Gaining Profits in a Falling Market via Future Trading

In the world of finance, it is always important to be prepared for the unexpected. This is especially true when it comes to markets, because they are always changing and can swing from one extreme to another in a matter of hours.

One way to hedge your portfolio against these changes is by using future trading. 

Future trading involves buying or selling stocks that you don't own yet, but will in the future. It's a form of speculation that allows you to profit from market movements before they occur.

Futures Trading

Futures trading is a way to trade on the price of commodities, stocks, indexes, currencies and bonds. They are contracts that give you the right to buy or sell an underlying asset at a specified future date.

Benefits of investing in Futures when market is down

Take a Consolidated View and Avoid the Stock Risk

If you stay for a long run in the stock market, you will want to hedge your exposure with futures. 

But there is a problem, if you stay for a short period of time and sell stocks when the price is low, then you will lose money if the price moves up. This is because your short position will be transferred to the stock index futures on which it is based.

Trade Both Ways Long Side and Short Side

Stock index futures offer a great way to trade both the long and short side of an index. 

For example: if you sell index futures on an ETF that tracks the S&P 500 Index, you can buy those index futures and go long on the underlying stocks at a discount or go short at a premium. 

This is called "longing" or "shorting" an index, depending on whether you are buying or selling it.

Trade in Index Futures with Lower Margins

Index futures have lower margin requirements than traditional options, so they make sense for investors who do not have large amounts of capital available for trading large positions.

Hedge your Risk with Index Futures

When the market is down, many investors look to take their money out of the market and put it in something else. This can be done by selling stocks or buying bonds. 

But if you want to hedge your bets and make sure that you’re not losing money in both directions, then investing in index futures can help. 

Index futures are essentially a contract for difference (CFD), which means that they allow you to speculate on movements in an underlying asset without actually owning it outright.

Limited Liquidity Risk in these Index Futures

The main advantage of investing in index futures is that there is limited liquidity risk, meaning that you don’t have to worry about having enough funds available in real time to buy or sell the underlying asset. 

This makes it easy for investors who want to invest large sums of money while minimising their exposure to market volatility.

Use Index Futures to Diversify your Portfolio

Index futures are a great way to diversify your portfolio in India. They offer the potential to exploit price differentials across a broad range of asset classes, which can help you generate additional returns while reducing risk.

The index futures market is growing rapidly in India, with more than 200 traders and brokers now listed on the exchanges. 

This has helped make index futures more accessible for Indian investors and made them one of the most popular investment vehicles for hedging or speculating on stock markets outside of India.

Final Note

It can be incredibly rewarding but also quite difficult to trade on the various futures markets. The markets and methods we described here are only a few of the many that young investors can employ to succeed. 

You will have the chance to experience a great deal of success trading in the futures market by conducting your due diligence and making sure you understand how futures perform.

I hope you found this blog insightful and used it to its best potential in the real world. 

You can take the guidance from the professional at TradingBells before making investments in Futures.