Futures Trading (Part II)

By Ahmad Hassam

Apart from professional traders and speculators, futures trading is done by most of the people like you and me who are interested in making money in the markets. Like stocks, Buy low and sell high, is the basic premise in futures trading as well.

What is different from stock trading is that you can trade futures with leverage on either long or the short positions. This introduces an additional element of risk not present in the stock market.

Another major difference in futures trading with stock trading is that there is no uptick rule in futures trading. This means that you can easily enter into a position to capture a downward move in prices with no restriction. Thus, it is as easy to sell short as it is to buy long.

How do you manage to survive at futures trading even when you are not particularly good at it? How do you become good at futures trading? The answer is simple. You should have the money first to open a margin account. Then you should have the ability to develop a trading plan that enables you to keep making money in the market long enough to capitalize your next big move.

So you wont last long in the market if you dont have a good trading plan. And you wont be able to trade futures if you dont have enough money. The chances are your money will quickly disappear if you start with a small trade size.

You must know this thing that only 5% of the futures traders succeed and 95% of the people trading futures lose money consistently. You need to have at least $25,000 in your account in order to start trading futures. However, $5,000 is the minimum with which you can start trading futures.

Make sure that you go into trading futures contracts with realistic expectations and you understand the risks involved when you start trading futures. You can take advantage of the managed futures accounts if you are not sure how to handle the risk involved in futures trading.

So in order to trade futures, you need money, patience, knowledge and technology to be successful. Without money you cant open a position and without knowledge you wont know when to enter and when to exit. Trading futures contracts is truly a hybrid that uses both fundamental and technical analysis. Only proceed ahead if you have these skills in abundance.

You need to know the futures contract specifications. There are seasonal tendencies in the markets that you need to be aware of. The fundamental side of futures trading involves getting to know the industry in which you are making trades. You should also know the important reports that usually affect the industry in which you are planning to trade futures contracts. You need to keep an eye on the release of those reports.

You should determine your trading style. Are you are scalper? Are you a day trader? Are you a swing trader or are you a position trader? You will need to develop your own trading style whether it is momentum trading, scalping, day trading or swing trading. Your personality will determine your trading style. Now, the technical side of futures trading tells you what the market will do in response to the fundamentals.

Once you know your trading goals, establish a trading plan for getting there. Dont try to conquer every type of analysis at once. Instead, focus on mastering one item at a time"maybe concentrating only on chart patterns such as bull and bear flags, for instance. - 23218

About the Author:

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading futures and currencies. Trade Dow Futures and S&P Futures!