading
coupled with low commission costs and tight spreads can encourage
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 website 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 daily on
the site.
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Bank of England and ECB Hold Steady, Indonesia Cuts CNBC.com [CNBC] ----------------------- MULTI CURRENCIES VS THE DOLLAR Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm and repeats on Saturdays at 7pm. Learn more: The essential vocabulary for currency trading is on Key Currency ...
RELATED ARTICLESWhat is Forex
Trading?
Forex, or Foreign Exchange, is the simultaneous exchange of
one country's currency for that of another. The way it works
is an investor who wishes to purchase or sell one currency
for another with the hope of making a profit when the value
of the currencies change in favor of the investor.
Online Forex
Trading
Foreign exchange currency trading is also known as Forex
trading, or FX, and has no single physical marketplace like
the New York Stock Exchange does on Wall Street in New York
or the Tokyo Stock Exchange does in Japan. The New York
Stock Exchange and the Tokyo Stock Exchange online traders
are limited to making purchases during the actual trading
hours governed by New York Stock Exchange hours or the
Japanese Stock Exchange's Tokyo hours.
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System
As 90-95% of new forex traders lose money within the first
3-6 months this article helps to guide new forex traders by
asking 5 questions that the forex trader needs to know
prior to back-testing their forex system.Let us jump right
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Intrenet Marketing VS
Forex Currency Trading
Have you noticed that when someone's trying to sell you
something - such as a system for making money - they always
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Trading. You've probably heard the old Internet adage -
build a better website and they will come.
Stock Market Report: Day
Trading or Swing Trading Online? Stock Investing
Information
Profitable day traders recognize that momentum trading is
among the fastest & most effective ways to harvest BIG
piles of cash in the stock market.The problem is that if
you don't know what stocks to look for and how to approach
them while limiting your risk, you won't even get close to
making some profits.
The Basics of
Forex
Foreign exchange market is also known as Forex or FX
market. To date, it is the world's biggest "economic
bazaar".
Psychology Of
Trading
The psychological aspect of trading is usually
underestimated by those new to trading. The psychological
problem for most traders is the fear of losing - ironically
it is this fear that causes most traders to lose money in
the long run.
Reality of Online Forex
Trading
Foreign exchange trading is the trading of currencies. Most
currencies can be traded.
Factors Influencing a
Currency Pair Exchange Rate
IntroductionThe exchange rate refers to the value of the US
dollar against the values of currencies of other countries.
Such a rate helps determine how much we pay for imported
goods and services and how much we receive for what we
export, among other things.
New Opportunities with
Forex Trading
The simplest definition of currency trading is the practice
of exchanging one country's currency for another country's
currency. Basically, currency trading involves four main
variables: currencies, exchange rate, time, and interest
rate.
Assessing the
Opportunities Presented by the New Iraqi
Currency
Could it be possible that you are staring right into the
most spectacular financial opportunity of the century?
Operation: Iraqi Freedom will undoubtedly be a war marked
in history for loss and tragedy, American victory, and the
rise of a nation with a new democratic government. But
could it also be a war historically remembered for the
financial opportunity it created for the sharp investors
who keenly recognized an ephemeral chance at the right
time?The War on Iraq ended with a nation placed on the
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Sending Signals for
Trading in Forex
Forex signals are sent by a forex firm to their subscribers
in order to buy and sell currencies. These signals are
called entry and exit signals for the forex dealers.
Momentum Trading: A
Practical Day Trading Strategy to Get Profits from Hot
Stocks
Momentum day trading can be extremely profitable when done
correctly..
Forex Options Market
Overview
The forex options market started as an over-the-counter
(OTC) financial vehicle for large banks, financial
institutions and large international corporations to hedge
against foreign currency exposure. Like the forex spot
market, the forex options market is considered an
"interbank" market.
FOREX - Where Fortunes
Are Made Everyday
The Foreign Exchange Market - better known as FOREX - is a
world wide market for buying and selling currencies. It
handles a huge volume of transactions 24 hours a day, 5
days a week.
Forex Currency
Trading
It is possible to buy and sell money from different
countries on the foreign exchange market called Forex.
Forex currency traders can profit by taking advantage of
the dips and swells in the foreign currency market.
Don't Deny
Reality
If you want to be a successful trader, you must make sure
you do not deny reality in any phase of your trading. You
cannot deny losses, price direction, mistakes you make,
being undercapitalized, or a whole host of things you would
rather not think about.
The Nature of the
Trading Business
Consider the following: As a trader you are in a business.
Your strongest opponent has plenty of capital.
Risk and Stock Trading
Fees: The Two Barriers To Overcome If You Want A Successful
Trading Career.
You know the old joke:" How do you make a million in the
stock market? Start with two million?" There is no way
around it, risk and stock market fees are a part of trading
that you can't avoid. But, you can manage your risk.
10 Steps To Professional
Day Trading
Everyone trades a little differently. The trading method
outlined below is MY personal approach to trading.
MORE RESOURCES updated Thu. February / 09 / 2012
