Posted By: Ilan Levy-Mayer Vice President, Cannon Trading Futures Blog
Futures trading can be a rewarding investment for those with an in-depth understanding of a particular commodity. In essence, you will be buying or selling a commodity based on its future selling price. For example, if you can buy a futures contract at a low rate and sell it for a higher price, it’s possible to gain a significant profit in the transaction. But before wading into this highly speculative market, there are some things you will need to do and know about trading futures markets.
First, you will need to enter an agreement and create an account with a commodities broker. These brokers are licensed professionals who are allowed to trade in commodities on the trading floor of an exchange. Accordingly, they manage and mediate futures trading between buyers and sellers as well as keep track of the prices of futures contracts. Because of their knowledge of the market, they can help you make sound investments and recommend an investment strategy that suits your profile.
When choosing a commodities broker, make sure you find one who will help you understand the different methodologies and managed programs out there if that’s what you are leaning towards. Or a commodities broker who can help you as a self-directed trader to understand the subtleties involved when picking markets to trade based on what kind of opportunities you are looking for. When trying to better comprehend the complicities of trading futures, it’s better to speak with a licensed professional rather than your online trading buddy or so called “Educators” who are not licensed.
Once you have picked your trusted broker and opened an account with their firm, you must deposit an initial margin. Margins are collateral used to cover losses by the exchange or brokerage firm when trading in your name, such as when cash is borrowed for a purchase order. Each commodities market has different margin requirements. If the losses fall below the maintenance margin, your broker will ask you to add funds to bring it back to its initial amount. Moreover, if you make a profit due to your position, the yield will be added to your account.
Lastly, trading software is a necessary tool used by professionals and rookie traders alike. It allows traders to access information from different markets conveniently. The trading software should be able to chart the price fluctuations and other market activities. Additionally, the software can be used to place, modify, and cancel orders by directly contacting the exchange.
Please remember that navigating the futures markets is not understood overnight. It can often take years of preparation and research, and you can never learn enough patience when you’re trading live. Just as paramount as any other prerequisite for trading futures is a proper trading psychology: one that will allow you to determine the difference between pain tolerance and denial, between responsible targets and greed, and a mindset that won’t force you to keep trading when it’s time to step away from the computer.
By deeply researching the factors that affect pricing and continuous education in the commodity markets, the leverage in futures trading could create large gains as well as losses.
There is a substantial risk of loss in trading commodity futures, options, and off-exchange foreign currency products.
Past performance is not indicative of future results.