The difference between margin trading and futures trading is crucial for investors and novice investors must well-verse themselves with these concepts and the risks and benefits associated with them. Futures trading and margin trading are investment methods that allow investors to capitalise on market movements.
Although both methods involve leveraging, they vary in their mechanisms, assets, and associated risks. A key difference is that margin trading is used for day-trading while futures trading is not. Read on to explore the differences, advantages and disadvantages of these two investment facilities so you make an informed investment decision.
The future margin trading, or the margin trading, allows you to borrow funds from a brokerage for the purpose of an investment in the stock market. The margin trading helps you amplify your purchasing power so you can buy more shares than you could have afforded with your available capital. Margin trading is only meant for day-trading purposes.
Also Read: What is Margin Trading Facility – A Detailed Guide
Futures trading is not a short-term investment strategy as you can hold positions for even up to three months. It is a contract to sell or buy assets, securities, or commodities, at a future date.
The futures trading agreements are also called futures contracts and are standardised. You need to open a trading account with a brokerage to do futures trading. These contracts are traded on organised exchanges like the Multi Commodity Exchange (MCX).
Unlike margin trading, futures trading does not require borrowing money from a broker. Here an investor or trader agrees to buy a particular quantity of securities, assets, or a commodity, and take the delivery on a predetermined date. The seller accordingly agrees to provide it. If you purchase a futures contract, your assessment is that the price of the asset will rise.
The participants in the futures markets are mainly commercial or institutional commodities producers, or consumers.
Margin trading is a contrasting trading method as compared to futures trading, though the basic concept of the two is the same.
It is important for you to understand what differentiates the margin trading from the futures trading as it will help you decide which among the two suits your investment goals and strategies. Here are the key differences:
Before you decide which of the two investment strategies are suited for your trading goals, it is important that you understand the advantages and disadvantages associated with margin trading and futures trading. So, let’s explore the pros and cons of the two trading methods:
Pros
Cons
Pros
Cons
Are you confused between margin trading and futures trading and still thinking which approach of investment suits you the best? The answer is simple. You need to understand your investment experience, trading goals and risk tolerance capabilities.
Here is an explanation of the factors that you need to consider when making this decision:
Also Read: Difference Between Margin Trading And Leverage Trading
Margin trading and futures trading offer distinct approaches to investing in the Indian financial markets. While margin trading offers higher potential for profits but also exposes you to higher potential for losses, futures trading is more stable in results. The difference between margin trading and futures trading lies in the ownership of assets, risk and leverage, timeframe, and price determination.
In case you are new to shares and the financial market, it is important that you calculate your risks meticulously and be genuine and unbiased about your assessments. While margin trading and futures trading allow increased profits, it is important to understand that your calculations and assumptions are to be based on trends and experience.
Share this article:
Commodities Market Today | May 02, 2024
02 May, 2024 | 2 Min. read
Gold Rate Today | City-Wise Gold Rate | May 02, 2024
02 May, 2024 | 2 Min. read
Share Market Update | May 02, 2024
02 May, 2024 | 5 Min. read
Jindal Stainless Announces ₹5,400 Crore Plan for Expansion
02 May, 2024 | 2 Min. read
YES Bank and ANQ Launch Pi and Phi Co-Branded Credit Cards
02 May, 2024 | 2 Min. read
Indian Oil Corp Q4 Results: Profits drop, IOC commits to growth
02 May, 2024 | 4 Min. read
Ambuja Cements Q4 Results: EBITDA up 37% YoY at ₹1,699 Crore
02 May, 2024 | 4 Min. read
Adani Power Q4 Results: Q4 FY24 Continuing Revenue Grows 29% YoY, PAT Down 48%
02 May, 2024 | 4 Min. read
Coal India Reports 7.3% Surge in Coal Production for April
02 May, 2024 | 2 Min. read
Upcoming Q4 Results Today
02 May, 2024 | 4 Min. read
Slone Infosystems IPO: Price, Lot Size, Strengths and Risks
02 May, 2024 | 5 Min. read
Winsol Engineers IPO: Price, Lot Size, Strengths and Risks
02 May, 2024 | 5 Min. read
Analysis to Become a Pro Investor
28 Dec, 2023 | 4 Min. read
Women In Real Estate Investing (Investree)
28 Dec, 2023 | 5 Min. read
How To Check Prudent Corporate Advisory IPO Allotment Status
27 Dec, 2023 | 3 Min. read
How To Boost Credit Score? – Steps to Improve Creditworthiness
27 Dec, 2023 | 4 Min. read
Advantages and Disadvantages of Opening Multiple Demat Accounts
26 Dec, 2023 | 4 Min. read
7th CPC LTC: Leave Travel Concession Rules for Central Government Employees
26 Dec, 2023 | 4 Min. read
7th Pay Commission: House Building Advance (HBA) Interest Rate FY 2023-24
26 Dec, 2023 | 5 Min. read
The Future of Trading: Exploring Bajaj Broking’s Demat Features
26 Dec, 2023 | 6 Min. read
7th Central Pay Commission Cpc Fitment Table
23 Dec, 2023 | 7 Min. read
Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading