A comparison between physical trading of goods and trading them on a financial market.
Lets have a comparison between trading futures contracts and physical trading of the same commodity or whatever underlying asset of that futures contract.
In physical trading of goods usually the full value has to be paid to the seller on the spot or after a short period of time if the seller knows the buyer very well but in case of a future contracts a small deposit is the capital required for the buyer and the seller to trade. This means the capital required to do the business is much less, sometimes more then twenty times less, and the money you put in risk is much less than physical trading.
Trading financial markets like any other business exposes you to risk that may cause in loss of money. What is interesting about it is that in financial trading you are able to calculate your risk using simple statistics and mathematics and limit it to your appetite. One of the most important services we provide you is helping you with this calculation. But in physical trading you are exposed to many different types of unpredictable risks that is impossible to be calculated. No one has ever seen or heard that a future contract is broken, spoiled, stolen, destroyed as result of earthquake or gone out of fashion.
In physical trading of goods from the time the buyer buys the goods to the time he becomes a seller and has its money returned back to him, days,weeks, and even months can pass during which his money is exposed to unpredictable risks and is not accessible to you. As a consequence the physical trader will witness lots of profitable business opportunities simply passing by because he does not have access to his money. In financial trading you can pull out all or part of your money out of the business within a second if it is required.
In physical trading of goods usually you have to buy the goods first and then only you can sell them. This means that you will benefit from the rise of the price only and in case of a fall in the price no way to have any profit. There will be only loss. But when you trade future contracts you have the right to sell before buying. So you can have profit even when the prices head south. It is clear that in financial trading the chances to make money are twice compared to physical trading.
In physical trading quantity and quality control is a very important issue that requires serious attention. That is the reason why traders pay attractive amounts of money to inspection companies or spend on travel expenses to inspect the goods they buy and despite all efforts and money they may not receive what exactly they intended to buy. But in a financial market such things never happen due to the fact that what the buyer buys and the sellers sells has been thoroughly specified by the quantity and quality in the contracts specification.
In physical trading of goods the buyer or seller may try to cancel or alter the deal they agreed upon initially because of change in prices or any other reason. In financial trading the deal once clicked is guaranteed by the market supported by the deposit both buyerand seller have with their broker.
In physical trading there are expenses that cannot be avoided whether the business is running on profit or on loss.Rents, salaries and government fees are simple examples and there is always a start up fee involved that is money you pay without any return.In financial trading noset up fees and/or overheads exists. The only expense is a small fee you pay to your broker only whenever you trade.
There are more advantages in financial trading over physical trading such as the fact that you can do your business at the comfort of your home or any other place where you can access the Internet or a telephone line. Business opportunities are open to you more then five and half days a week round the clock when you feel like doing it. You may decide to choose it as your second job while working elsewhere or leave your investments to us and just enjoy the profit.
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