Futures may not be the first thing that comes to mind when discussing investment. Given time-tested options like shares and mutual funds, you may think futures investments are not worth your time and money.
If you think so, think again! Investing in futures contracts offers high profits and liquidity. It also allows for portfolio diversification and quick returns.
As a result, futures are becoming a popular investment option worldwide. But beginners may find them tricky and risky.
So, this blog will cover the key facts about futures investments to help you make the right choices. Let’s begin!
What are futures?
Futures are financial contracts that obligate the involved parties to buy or sell specified assets at a pre-defined date and price. As a derivative contract, a futures contract derives value from an underlying commodity or financial instrument.
Originating in Japan in 1730, futures are used as short-term investments and hedging instruments. They are also used as liquid assets that you can trade at registered futures trading exchanges.
How Does A Futures Investment Work?
You can buy a futures contract at a standard rate for a specific date to get a corresponding amount of an asset. To do this, you need to sign up for a trading account and send your request through a broker.
You can do this at two SEBI-regulated bodies. These are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
Note that the actual amount of the asset is worth much more than the nominal payment for the respective futures contract. This payment is usually 10% of the asset’s value.
If the asset has a higher price at the expiration date, you will profit from the difference. However, you will lose money if the price falls on that date.
You may also sell futures to others before their expiry date to earn as per the ongoing price.
In simple words, a futures investment is a bet on the future price of an asset. So, you can earn big profits by selling futures. But there’s also the risk of a significant loss if things do not go as you expected and the price falls.
The Benefits and Drawbacks of Investing in Futures
You can choose a futures contract with a defined expiry date and purchase price, which is a small fraction of the underlying asset’s value.
So, you can achieve high profits on a low budget if the asset’s price is higher on the expiration or sale date. Moreover, your skills and strategy matter more than the amount of money you invest.
If you make the correct price prediction and the right choices at the right times, you make big profits!
However, a futures investment has a high risk of loss if your prediction of the asset’s future price is wrong. This loss can be much higher than your investment! However, you can reduce this risk by seeking professional assistance.
Key Facts About Futures Investments
Are you still unsure if a futures investment is right for you? Here are some key facts about futures investments and trading to help you decide:
Futures investments are leveraged
Any investor’s dream is to get high returns in a short time, and a futures investment makes this dream come true! Futures leverage from market changes that raise the asset’s price. And this multiplies your returns on encashing them.
Futures are versatile and allow easy diversification
You can divide futures into many types based on the asset they are derived from. The common types of futures include equity, commodity, index, currency, VIX, and interest rate futures.
This variety makes it easy to invest in diverse assets. You just need to buy futures contracts that derive value from the respective assets, and you’re good to go!
Futures are ideal for partial hedging
The price and expiration date of futures contracts are predetermined. So, they do not vary due to market changes. This makes futures a great hedging tool for sellers, as they don’t need to worry about future price movements after a deal is finalized.
Futures markets are very liquid
Futures contracts can be traded quickly at registered futures exchanges. Also, they have no lock-in period, and you can hold them for up to 3 months.
So, futures trading markets are highly liquid. You can easily trade futures for quick cash whenever the market looks good! In India, you can trade futures contracts smoothly through the NSE and BSE.
Futures investments level the playing field
Futures markets are a good investment option if you lack a high budget but can take some losses. Why?
You can buy futures at a fraction of the price of the assets they represent. This opens up new chances for traders with less money but high knowledge and skills.
Futures trading is growing in popularity
Futures trading is growing in popularity across the world due to the unique benefits of futures contracts. 29.28 billion futures contracts were traded in 2021 alone!
Futures trading is also very popular in India. You can trade 194 SEBI-defined securities through the NSE and BSE!
Ready To Invest?
Futures offer various benefits for investors looking to earn fast through short-term investments. However, you must create an informed strategy before making a futures investment.
This is because futures trading and investments are complex and risky. So, you might face problems and losses if you lack the required expertise.
Don’t worry if you are not an expert, though. You can still make quick cash from futures with help from trusted investment agencies!
So go ahead and contact Piramal. Their experts will help you make wise and timely Futures investments. This will help you unlock the power of futures trading toenjoy high returns! Read more related blogs to explore our financial products and services, especially those on personal loans, credit cards, and financial calculators.