Disadvantages Of Trading In Futures Contracts
Trading in the futures market is seen as a lucrative investment option. There have been many traders who have made a fortune trading in the futures market but the percentage of those who have made losses is much higher. The future market gives you no or very limited control on your trades and this puts you in a high-risk position which could even end up washing away our entire capital in a single trade. Read the reviews on future trading here.
Controlling the events in the future
The major disadvantage of trading in the futures market is that it does not give you any control over the events that may happen in the future. Like, suppose one has invested in a crop future. One cannot predict with certainty how the weather will be and how it will impact the futures prices. Similarly, when trading in the currency futures there are many factors that are totally beyond control that could devalue the currency.
The complexity of the contracts
The futures contracts are complex and those who do not understand how these contracts work can lose a whole lot of money. When trading the futures contract one needs to monitor several factors at the same time and also understand how they may impact the price of the underlying asset.
The leverage that the futures contract offers have its share of advantages but also come with disadvantages. The quick movement in the futures price and the huge volatility can make you receive a margin call from your broker. Sometimes these movements are so fast that you have no time to get out of the position and thus it leaves you in a huge loss.
The futures contracts have an expiration date. Towards the expiration date, the prices can get unattractive to the other traders. At times the future contract could expire as totally worthless. There is price decay in the futures contract because they have a definite date of expiry. This is even when the price of the asset stays fixed.
Like any other form of investment futures trading also has its own set of advantages and disadvantages. This is left to a personal judgmental as to whether one should or should not take a futures position and whether futures trading is a viable investment opportunity. Lack of knowledge when trading the futures market is dangerous and can cause a substantial loss of capital.