May, 2012 5:07 AM
Leverage - futures
Futures contracts are similar to buying or selling a parcel of shares, except you only need to provide a fraction of the capital to hold them since you are trading on leverage (using borrowed funds).
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One of the big attractions of futures trading is leverage. Since the initial deposit is only a fraction of the contracts cash value, investors can realise hefty profits compared to how much they outlay. The reverse can also occur if the price moves against you. To reduce losses, most traders use stop losses. Rather than holding onto a losing position, they will take a small loss; sometimes they re-enter the market at a better price later on. It must be noted that the execution of a stop-loss may not guarantee exiting a contact at the exact predetermined level due to the potential for slippage or gapping.
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