Posted By: Ilan Levy-Mayer Vice President, Cannon Trading Futures Blog
Getting Started in Commodity Futures Trading
Since 1851, futures trading has been a cornerstone of the U.S. financial markets. However, despite its long history, trading in the futures commodities market has remained elusive to most investors. But it doesn’t have to be, trading in futures poses large risks but also substantial rewards to the level headed and well-studied trader.
The futures market deals in commodities. Originally, these commodities were agricultural, but in today’s market they have expanded to include the basic materials that make up most consumer products. Examples of commodities traded on the futures market are: gas, aluminum, currencies, cotton, gold, wheat, bonds, and oil. A futures contract is essentially a contract between a buyer and seller of one of these commodities, to buy or sell at a specified date and price.
In order to take advantage of the opportunities offered on the futures market, a trader must educate himself in supply and demand analysis. It is crucial to research the market trends of the commodities one wishes to trade in as well as seasonal cycles. Only with thorough research and preparation will a trader be fully positioned to capitalize on the trends of their chosen market.
Helpfully, the advent of electronic trading has leveled the playing field and given traders at home essentially equal access to those on the market floor. Electronic trading platforms allow all investors to guide their own portfolios, while maintaining access to licensed brokers who can assist them.
When beginning in the futures market, it is important to use a demo electronic trading platform before going live into the market. Demos allow traders to fully familiarize themselves with the pace of the market, experiencing the fast rise and fall of daily trends without the risk of actual investment. It is advisable to begin one’s futures portfolio with only 2 or 3 commodities, and demo for at least four weeks before going live. This period of time allows a trader to develop important strategies that will carry him through the market’s storms.
After four weeks of demo trading, a trader should feel confident entering the live market. It is a pitfall to get stuck in demo trading and never jump into a live account, so it’s important to remember that as long as a trader has done his research and closely monitored his demo trades, he should feel more confident in using his live account.
Once live, the most important two things for investors to remember are to trust their research over their emotions, and to avoid overtrading. Futures trading can be extremely volatile, a cool head and moderate hand will get a trader out of trouble.
Futures trading is definitely advanced work, but with the right research, a good strategy, and an ability to stay focused and level headed, a trader can conquer their fears of the market. To get started with futures trading, contact the experts at Cannon Trading!
Disclaimer – Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.