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Why Speculators are attracted to futures market?

8/19/2016

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The speculators are investors that profit from price changes, they usually buy when the price of financial instrument is low and sell when the price is high. The speculators are highly interested in futures market due to potentiality of high profits. 

The cost of transaction in futures market is low

The speculators are interest because the transaction cost in futures market is low compared to other types of market such as stock market. 

The futures market is open to all the investors 

The speculators are interested in futures market because the futures market is open to all traders regardless of the size of the traders investment. All the traders have relatively equal access to the futures market. 

The margin and high leverage in futures market

The traders do not pay the full price of the futures they can only pay the margin of the futures to trade, therefore the leverage is high which leads to high profit, but it also means high loss. For example, if the futures price is $1000, the trader can trade that with only $100 or in some cases as low as $10. 
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Stock Market vs Futures Market

8/19/2016

1 Comment

 
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Stock Market

  • The stock of a company can be held as long as the investor wants, therefore stock has unlimited life.
  • A company may have variety of stocks, for example for new project the company may issue different shares to fund the project.
  • The share of a company is paid upfront in full. If the share price of ABC company is $50 then it must be paid $50 at purchase per share. 

Futures Market

  • The future contracts expire at maturity, therefore futures contract has limited life. 
  • There are only one standard futures contract in a specific futures market for specific future contract, the future contract is standardized.
  • The margin of the futures are paid to create financial leverage. The futures contract is also paid at the expire date. 
1 Comment
    All the articles are short and random.

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