In the futures market, leverage and unilateral trading are identified by different groups. The truth is that most people can accept unilateral trading, believing that unilateral trading is flexible, has more opportunities and is profitable, but most do not understand leverage trading. In fact, in detail, the difference between the two is obvious, with advantages and disadvantages, let investors judge for themselves.
Unilateral trading is more likely to use light positions, focusing on quick, multiple opportunities to make a profit in order to achieve capital appreciation. It usually does not exceed half a position.
When trading one-sidedly, whether on the short line or the medium line, the funds should be held for most of the time, and the time of use of the funds is very limited. Whereas in the case of leveraged trading, the funds are used most of the time, and the free time is very little. In the use of time to exchange space, leveraged trading has a clear advantage.
In one-sided trading, in addition to the long-line traders who are trending, there are more frequent inputs and outputs, which increases the expense of the transaction fee. While in arbitrage trading, the holding time is longer and the number of transactions is less, the transaction costs can be greatly reduced.
In unilateral trading, the trader is under a lot of psychological stress because of the possibility of any sudden situation. Under pressure, the investor often cannot perform the operation normally, even if he judges the correct position, he will not necessarily be able to hold on. While leverage trading is limited by the use of hedging methods, which limits the magnitude of the change in the profit and loss of the position, reduces the psychological impact of market fluctuations on the trader, which favors the stability of the mentality, and is better able to hold the position that he considers reasonable.
Although one-sided trading is said to be able to root out market changes and turn the direction of the trade at any time to make a profit, however, a multi-sided trade can only make a profit when the price rises and a blank order can only make a profit when the price falls.
Futures trading is the only form of futures trading with limited risk (purchasing futures options is the only other type of trading where the futures trader has limited risk, but the futures option has not yet been launched domestically). Since stockable commodities have a so-called holding cost, it is rare to see a situation where the price deviation exceeds a certain historical level. This means that it is possible to establish a position in the historical high or low zone and to estimate the level of risk to be assumed.
A notable advantage is that price differentials usually have a lower volatility rate, so the risk to the broker is less. Generally speaking, price differentials are much less volatile than futures prices. This is a common phenomenon in futures trading, especially for futures that can be stored and then thrown away. It should be noted that the volatility of price differentials between different commodities varies, for example, the price of corn is less volatile than that of soybeans.
Due to the hedging nature of leveraged transactions, it usually carries a lower risk than unilateral transactions. This is an important factor to consider when comparing leveraged and unilateral transactions. Group rationality suggests that a portfolio made up of two completely negative related assets can reduce the portfolio risk to the maximum.
Using the hedging characteristics of leveraged trading can effectively avoid the risk of a crash crash; because of political events, weather and government reports, etc., futures prices can crash, which can lead to a crash, and the price closes on a crash stop. A reversed unilateral trader loses badly before being able to break even; but in the same environment, leveraged traders are basically protected.
Compared to a given unilateral position, a leverage position can offer a more attractive return/risk ratio. Although the return per leverage trade is not high, the success rate is high, which is determined by the limited risk of price differential, lower risk and lower volatility characteristics. A leverage position has the characteristics of stable returns, low risk, so it has a more attractive return/risk ratio, which makes it more suitable for large capital operations.
The price of futures is often difficult to predict, at least in the short term, because of their greater volatility. In a bull market, futures prices will rise unexpectedly high, while in a bear market, futures prices will fall unexpectedly low. While changes in price trends provide a wide margin of profit for futures traders, misjudgments can also put traders in a very risky position.
Source: The House of Trade