Why trade futures?
whether using futures to protect a price or just to speculate on the price of oil, here are a few reasons traders trade futures.
- The ability to go 'short'. Short-selling stocks requires borrowing (and paying for) the asset you want to sell short. With futures, a trader just needs to sell the contract.
- Virtual 24-hour Market access - futures markets generally only close for one hour per day, and are available Sunday evening thru Friday afternoon.
- Futures contracts are leveraged, meaning a trader can control a large amount of notional value with a small amount of capital.
- No short sale restrictions.
- No pattern day trader rule - equity traders trading four or more round turns of a single equity within a week are required to maintain a minimum account balance of $25,000 with their broker.
- No minimum tick rule - unlike equity markets, trading short in futures does not require selling on an up-tick.
- Hedging a physical commodity. For example, farmers and oil producers use futures contracts to protect against adverse price movements.