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withdrawing funds at Internet gambling sites.
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There are many inherent advantages of
commodity futures as an investment vehicle over other investment alternatives
such as savings accounts, stocks, bonds, options and real estate.
Leverage - The primary
attraction, of course, is the potential for large profits in a short period of
time. The reason that futures trading can be so profitable is leverage. Let's
say you want to buy a house that cost $200,000, but you don't have all the cash,
so you make a down payment of 5% ($10,000) and borrow the rest from the bank. Of
course you have to make a monthly payment on the $190,000 mortgage. The point is
you are controlling $200,000 worth of house with only $10,000 of your money. if
you had a $18,000 futures trading account, you could trade one S&P 500 stock
index futures contract that's worth about $450,000 twenty-five times as much.
Let's say you decided that the stock market was going to go up. You could invest
$450,000 and buy individual stocks equivalent to the S&P index, or you could buy
one S&P futures contract with $18,000. Buying a futures contract is the same as
betting that the S&P index will go up. If the price of S&P go up 4% to $468,000,
you would make $18,000 on it (100% return on your money).
Lower cost - Another advantage
of futures trading is much lower relative commissions. Your commission on that
$18,000 futures trading profit would have been only about $20 to $40.
Commissions on individual stocks are typically as much as one percent for both
buying and selling. That could have been between $1,000 - $4,000 to buy and sell
a basket of stocks worth $450,000. And if you want to buy and sell a house, your
closing costs and real estate broker can be up to 10% of the price. Also, unlike
buying stocks on margin or buying a house with a mortgage, with futures, you
don't pay interest on any amount you do not put up.
Liquidity - Commodity
speculation offers an important advantage over such illiquid vehicles as real
estate and collectibles. The balance in your account is always available. If you
maintain sufficient margin, you can even spend your current profit on a trade
without closing out the position. With stocks, bonds and real estate, you can't
spend your gains until you actually sell the investment. Plus, unlike real
estate and collectibles, you can close out your futures positions anytime
you want before the expiration date without any hassle.
Tax Advantages - With futures,
regardless of the actual holding period, commodity profits are automatically
taxed as 60 percent long-term capital gains and 40 percent short-term capital
gains. Why is that a benefit? well, long-term capital gains are taxed at lower
rate that short-term capital gains. With stocks, in order for you to receive
long-term capital gains status, you must hold the stock for over 1 year. Also,
any loss you incurred with trading in futures can be deducted from your ordinary
income ($3,000 per year as of this writing) at tax time.
Options
on Futures?
What are known as put and
call options are being traded on a growing number of futures
contracts, just like options on stocks. The principal attraction
of buying options is that they make it possible to speculate on
increasing or decreasing futures prices with a known and limited
risk. The most that the buyer of an option can lose is the cost of
purchasing the option (known as the option "premium") plus
transaction costs. Options on futures work the same way as options
on stock, so if you want to learn more on options, go to our
options section.
Spend less than you earn! People who spend every penny
they make usually end up going broke.......
Take enough risk on the money you save! Playing safe by
putting your money under the mattress or in a savings account
will not make you wealthy..
Remember that.....Fully one-fifth of humanity, some 1.3 billion people,
struggles to survive on less than $1 per day. About 40% of
humanity survives on less than $2 per day. More than a billion
people around the world will go to bed hungry tonight. Life
expectancy in some 32 countries is less than 40 years. If you
have a few extra dollars in your pocket (you don't have to be a
millionaire to make a difference), please share some of your
financial good fortune with others who are in great need.
Think About It... Being in the 'now' brings a freedom, unlike living
in the past or in the future, which is a kind of imprisonment.
This isn't a kind of a denial where you pretend life doesn't have
problems. Life is full of problems, but most of those stresses
and failures are reliving old hurts or worrying about future
concerns. -- Carl Honore
When you 're diagnosed with cancer, you start to
bargain with God: "Let me get through this, and I'll take better
care of myself. I'll get my priorities in order. I'll learn to
live every day to the fullest." Isn't it sad that you have to get
sick before giving yourself permission to live life to the
fullest? -- Robert Schimmel
Look at Life in different & Positive ways
