One of the main distinguishing features of futures trading is leverage, a gearing effect where small sums of money can exert disproportionately greater transaction muscle. A futures contract obtained for five per cent of the market value would be 95 per cent leverage.
That is the upside of leverage. The downside is that leverage cuts both ways, greatly magnifying losses in the same way as profits. And this is a crucial point if your trading account is being highly leveraged. Offers of high leverage trading should be treated with caution as nearly all of your capital will be on the line to comply merely with margin requirements.
By contrast, low leverage trading means you will maintain a reasonable cushion of surplus capital in your account to cover unexpected price shifts. Consequently, the risk factor is far lower.
An essential requisite for the successful trading of futures, then, is close management and control of leverage.
That is the upside of leverage. The downside is that leverage cuts both ways, greatly magnifying losses in the same way as profits. And this is a crucial point if your trading account is being highly leveraged. Offers of high leverage trading should be treated with caution as nearly all of your capital will be on the line to comply merely with margin requirements.
By contrast, low leverage trading means you will maintain a reasonable cushion of surplus capital in your account to cover unexpected price shifts. Consequently, the risk factor is far lower.
An essential requisite for the successful trading of futures, then, is close management and control of leverage.
