What Role Can a Futures Broker Play in Your Investment Strategy?

futures broker

What Role Can a Futures Broker Play in Your Investment Strategy?

Investing has become a mainstream topic of conversation in recent months. Between the surge in Bitcoin, Ethereum, and GameStop stock, you can hear talk of investment strategies everywhere.

One strategy that may seem foreign to most people, and is not talked about often, is futures investing.

Investing your money in futures via a futures broker has been around for a long time, and if you haven’t considered it, we would urge you to do so.

By the end of this article, you’ll be more educated on what futures are, how to invest in them, and how a futures broker can be the perfect addition to your investment strategy.

What Are Futures?

Futures are so-named because that’s exactly what you’re investing in. When you invest in futures, you are agreeing to a contract where you agree to buy or sell assets at some point in the future. Hence the name.

The futures market is known as a fast-paced market and typically revolves around the commodities sector of investing.

Commodities include widely-traded assets that are not tied to company stock. Instead of trading shares of a company like Apple, you would be trading shares of the gold, silver, oil, or wheat market.

Now, futures don’t apply solely to commodities. You can do some futures investing on precious metals, and some currencies.

The beauty of futures investing is that it allows us, as investors, to get in on the commerce and trade of major corporations around the globe. When agricultural/food companies, airlines, or other members of big business buy and sell the commodities that make their businesses run, we can get in on the action.

And futures contracts allow us to do all of this without ever touching a single bundle of wheat, barrel of oil, or gold bar.

A Cut Above The Rest

As mentioned earlier, the futures market is fast-paced. This means the risk is higher, but the profit potential is higher as well. This gives you, the investor, the potential to grow your portfolio if you know what you’re doing.

Investing in futures requires a lot of research to be done well. You’ll also come up against competition from a lot of veteran, institutional investors, and investment companies because of the knowledge and experience required to play the futures market well.

But, as the great Napoleon Hill said, “In every adversity, there is a seed of equal opportunity.” Essentially, yes, the risk is higher but so is the reward.

Advantages of Trading Futures

Whether a particular investment vehicle works for you or not is all going to come down to your individual investment strategy.

If you follow investing, or business in general, we’re sure you’ve heard the phrase “go against the crowd.” Not a lot of people are discussing futures right now which, to us, means there’s an opportunity there.

One of the advantages of trading futures is freedom over your time. Since you’re not investing in publicly-traded shares of a company, you can execute futures contracts at any time. You’re opening up your portfolio to a 24/7 market when trading futures.

You also have a more “direct line” into investing in tangible assets like copper, gold, silver, etc.

Let’s take gold for example. Through futures investing, you would have the ability to invest directly in the price of gold, which is much more stable and predictable than investing in shares of a company in the gold industry.

When you invest in shares of a publicly-traded gold company, you invite a lot more variables into the equation, and thus, a lot more uncertainty. That company has employees, they have an advisory board, and they have management executives. There are more moving parts, and much more could go sideways than just investing in a bar of gold itself.

The futures market also allows you to cash in on leverage. Small sums of money invested can turn into large profits when investing in futures. 

Padding My Risk

In short, we are “bullish” on futures as an investment strategy, but there are some drawbacks to this asset class. We want you to know exactly what you’re getting into so you can make the best decision for yourself and your portfolio.

As we said earlier, futures is a 24/7 market. This is great when it comes to executing trades, but it also means that you need to stay up on news from around the world. This might not be a problem for some, but it’s “the nature of the beast” so we thought we would make you aware.

The larger profit potential of futures also means a potential for greater losses. However, this can be avoided if you do your research. 

If you like conducting research then you may want to look further into futures. The amount of research required may not be for certain investors, but if you don’t mind then the payoff potential of futures is worth your time.

One of the biggest things to watch out for with futures is margin calls. If you make a price prediction on a particular commodity, but the price goes against you for a time, you may need to pony up some cash to cover what’s known as a margin call. This is the difference between the current price and the price when you entered your contract.

The easiest way to “pad your risk” and still take advantage of the lucrative futures market is to enlist the help of a futures broker.

Yes, futures brokers charge fees, but they will do most of the heavy lifting when it comes to research, trading, and analysis. You’ll be able to leverage their knowledge to help with things like trend analysis, investment trends, strategic asset allocation, and much more beyond the simple futures trading basics.

Invest Smarter Than The Rest

Overall, futures are a great way to go against the curve and put your money into a lucrative market that we feel is overlooked right now. As always, we want you to do your research and feel comfortable with where you’re placing your money.

To talk to a futures broker today about what the best investment strategy is for you, and how to get started, visit our website today. You can also contact us directly and we would be happy to help in any way we can.

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