Top 10 Tips for Traders Interested in Trading Futures

Our Top 10 Tips for Getting Started In Futures Trading Will Give You Some Key Advice & Resources That Could Be Helpful on Your Trading Journey

When you start in the Futures Market, you are getting into an asset class that is traded by many professional traders, hedge funds, and money managers. You can trade contracts such as Oil Futures, Gold Futures, or the different stock indices worldwide.

There are tremendous advantages to trading Futures such as regulated exchanges, standardized contracts, and the enormous leverage you can obtain from trading Futures. You can take advantage of micro-events and worldwide macro events.

There are different sectors you can take advantage of:

  • The Energy sector trading Crude Oil Futures and Brent Oil Futures
  • The metal sector such as Gold and Futures
  • The Grain sector trading the Corn and Wheat
  • The Currency sector trading the Euro, Yen and Swiss Franc Futures
  • The Stock index sector trading the SP Futures, Dax and Nikkei Index
  • The Soft Commodity sector where you can trade Sugar and Cocoa
  • The debt instruments such as Ten-Year Notes, 30 Years Bons and Ultra Bonds

All the products are above could be traded long or short. This means you can take advantage of the upside of the market, and the downside of the market. As oppose to equities (stocks) you do not need to borrow funds to go short; instead, you post margin and as long as you have the appropriate funds as dictated by the Futures exchanges, such as CME, Eurex, etc.

The exchanges have “sessions” which they categorize by the beginning of the session, and the time close for the end of the session. They typically list it according to the time zone they are located in.  If you want to hold from one session to another, you should have the entire full margin. If you day trade Futures, then you need to ask your Futures broker the margins that are required to day trade because many times, they can be as low as 10% from the original overnight margin.

You have a variety of trading platforms for futures traders. One of the most sought-after features by futures traders is a trading DOM because many of the day traders rely on order flow methods to read the levels of buyers and sellers daily.

Futures trading requires a tremendous level of discipline because the markets are leveraged and that makes it very different than traditional stock trading. While some highly capitalized traders can tolerate large swings of capital, those who have limited money cannot, and therefore should focus on smaller time frames and not expose themselves to overnight fluctuations.

The 10 tips below will help you get started, and we also suggest that you examine site as  where they help you answer questions about Futures trading that are both technical for advanced users and beginners who are just getting into Futures trading.

1. Start with Small Size Futures Contracts

When you start in futures trading, you should focus on learning how to trade with leverage, and you have a chance to do with several contracts that are very popular. You can start with the Micro contracts such as Micro S&P (MES), Micro Dow Jones (MYM), Micro NASDAQ (MNQ) and the Micro Russell(M2K).  Also, you can trade Emini Gold, Micro Currency Futures, and Emini DAX (MDAX).  Starting with smaller contracts will let you adjust to the volatility and leverage and possibly allow you later to migrate to larger contracts such as the Emini S&P(ES).

2. Consider your Time Zone

You should trade contracts that are within your time zone. You should find out what Futures exchanges are near you and see what markets you appropriate for your trading. If you are in North America, you could trade the products that are on the CME. The CME is the largest futures and derivatives market in the world where the majority of the Futures contracts are traded. Over 20 years ago, the CME came up with the Globex Trading System, which was the most advanced electronic trading that eventually replaced all the pit traded markets. One of the most liquid contracts traded on the CME is the Euro-Dollar, which is a debt instrument (often confused with Euro Currency Futures). The retail customers typically are focused on the stock indices such as the EMini S&P(ES), and the EMini NASDAQ(NQ).

If you live in Europe, you can trade ICE-Europe, Eurex, and Euronext. One of the more prevalent contracts on ICE Europe is the Brent Crude Oil while the CME Trades the Sweet Crude Oil. The Eurex has the popular DAX contract that is favorite amongst day traders in Europe because of its volatility and high leverage. The Euronext exchange has the CAC-40, which is the stock index for the French stock market, and it’s very volatile.

If you live in Asia or Australia, you can trade Osaka Futures, where the traders can choose the liquid Mini Nikkei Futures (Denominated in Yen) or the SPI (Australian stock index) on the Sydney Futures exchange (traded in Australian Dollars).

3. Decide the Day Trading Margins You Use

Many Futures traders want a low trading margin to utilize their small account or want to maximize the number of contracts they trade.  It would be best if you found out what your day trading margins are, and then you can decide on the number of contracts that you wish to trade.

Although leveraging your account fully is not a good idea on one contract, you could use leverage to diversify across several futures contracts to take advantage of any potential setups.

4. Find the Right Futures Broker

We cannot emphasize this enough, because the right broker will set you up on the right technology for execution, the right software and provide the support you need as you grow your skills.  Check out Optimus Futures (An Independent Introducing Broker) that has over 9 clearing firms for Futures, and can set you up with the right clearing firm depending on the markets you trade. They have access to some of the largest and most capitalized firms worldwide.

5. Make Sure you Choose an Easy Trading Platform

If you are a beginner, choose a platform that is easy to navigate and has the basic order entry for execution. Don’t get impressed by the platform that could serve pros because they have one or two features that pros need. As a beginner trader, all you need is easy order entry, somewhere you enter long and short, and a chart.  Some platforms are downloadable, web-based, or just apps. Make sure you know what you need before you start trading, so you can find the software to match your needs.

6. Learn how to Trade with Leverage

We hope you understood that leverage is a double edge sword because it can make you a lot of money, but it also has an “ugly” face when things do not go your way. We suggest becoming very familiar with basic chart formations such as support and resistance so you can understand where to enter and where to exit, whether with a profit or stop loss.

Indicators such as moving averages should be used with discretion long with other trading indicators that you may choose. If you buy external indicators, you should ask the logic they are based on. You may find they are a combination of traditional technical analysis indicators found on each chart.

Try to use different time frames for your trading. For example, if you are a day trader, try to look at a minimum of three time-frames before you make your decision. For example, if you trade a 5-minute chart, look at 15 minute and 30-minute charts in addition to the 5-minute charts.  You may find support and resistance levels across these three time-frames.

7. Risk Management Will determine Your Success Rate and Return

Risk management is determined first by the number of contacts you hold. Also, it is the ability to cut your losses short, and not let one trade “eat” your entire account. Your psychology and experience will determine how you handle bad periods. Although the trading industry uses the adage “cut your losses short, let your profits run”, it is tough because the markets do not always trend and in a sideways pattern.

8. Focus on 2-4 Futures Markets that are Trending

You do not have to trade all the Future market categories. Focus on a few markets because one market could be just sideways while another is trending or presents a better risk/reward.  Have charts open, for example, for Treasury Bonds, Oil, and NASDAQ. Watch how they fluctuate, see the type of volatility, and decide if you want to stick with these contracts. Keep in mind that volatility on any given market can increase or decrease based on many factors.

9. Technical versus Fundamental Analysis currently

We live in the age of algorithmic trading, High-Frequency Trading, and other automated strategies that affect markets way beyond the fundamentals that may prevail. In other words, understanding supply and demand is essential, but it may be just of the puzzle. Day traders should pay attention to charts and price action.  The Flash that occurred in the past could prevail in electronic markets, so have your stops-losses despite any fundamental analysis (that are often subjective).  Fundamental analysis may prevail for prices in the long run, but also keep in mind the adage: “The market can remain irrational longer than you can remain solvent.”

10. Trading is your individual Journey

Quite often, beginner traders seek to imitate successful traders, thinking that a particular technical indicator or method is what makes the trade successful. It’s their plan, discipline, and the experience they have accumulated over the years. All successful traders make mistakes, learn from them, and change their behavior accordingly. A blog such as  addresses behavior patterns that traders follow, as presented by Dr. Brett Steenberger.  The blog is highly recommend trading for traders and investors alike.





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