How to Trade in Futures
Posted By:- Ilan Levy-Mayer Vice President, Cannon Trading Futures Blog
Long-term success in futures trading usually doesn’t begin overnight. You need to develop a proven trading technique that – more often as not – works. For new traders, Forbes magazine is a solid source for financial information. In one article, it flatly states, “You would be better off just giving your money to experienced traders . . . it would save on your emotional wear and tear.”
- First Things First: Research
The only thing more expensive than education is ignorance.
- Time is on your side. As a beginner in futures trading, it’s important to research risks and leverage. You will learn the ins and outs of this exciting marketplace when you work with a trustworthy, experienced online futures trading broker.
- Part of your research into futures trading is to choose your online futures trading brokerage. The type of guidance you need will change as you learn more about the futures commodities trading market. Hopefully, your brokerage company will mentor your futures trading evolution; as a beginner, you may need a full-service broker. Later, you may opt for lower commissions and fees as you become more knowledgeable and adopt a do-it-yourself approach to online trading. Your considerations include:
- Brokerage’s reputation for customer service
- Commission rates you can afford
- Margin requirements that you can handle
- Software that is user-friendly and meets your requirements
- Types of futures in which you are interested
Historically, futures trading utilizes one of the oldest types of derivatives contracts. They were originally developed for farmers, who could hedge against changes in their crops’ prices between the time the crops were planted and the time crops were harvested and brought to market.
Use What You Know
Futures Trading and stocks trading have many similarities as well as differences. With stocks, you own a certain stock and usually there is no margin involved or 50% max margin. You can also trade ETF’s through a stock account. Futures and commodities trading may have the same technical analysis principles as well as many similarities with the options trading but with futures there is a built in leverage that allows you to control much more money. Also, commodities futures contracts have a set delivery date, at which time the contract expires. You can trade as many types of futures contracts as you want, but it’s best to stick with what you know or would like to learn more about. For example, if you worked for an oil company for several years, you might want to focus on energy commodities which include oil, gas, and coal, because you understand the trends in that market. Your trading brokerage should be able to show you recent trends and a current market view every day.
Categories of futures markets include:
- Agriculture (dairy, forest, grains, livestock)
- Currencies and Forex [foreign exchange] (GBP/$, Euro/$, Euro/Yen, Yen/$)
- Energy (coal, crude oil, heating oil, natural gas)
- Equity/stock indexes (E-mini S&P 500, Nasdaq 100, Nikkei 225, S&P 500)
- Interest Rates (Barclays Aggregate Index, treasuries, interest rate swaps, money markets)
- Metals (base metals [copper, lead, nickel, zinc], gold, platinum, silver
Types of trades are:
- Basis trade – a wager that the price differential between cash and futures will fluctuate
- Spread trade – a wager that the price difference between two different futures contracts will change.
- Hedging – a contract where you sell a futures contract to offset positions you hold in the cash market
- Other types of trading can be:
- Day trading
- Swing trading
- Options spreads
- Futures spreads
- Combination of futures with options
- Selling option premium
- ALGO/ automated systematic trading
Once you have selected the assets you want to trade, you need to make a deposit into your trading account for margin purposes in order to initiate your position as a futures buyer or a seller. Before placing the trade, your online futures broker will probably ask about your previous investment experience and your income/net worth. This helps your broker understand your financial background a bit better and helps in assessing your risk profile/ tolerance.
You must meet a maintenance margin to keep your account active. A maintenance margin is a minimum of 10% of the total market value of your margin account.
Futures Trading: Is It a Good Idea?
Wealth is in ideas – not money.
As a newcomer to futures trading, you should take advantage of Cannon Trading broker-assisted services, where you always make the final futures trading decision. Services include:
- 24-hour order desk
- Fast/accurate order execution
- Instant access to information regarding your account
- Live quotes, current charts, research information, and daily emails
- Personalized attention and superior customer service
- Trading strategies that consider your lifestyle and personality
Call 310.859.9572, 800.454.9572, or contact us to learn more. We advise you to research and learn the basics about futures investments. If you have the kind of personality that can handle the ups and downs of commodities trading, and if you want to build a relationship with a knowledgeable, trustworthy broker, trading with Cannon Trading is a good idea.
This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts here in contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgement in trading.