How Not to Lose Your Shirt When Trading In The Futures Markets

There is an alarming number of new, and uneducated, commodity traders losing just about everything they own. Why? There are a number of reasons why a new futures trader stands back, scratches his/her head and wonders why their trading account went from thousands of dollars to almost nothing over night 선물옵션

What happened? There are actually a number of things that came into play.

  1. First and foremost. They believed all the hype that they would become rich over night.
  2. The did not buy a good course on how to trade the commodity markets.
  3. They picked up some books on trading at the library, or worse, they signed up with a trading forum on the Internet and believed everything the so called experts said about getting rich in the futures markets.
  4. They did not have a trading plan before they placed a trade. A disaster in the making.
  5. They believed everything their broker told them. A NOTE: All brokers are not bad.
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So what are new traders supposed to do. How do they keep from losing all their money in their first month of commodity trading?

There are two very basic ways to learn the craft of trading.

  1. Paper trade.
  2. Trade Mini-Futures contracts.

There are multitudes of commodity trading books on how to make money trading futures contracts. However, a person will be hard pressed to find how-to books devoted exclusively to trading Mini-Futures. The reason I believe is that Mini-Futures lack the glitter and claims to instant wealth found in the more traditional commodity trading manuals.

It’s unfortunate, but an alarming number of new traders will read one or more of the how-to books on commodity trading and jump right in and place a trade order not fully comprehending the real risks involved in trading.

Futures prices can and do make extreme price swings. New traders, because they lack experience, are unprepared to handle the large losses when trading standard futures contracts when prices move suddenly against their position.

Mini-futures are not immune from the same extreme price move. However, the dollar loss is considerably less. Mini futures contracts will let a new trader survive a sudden market shift and have money left in their trading account for the next trading opportunity.

What about limiting your losses with Loss orders? They are supposed to keep you from having large losses. Right? Not necessarily. There is what is called Daily Limit Moves, known as Limit Move, in futures trading. A Limit Move means that a commodity price can only change up or down a certain amount during a trading session. When that happens trading stops until whatever caused the drastic price shift changes.

When a commodity makes a limit move against you it can shoot through your stop loss as if it did not exist. If you are unfortunate enough to get stuck in a Limit Move against you that last two, three, or more days and you will be wishing you never heard of trading commodities.

This is not an everyday occurrence that you have to lose sleep over, but you need to be aware of it.

Trading futures can be a very profitable way to earn a living if you treat it as a business. Trading futures is an extremely high-risk business and as with any business you must first learn the business so you won’t lose everything you own.

Think of it as if you suddenly wanted to be a high wire performer in a circus. You would be in serious trouble if you put on the flashy tights, went up 50 feet and inched your way out on the wire before you learned the craft of tightrope walking a foot off the ground. Fifty feet is a long way to fall without a net to catch you.

Trading in the futures markets, and even the FOREX markets is considered very risky. You must learn how to do it without putting your entire financial world at risk. When I say risk I mean how much money you stand to lose if a trade goes against you. Your risks are anywhere from 20% to 50% less with mini futures over the more standardized commodity contract.

As an example a 20-cent move against you in corn is $1000 while the same move in the mini corn is only $200. Another great feature of the mini futures markets is the investment required to trade a mini commodity is also 20% to 50% less. A mini soybean contract requires less than $300 to trade while the full size contract requires more than $1300; mini corn is around $100.

A final note: the FOREX markets also have mini-contracts. But, the same risks apply. This series of articles will hopefully show you how to limit your exposure to a financial disaster.