Stock futures are a type of agreement between two parties to buy and sell a stock on a future date. The agreement is signed between two parties and the stock are sold on a agreed price. The future date is decided for delivery. The seller is said âshortâ while the buyer is said to be âlongâ. Now if the price of the stock rise then the buyer remain in profit while if the stock price falls the seller faces a loss. This way a agreement is signed between both the parties. Many firms have now started to provide stock futures tips.
There are many advantages as well as disadvantages of trading in stock futures
1. Use of Leverage
The main advantage of stock futures is you can use the leverage. Leverage depicts the use of small amount of cash to buy stocks that are worth more then what you pay. With stock futures one can get high leverage because the person is trading a future contract. That is why a small change in price can give a huge amount of loss of profit. If wisely used stock futures can be used to earn good money. That is why many business person often get interested to provide stock futures tips.
2. Short Selling of Stocks
Stock futures also gives the advantages of shorting the stock, i.e. selling the stock first and then buying it. Short selling or shorting is normally done when we are sure that the stocks will decline. Now everyone takes profit when stock price rise, few wise people understand this concept and earn a profit even when the stocks decline. With stock futures, one can easily perform short sell. This way more option to earn arise in stock futures.
3. Low Commissions
In stock futures the compensation given to the broker are less compared to other markets. Sometimes only the bid spread are given to the broker. This can save money while trading in the stock futures
4. Comparatively Higher Risk
Stock futures also have some risk factors. As small amount of change in stock price can give huge loss or profit. So, where leverage seems to be an advantage, risk arise as a major factor. One need to be really careful while placing a trade, as the small movement in opposite direction can blow your account. In such cases it become better to take stock futures tips.
5. Low Trade Volume
Stock futures have low volume in trades. Due to the risk factor, the trade volume remains low. So, if become a problem to find the correct person to trade with you. Also due to less volume, the popular stock remain in demand which increases the volatility, thus result in sudden highs and lows. When there is low trade volume than one has to compromise by overpaying for a particular trade.