Trading in Commodity Futures: Be Armed to Steer Clear of Downsides!

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The risk-reward dilemma

It is often said that any form of trading can become dangerously addictive and is a potential threat of serious erosion of your assets unless you are aware of the inherent risks involved. There is nothing like being aware of possible downside in Futures Trading too; it certainly promises to give handsome returns but the flip side must never be ignored. Every investor has an inherent ability to absorb risk and the degree or capability depends upon a combination of many factors. Established Dubai Stock Brokers will not hesitate to tell you that one cannot expect to earn stupendous returns without being able to take equivalent risks. The trick lies in being able to determine ones threshold and this in not particularly easy as most humans by nature are averse to taking risk.

Bare facts

Commodity trading in Dubai first saw the light of the day in 2005 with commencement of trading at the Dubai Gold and Commodities Exchange. Proud to be the first derivative exchange in the Middle East and North African (MENA) region the platform is highly lucrative as Dubai, on account of its location, permits longer trading hours by integrating the functioning of regional and international trading. Within a short span since inception, traders have a great avenue for meeting varying requirements of instruments like online CFD trading, trading Forex online and commodity trading in Dubai besides others.

Don’t get scared: Be aware

If one maintains a disciplined approach, there is not much to be scared about as there are numerous advantages of trading in futures. The biggest advantage of course is the availability of leverage that requires a trader to maintain only a fraction of the total trade value, in his trading account. On the flip side, leverages can work against you too as it could encourage a higher risk taking than what one is capable of absorbing. Yes, here profits do get enhanced but losses too could strike a heavy blow. Another positive is relatively lower commission costs as it is more affordable to buy/ sell a futures contract compared to dealing in the underlying instrument itself. By design, all futures contracts have considerable liquidity; the extent of liquidity available being dependent upon whether the contract is electronically traded or the pit traded variety which comparatively take up more in terms of commissions and spread.

A great feature is the facility to go short on contracts which has the potential to give handsome returns even when markets are headed downwards. What makes futures contracts more lucrative than options is that they do not get affected by a factor called ‘time decay’. Commodities futures do not get affected by approaching expiry dates as they are free from a specified strike price at expiry. Did you know that a majority of futures contracts are not deliverable and are settled in cash at the time of expiry? It is also good to know that some are not and if you do not act in time to settle your contract, you might be facing the real prospect of the traded quantity physically being delivered to your door step!

For a great experience in commodities trading, Dubai has to be the pivotal point!



Source by Lakshmanan S

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