Futures Are Hard — but Here’s Why They’re Worth It (Futures Part 2 of 2)

by | Jun 28, 2024

A few days ago I wrote you an article explaining how the complexity, leverage, and 24-hour nature of futures make them harder than regular stocks.

Today, I wanted to flip the script and explain why despite all this, it’s worth learning futures.

See, most traders sit down at 9:30am U.S. Eastern time and think the market is just getting started for the day.

But futures trade virtually 24 hours a day, 5 days a week giving you essentially 24 hours per day worth of trading information — as opposed to 6½ hours per day if you’re only trading the U.S. stock and options markets.

This continuous flow of information is critical for traders who want to stay on top of market movements.

Because of their 24 hour nature, futures trading provides a way to see how international markets have reacted and gives you a preview into how the US trading day could unfold.

Example: Significant economic reports from Asia or Europe will be reflected in the futures market before the US market opens. This allows you to gauge market sentiment and make informed decisions based on global events — meanwhile, traders who are just waking up to look at markets at 9:30am Eastern are practically flying blind.

Even if you don’t trade futures, understanding them is beneficial because they provide insights into market dynamics and help identify support and resistance levels from global trading

Just by understanding the flow of information from the futures markets, traders can better prepare for the US market open and make more informed decisions.

Learning futures trading may be challenging, but the strategic advantages it offers make it worth the effort. 

Let me share an example that highlights just strategic of an advantage understanding futures can be for you.

Imagine you own a significant position in Nvidia, and overnight, an economic report from Asia suggests a downturn.

The market responds negatively, and the futures start to drop. By shorting Nasdaq futures, you can offset the potential losses in your Nvidia position.

When you wake up, you might find Nvidia has dropped significantly, but your futures position has gained, balancing out your losses.

This approach allows you to start the day at net zero instead of being down by a substantial margin, giving you the flexibility to decide your next move without the pressure of significant overnight losses.

I hope I’ve been able to show you how — even if you never plan to trade futures — understanding and leveraging the continuous flow of information and international market reactions could give you insights that are practically invisible to anyone else.

— Geof Smith

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