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Posted on 27 July 2012.
Online futures trading has removed a lot of the obstacles that kept the average person out of the futures market. A futures contract is a standardized contract that contains the agreement to buy or sell a specified commodity at a specified date; everything about this contract is the same, except the price which helps to remove any ambiguity. Before the internet, commodities would be traded in the pit of a stock exchange and have much stiffer requirements. With the invention of the internet there have been vast improvements that makes futures trading much easier.
The first major hurdle in online futures trading was the lack of leverage. Purchasing futures contracts would often tie up a lot of an investor’s money and make it more difficult to diversify. Due to futures operating on a margin, an online trading account only needs a small fraction of the contract value in order to purchase it. The other problem was commission costs. Paying someone to be on the floor in the pit trading was pricey and could end up really eating into the profit. Using online futures trading to do this electronically removes the element of human interaction on the floor and drastically cuts back on the commission costs.
The ability to go short is another reason that the internet has opened the futures market to investors. The number of hedgers and speed of the internet ensure that futures contracts remain highly liquid. The savvy investor can add another area to his or her portfolio by taking a hard look at the futures market. It is definitely a different area with different rules than stock trading, but online futures trading can quickly become profitable with all the advances in technology.
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