CandleFocus Glossary Editor
An outright futures position is an investment made in a futures contract with the goal of profiting from changes in the value of the underlying asset over the lifetime of the contract. In an outright futures position, the investor is not hedged in any way, taking on full responsibility for the potential gains or losses arising from the underlying asset’s movements in the market. In doing so, the investor is exposed to greater risk than with a hedged position, although the outright position also has theoretically greater profit potential.
An outright futures position involves a number of associated risks. One of the biggest risks of trading an outright futures position is that suddenly and unexpectedly large price movements can result in the investor having to take delivery of the physical asset underlying the futures contract, known as the underlying asset, such as a stock, commodity, currency or index, at an unexpectedly high price. On the other hand, if the underlying asset suddenly drops significantly in price, the investor can be forced to sell it at an unexpectedly low price.
In addition, as the investor profits from assets traded in the futures contract, they will face the risk of brokerage costs, taxes, and commissions which can significantly erode any profits that they were hoping to achieve. The higher the expected return, the greater will be the exposure to the associated risks.
Those who are considering trading an outright futures position must firstly understand the various risks associated with the investment and secondly, assess and decide whether they are willing to accept the risk that comes with the higher expected return. Investors should also consider the possibility of exiting their positions by taking a partial or full hedged position should their original thesis turns out to be wrong. This way, investors can minimise their losses and preserve capital.
Overall, an outright futures position can be an effective strategy if an investor has sufficient knowledge and understanding of the futures market as well as the ability to accurately measure and monitor the associated risks. As with any investment, it is essential that investors assess their financial situation, goals, and risk tolerance before committing to any investment. By doing so, investors can increase their success in trading in futures and other investments, including the outright futures position.
An outright futures position involves a number of associated risks. One of the biggest risks of trading an outright futures position is that suddenly and unexpectedly large price movements can result in the investor having to take delivery of the physical asset underlying the futures contract, known as the underlying asset, such as a stock, commodity, currency or index, at an unexpectedly high price. On the other hand, if the underlying asset suddenly drops significantly in price, the investor can be forced to sell it at an unexpectedly low price.
In addition, as the investor profits from assets traded in the futures contract, they will face the risk of brokerage costs, taxes, and commissions which can significantly erode any profits that they were hoping to achieve. The higher the expected return, the greater will be the exposure to the associated risks.
Those who are considering trading an outright futures position must firstly understand the various risks associated with the investment and secondly, assess and decide whether they are willing to accept the risk that comes with the higher expected return. Investors should also consider the possibility of exiting their positions by taking a partial or full hedged position should their original thesis turns out to be wrong. This way, investors can minimise their losses and preserve capital.
Overall, an outright futures position can be an effective strategy if an investor has sufficient knowledge and understanding of the futures market as well as the ability to accurately measure and monitor the associated risks. As with any investment, it is essential that investors assess their financial situation, goals, and risk tolerance before committing to any investment. By doing so, investors can increase their success in trading in futures and other investments, including the outright futures position.