Futures trading is well known in the world of finance and intraday trading as one of the more lucrative professions. However, a lot of people do not know how to get to that position, how to be a futures trader? What are the steps to take and what do you need to know in order to become a futures trader? Futures being a derivative financial asset cause confusion in new traders that are exposed to the asset class.
Often times, people think that in order to become a futures trader you have to go through extremely high levels of education for years on end. The reality of it is, futures trading is not rocket science and it’s simple to learn and practice. It can be done in a 3-month window even.
The futures market is comprised of a lot of market participants, investors, speculative traders, hedge funds. All of which may use futures for a different reason. However today, we’re focusing on the speculative trader that trades the futures market to turn a profit.
How to be a futures trader? What do you need to know and do to make that dream come true?
First, the trader should understand the basics of the futures market. A futures contract is an agreement to buy or sell an asset at a future date and price. The price of the asset is preapproved. Futures contracts are standardized and traded on exchanges. Futures contracts come in many different forms, from physically delivered commodities like oil to cash-settled contracts like equity futures.
There is a buyer and a seller of the futures contract, where the buyer agrees to take the delivery of the good on a certain date while the seller provides the good for the delivery. When it comes to trading futures for a profit, holding contracts until delivery is an extremely rare occurrence, positions are closed out before the month’s expiry. Leaving the trader with either a loss or a win on that position. A debit or a credit in their account.
First, the trader should understand the basics of the futures market. A futures contract is an agreement to buy or sell an asset at a future date and price. The price of the asset is preapproved. Futures contracts are standardized and traded on exchanges. Futures contracts come in many different forms, from physically delivered commodities like oil to cash-settled contracts like equity futures.
There is a buyer and a seller of the futures contract, where the buyer agrees to take the delivery of the good on a certain date while the seller provides the good for the delivery. When it comes to trading futures for a profit, holding contracts until delivery is an extremely rare occurrence, positions are closed out before the month’s expiry. Leaving the trader with either a loss or a win on that position. A debit or a credit in their account.
The most liquid contract in the world is the S&P 500 E-mini, on average has 1.5 Million contracts a day traded on its current contract. This in the equity asset derivative based on the price of the S& P 500 index. This contract is great for the beginner trader as it moves well, easy to understand and forgiving to mistakes, as long as you don’t make too many of them!
The following is a list of the most liquid futures contracts in the world.1. S&P 500 E-mini (ES) 2. S&P 500 E-mini (ES) 3. Nikkei 225 Mini (NPZ)4. Nikkei 225 Mini (NPZ)5. Crude Oil Futures (CL)
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At TRADEPRO Academy we trade the S&P 500 E-mini futures and the Crude Oil futures most actively. This is because of their high degree of liquidity and also the fact that they are the most active during the US morning trading session between 9:00 AM EST and 11:00 AM EST. This provides us with the most amount of opportunity for profit. Subscribe our TRADEPRO Academy Youtube Channel.
The risks involved
A new futures trade needs to be aware of the risks when trading futures. Before diving in, understand margin and leverage. When trading different financial assets margin in a big factor in being able to make money. People use margin, or in a sense borrow money from their broker using a “down payment” to take advantage of small stock moves with larger positions. This can turn against a trader!
Futures have naturally high leverage, with just a small amount of money you can control a large portion of the market. For example in the S&P 500 futures market, 1 point of movement from 3000 to 3001 is worth $50 of gain or loss on 1 contract. This can be accomplished with $400 in your account, that is all AMP Futures broker requires to trade 1 lot on the S&P 500 futures market. The greater the leverage the greater the opportunity for gains but for losses as well. Futures traders need to make sure their emotions and trading plans are in check for diving into such a market.
Finally, how can YOU trade futures?
The futures trading process is moderately easy, if you are in the US you can bypass the Pattern Day Trading Rule when trading futures. Otherwise, you can start with a low amount of money, even as low as $1,000. All it takes is finding a good broker that has low margin requirements like AMP Futures. Most brokers differ in commissions charged per trade per lot and margin requirements for each futures contract. However, with AMP Futures, we have experienced the lowest margin and commission and the most trustworthy business.
Next, you should find a platform for trading futures. Something with unfiltered data so you can see the tick by tick movements in the assets rather than restricting them to time. Something that has a demo account and is well known in the futures industry. A platform like Sierra Chart meets both of those requirements and to add to it, it’s cheap!
Next, you should find a platform for trading futures. Something with unfiltered data so you can see the tick by tick movements in the assets rather than restricting them to time. Something that has a demo account and is well known in the futures industry. A platform like Sierra Chart meets both of those requirements and to add to it, it’s cheap!
TRADE PRO ACADEMY
It’s pivotal to understand how important psychology is when trading futures. TRADEPRO Academy has an extensive course that covers not only futures trading but also trading psychology along with a psychology podcast. Traders need to channel their emotions and know not to spend too much time in demo because it can have some adverse conditioning affects. Be diligent in learning your personal strategy. With the power of the Micro equity market, traders can risk less capital now and learn a lot more!
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The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable for your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.
