Are Futures For Trading or Investing - Futures Trading 101

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Are Futures For Trading or Investing - Futures Trading 101 (FULL ARTICLE):
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Are Futures For Trading? Are Futures For Investing? Find Out Exactly What Futures Are Best Used For and How They Compare to Stocks, Options, Forex, Crypto, etc.

As a self-directed trader/investor, you can choose to express risk in markets however you see fit.

But generally speaking, futures are best utilized as short-term trading vehicles as opposed to long-term investments. There are 2 main reasons for this: 1) futures contracts expire, and 2) they don't represent ownership in the underlying asset.

A futures contract - by definition - is an agreement to buy or sell some underlying asset at some point in the future. But unless you're the buyer, hold through expiration, and the contract has a physical settlement instead of cash - there is no ownership.

With the purchase of a stock/equity, for example, you're purchasing ownership in that particular company (which comes along with voting rights, potential dividends, etc.). But derivative contracts like futures are agreements; not ownership stakes.

Futures contracts also expire regularly. Most expire on a monthly basis, but the e-mini S&P 500 (ES) - which is the main futures contract that I personally trade, has a quarterly expiration cycle (March, June, September, and December).

Since long-term investing in futures would require frequent maintenance of rolling contracts from one expiration to the next, they're not really conducive to a passive, buy-and-hold style. Futures are much more applicable to short-term intraday trading.


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