As an investor, you have many options when it comes to futures. With so many choices, knowing which ones to trade and how to choose them can be challenging.
Factors to consider when choosing a future to trade
Before you begin trading futures, it is essential to have a clear understanding of your investment goals. Are you looking to generate income, protect against inflation, or speculate on the price of a commodity? Different futures contracts will be more suitable for different goals.
Another vital factor to consider is your risk tolerance. Futures trading in Australia can be risky, and you should only trade with money you are willing to lose. Ensure you understand the risks involved before trading.
Your time horizon is also an important consideration. Some futures contracts have longer terms than others. If you are investing long-term, you may want to choose a contract with a longer-term
Of course, you should also consider the prices of the commodities you are interested in. If prices are high, you may want to sell contracts; if prices are low, you may want to buy contracts.
When choosing a futures contract, you should also consider the brokerage you will be using. Some brokerages charge higher fees than others, and some offer different features and services. Make sure to compare brokerages before making a decision.
What futures are available in Australia?
The ASX 200
The ASX 200 is an index measuring the performance of the 200 largest companies on the Australian Stock Exchange. It is one of the most popular futures contracts traded in Australia.
The S&P/ASX 200
The S&P/ASX 200 is a stock market index that measures the accomplishments of the 200 companies listed on the ASX. It is one of the most popular futures contracts traded in Australia.
The All Ordinaries Index
The All Ordinaries Index is a stock market index that includes all companies listed on the Australian Stock Exchange. It is one of the most commonly used benchmarks for the Australian stock market.
The AUD/USD is a currency pair representing the Australian dollar’s value against the US dollar. It is one of the most popular currency pairs traded in Australia.
Gold is a precious metal used as an investment and a store of value. It is one of the most favoured commodities traded in Australia.
Benefits of trading futures
One of the main benefits of futures trading is leverage. Leverage allows you to control many contracts with a small amount of capital. It can provide the potential for large profits but also comes with the risk of significant losses.
You can trade futures with low costs. Some brokerages charge no commissions on futures trades. And even if commissions are charged, they are usually much lower than those charged for other types of trading.
Futures trading can also help to diversify your investment portfolio. You can gain exposure to different asset classes and sectors by including futures in your portfolio, which can help to reduce risk and improve returns.
Access to global markets
Futures trading allows you to trade in global markets. It can provide access to opportunities that would otherwise be unavailable.
Another benefit of futures trading is that it offers a high degree of flexibility. Many different types of futures contracts are available, and you can choose the ones that best suit your investment goals.
Risks of trading futures
Futures trading is risky due to the volatility of the markets. Prices can move up or down rapidly, leading to significant losses.
Another risk of futures trading is a margin call, which is when your broker asks you to transfer more money into your account to cover losses. If you cannot meet the margin call, your position may be liquidated at a loss.
Leverage is a double-edged sword. While it can provide the potential for large profits, it also risks significant losses. Therefore, you should only trade with money you can afford to lose.