A speculator will often prefer to buy a futures contract rather than the underlying asset because:
I. Gains in futures contracts can be larger due to leverage.
II. Transaction costs in futures are typically lower than those in spot markets.
III. Futures markets are often more liquid than the markets of the underlying commodities.
A) I and II only
B) II and III only
C) I and III only
D) I, II, and III

Question

Quizplus · Accepted Answer

All three statements are correct reasons why a speculator might prefer to buy a futures contract rather than the underlying asset. Leverage allows for larger gains (I), transaction costs are typically lower in futures markets (II), and futures markets often offer greater liquidity than spot markets for the underlying commodities (III).

A Speculator Will Often Prefer to Buy a Futures Contract