Seven Reasons Why You Should Avoid Futures & Options in Trading
Trading in futures and options can sound exciting and profitable, but it’s not as simple as it seems. These types of trading can be very risky and complicated, even for experienced investors. Here are seven reasons why you should avoid futures and options trading to keep your capital intact:
1. High Risk and Big Changes
Futures and options can go up and down in value very quickly. Because of leverage (using borrowed money to increase returns), small changes in the market can lead to big losses. For example, a tiny 1% change in the price can cause a 10% change in the value of a futures contract. This can make you lose a hell lot of money in an instant.
2. Complicated and Hard to Learn
Futures and options are not at all easy to understand. They have their own special terms and rules. You need to know about all the things like time decay (how the value of options decreases over time) and volatility (how much the price changes). Learning all this can be really hard and confusing, especially for beginners.
3. Big Potential Losses
The same leverage that can help you make more money can also make you lose more than you invested (it happens to almost 99% of the beginners). For example, if you sell options (called writing options), you could lose a lot more than what you started with. In futures trading, you might have to put in more money to keep your position, and if you don’t, you might have to sell at a loss.
4. Stressful and Hard on Your Mind
Trading futures and options can be very stressful. You have to watch the market all the time and make quick decisions. This can be exhausting and can lead to mistakes if you’re too stressed or tired. Over time, this stress can hurt your health and your ability to trade as well. so keeping the stress in check is the number 1 priority for a trader.
5. Unfair Market Practices
Big companies and wealthy investors often have access to information and tools that regular traders don’t. This can make the market seem unfair and unpredictable. Sometimes, it can feel like the market is moving against you for no clear reason, making it harder to succeed. we also call it as insider trading or operator trading,
6. High Fees and Costs
Trading futures and options can cost a lot of money. There are fees for every trade you make, plus other costs like exchange fees and the difference between buying and selling prices (called the bid-ask spread). These costs can add up quickly and eat into any profits you make.
7. Hard to Buy and Sell Quickly
Some futures and options contracts don’t have many buyers and sellers, which makes them hard to trade. This low liquidity means you might not be able to buy or sell when you want to, or you might have to accept a worse price. During times when the market is very active or very calm, it can be even harder to trade these contracts.
While trading futures and options might seem like a way to make a lot of money faster, they come with many risks and complications. The high risk and fast changes in value can lead to big losses. The learning curve is steep, and the stress can be overwhelming.
For most people, it’s better to stick with simpler and safer investments like stocks, bonds, or mutual funds. These options are easier to understand and carry less risk. They help you grow your money steadily without the stress and complexity of futures and options trading.
In the end, understanding different financial tools is important, but so is knowing their risks. By avoiding futures and options, you can focus on building a strong and safe investment portfolio that matches your financial goals and how much risk you’re willing to take.
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