Trading futures and options, like most things in life, is a learning process. As you trade, you will gain hands-on experience of the factors that drive markets, the nature of price volatility, and how you react to various situations such as losing money, or making money. This knowledge, in turn, can help make you a better trader. While there is no substitute for actual trading experience, the following trading tips will help your initial trading experience be a positive one.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts.
Watch Before You Trade
Once you have identified a market that you wish to trade, spend some time watching prices before you establish a position. By watching prices, you will get an idea of the typical volatility of the market which gives you an indication of the cost of trading that market. The more volatile the market, the more expensive it is to trade. Be sure to check that the initial and maintenance margin requirements will still leave you with sufficient excess margin in your trading account. (Margin requirements are higher for more volatile markets.) Also check the contract specifications to determine the trading hours of the contract, the contract months, and the last day of trading. For instance, if the nearby contract stops trading in one week, it may be better to enter a position into the next active contract month so as to avoid the commission of a contract roll.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts.
Start Small
When you decide to enter a futures or options position, there is no shame in starting small, for example, trading just one contract. In fact, most traders, not counting the large CTAs or funds, tend to trade only one or two contracts at a time. As you accumulate trading experience, you can always increase your trading activity when appropriate.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts.
Use Stop Orders
Stop orders are used to limit loss on a futures position. It is a good idea to establish a stop price that caps maximum tolerated loss on a futures position the moment that you decide to initiate it, and call in your stop order to the futures order desk every day as necessary. (Stop orders are day orders and expire at the end of every day.) Don't wait to set a stop later as your best judgement may falter if you start to lose money and you consequently may talk yourself into accepting more loss than what you should have tolerated. The proper use of stop orders can protect your trading capital which, in turn, protects your peace of mind.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts.
Buy Options
As a beginning futures trader, you may want to consider trading in only one way: buying options. If you think prices will rally, buy call options, and if you think prices will decline, buy put options. The great advantage of limiting yourself to only buying options is that you are always protected from a risk management viewpoint. The most you can lose is the premium paid for the options (and the associated commission charges).commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts.
Don't Over Monitor
In the "old days", most futures investors based their trading decisions on prices read from the business section of a major newspaper. Even though they were one day old, they were still sufficient to enable many traders to accumulate substantial wealth. With futures and options prices available on the Internet, these days, almost any investor can get a steady stream of prices throughout the trading day. While timely information is certainly a good thing, beginning traders must be careful not to over monitor the market. Being glued to the computer screen to watch prices all day can make you "jumpy", with the consequence that you may react prematurely - or poorly - to price movements.commodity futures broker, futures trader, commodities futures trading, financial and commodity futures markets, paper trading, full service broker assisted accounts.