Futures, also known as futures contracts allow traders in Singapore to confine the price of the underlying security or commodity. These contracts come with an expiry date and a fixed price. Futures are defined by their expiry month.
For example, an October gold futures contract expires in October. The term futures represent the general market, but there are numerous types of futures contracts, as seen below.
- Common futures like in natural gas, crude oil, wheat, and corn
- Stock index futures
- Currency futures trading including the ones for the British pound, the Singapore dollar, and the Euro
- U.S. Treasury futures for bonds
- Precious metal futures for silver and gold
What Determines the Amount of Money you Can Make while Trading Futures?
When it comes to futures trading, a good startup capital helps you; set your trading goals, determine your risk management, and change your position management and trading system around your capital.
Further, a decent startup capital helps traders in Singapore switch positions in the futures markets while leaving sufficient capital to protect the maintenance margin. This way, a trader will not end up with a margin call. A starting capital of approximately $10,000 should be sufficient for many futures traders in Singapore.
Your risk tolerance
When it comes to trading, experts say that you should avoid trading more than 1% of your capital. For example, if you are trading with $150,000, your maximum exposure or risk to a trade should not surpass $150.
This amount can be lower or higher, depending on the leverage you opt for. In the futures trading market, you may already beware that the margin demands, and tick size vary depending on your futures trading contract.
For example, if a trader in Singapore chooses to trade E-mini S&P500 futures, which are the most popular futures contract, the margin obligation would be $400 for a regular contract with a tick size of $12.50. What this means is that for a 1:1 risk tolerance and leverage of $100, or 1%, the highest loss you can endure on a standard e-mini S&P500 contract is 8 ticks, or 2 points.
On the other hand, assuming you allocated $500 per trade, which makes 5%, you can endure 40 ticks, or a 10 point move. From these examples, you can see that the amount of risk a trader in Singapore is willing to take can have an impact on the result of their trade.
A trading strategy is critical. Without a game plan and hitting the buy or sell button blindly will not give you favorable results. Many expert futures traders in Singapore take time to master their trading strategy before venturing into active trading. They also test their trading strategy in different trading conditions to see how it works.
What are the Advantages of Trading Futures
They are Highly Leveraged Investments
To trade futures, investors in Singapore should activate a fraction of the sum of the contract value. The fraction is usually collateral that an investor should maintain with their broker. They could also exchange it if the market moves away from the position they have acquired, resulting in a loss.
This amount could be more than the margin amount where the investor has to pay more to ensure the margin reaches a maintenance level. Futures trading means an investor can expose himself to a great stock value than he could if he as to purchase the original stocks. In this case, profits multiply if the markets shift towards his direction.
Futures Markets are Liquid
The non-stop presence of investors and traders in the futures markets facilitates the fast placement of market orders. It also ensures that prices do not change drastically for contracts that are almost maturing. Apart from being liquid, many futures markets operate beyond normal market hours, with some trading round the clock.
Futures trading contracts illustrate an agreement to either buy or sell a stock, commodity, or other assets at the fixed price and within the expiry date. Traders in Singapore can buy or sell them often until they expire. While day traders can gain more profits from futures trading, they should beware of the significant risks involved.
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