Know The Facts When Futures Trading

Know The Facts When Futures Trading

With any trading derivative it is important to know the facts and risks involved before beginning. This holds true for the futures market sector as well. Future trading has been compared to nonstop auction products where the derivative acts as a go between to the most current information on a products supply and demand. This area is where both sellers and buyers meet to trade the various commodities such as energy, currency, stock indices, agricultural markets, gold, silver and other metals, etc.

Before you begin trading, you should understand and implement these ten factors.

1. Do not over-trade – this means do not invest more than you can afford to lose. Do not put all your capital into this one trade.

2. Follow the trends – do not attempt to pick the tops and bottoms, following the trends is a far better alternative.

3. Do not start a position until you have researched it. Ensure you know where your entries and exits will be. Set a profit goal.

4. Do not trade in too many markets; use your capital wisely, instead of placing positions in 10 markets, try only using 5.

5. Prior to opening your position, have enough historical data to know if the market movements will be going in a different direction than what you expected. Remember to avoid impulse trading and emotional trading at all times.

6. Create a plan and stick to it. You must stay disciplined and follow through with your money management goals; this is by means of risk management and using smart money and trading allocation techniques.

7. As a risk management tool, try to open futures contracts that are not part of a highly volatile market.

8. A good rule of thumb is to cut losses short but allow your profits to continue to run. It sounds simple, however it is very difficult to implement. This is why knowing your market and studying historical data, graphs and following trends comes into play.

9. Try to not get emotional over gains or losses; note that most traders will lose often before finally beginning to gain.

10. Remember to not overstay a good market, learn when to exit. Facts show that futures traders overstay a profitable market will also overstay a bad market.

In closing, you need to understand futures contracts prior to beginning. There is a great deal of risk involved. Know that you will have many losses prior to gains. It is generally best to trade in futures by its performance level. If the position is not working, close it.