Margin Trading vs . Futures Trading: Which Is For You?
Margin trading and futures trading are two popular ways to invest in the financial markets . They have some things in common but they also have things that make them different . In this discussion we'll look at how debt trading and futures trading are different .
Margin trading and futures trading are two popular ways to invest in the financial markets . They have some things in common but they also have things that make them different . In this discussion we’ll look at how debt trading and futures trading are different .
What Are Those Trading Methods?
Margin trading is when a trader borrows money from a broker to buy securities like stocks or cryptocurrencies . In margin dealing the trader gives away some of their own money as collateral, which is called the margin, and borrows the rest . This lets buyers use borrowed money to increase their possible earnings . But it also makes the risk bigger as losses get bigger too .
On the other hand, trading contracts called “futures” is what is known as “futures trading .” A futures contract is a deal between two people to buy or sell an object at a certain price and date in the future . Futures trading does not require you to borrow money . Instead buyers put down a small amount of money at the start . This is called the margin and it acts as a guarantee to make sure the contract is kept . The price of the base object affects the value of the futures contract so buyers can make money when markets go up or down .
Margin trading and Futures Trading Have Some Differences
Now let’s look at how margin trading and futures trading are different . First, the base goods are not all the same . Investors usually trade stocks, cryptocurrencies or other products when they trade on credit . Futures trading on the other hand, is based on contracts for commodities, currencies, stock indexes or interest rates .
Second, these methods take different amounts of time to work . Margin trading can go on for a long time as long as the owner keeps up with the margin requirements and pays back any interest fees . On the other hand futures contracts have set end dates that can be anywhere from a few months to several years . Traders can choose different expiration times based on what they want to achieve with their investments .
Possible Profits and Way Of Trading Are Also Different
Also the risks and possible rewards are not the same . Margin trading is riskier because buyers are using borrowed money which makes both wins and losses bigger . If the market goes down the owner may get a “margin call” which means they need more money to keep their stake . Futures trading still has risks but traders know what their responsibilities are and how much risk they are taking so losses are less likely to be a surprise .
Additionally there are different ways to trade . In margin trading buyers buy and sell securities in real time and own the assets directly . In futures dealing the focus is on trading standard contracts not on having the object that the contracts are based on . Futures contracts are sold on controlled platforms and positions can be ended or carried over to the next contract expiration .
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