Introduction to Futures Trading Career
There are a lot of advantages attached to the futures trading and its bit easy as compare to other financial markets. But that does not mean it is for everyone. Nowadays it is available on the variety of assets like stocks, indices, currencies, and commodities along with metals and energies. It is not every body’s fort.
Before getting in you need analyze that, does your trading career in the futures trading market hold the bright promise? For many it does but not for everyone. Before taking the dive If you become well aware with the hurdles and pitfalls then you can better plan your career in futures trading market.
So, consider to learn the basics of futures trading and what you must know is as under,
Basically, futures contract is an agreement between buy and seller to buy and sell the specific quantity of an asset on the certain time in future which is called expiry or delivery date.
Futures Trading market is fair Enough. These contracts are traded in the future exchanges and are standardized contracts means their expiry and contract size is same for everyone. Commodity future contracts are most commonly one.
In the futures trading market stock futures are the authorized contract to sell or buy the stock on the future price.
The lot or Contract Size in Futures Trading
In the futures trading market, you are trading beyond single shares. Future contracts cannot be traded for single shares as we trade in the stock market. Every future contract is based on he fixed as determined by the exchange and different from asset to asset.
Duration of Futures Trading Contracts
It is easy to understand as buyer and seller are making a transaction for a future specific date. The Future contract is an agreement for transacting in a certain future date. Futures trading contracts are avail from one month to six months’ time period and even more. When one contract expires, a new future contract is introduced by the future exchange. Contract month is a month in which the contract expires.
Indexes are used to measure the changes over time. In the futures trading market, it is used for the same purpose. There is a long list of indexes which are possible to trade in the future market. While trading indexes it becomes easy to keep an eye on the movement of different sectors and exchanges.
Indexes are the products which you trade most in your futures trading career.
Futures Trading Equal Measures of Risks and Rewards
There is a wise list of benefits which one can consider like leverage is the very first one. Due to leverage one can trade the contact with the fractional margin. Hedging is possible in this market and liquidity makes it more attractive. Trading with the margins always increase the expected profits and it can double the earning in a single contract.
Risks in Futures Trading
The word future is the self-explanatory one that means unforeseen conditions full of risk time. With the count in time everything can change like world politics, the weather and the supply routes. Which may arise an unforeseen risk.
Cost carrying Model in Futures Trading
This trading model holds that there is not a difference between cash and futures trading model. It considers markets perfectly efficient. This is the model which allows arbitrage means benefit from price difference from two or more markets. Carrying cost is the cost to hold the contract until the expiry date of the future contract.
In your futures trading career when you use margin you have to pay the additional cost for that so account in that too.
Expectancy Model and futures trading
This model states that futures price are the spot prices expected in the future. And believes that market sentiment is the key for the future trading price.
In this model, traders believe that there is no relation between sport price and future trading price. Means future prices are used to anticipate the changes in the cash market.
Difference between Spot Price and Futures Price
In the future trading market, the spot price is the base this is the price which investor is paying for the future delivery. If the future prices are expected to rise when the market is bullish and in case of downfall, market Is bearish.
The transaction process of the futures trading market is same as compare to the stock market.
The only different thing is the buy will not get immediate delivery. You can trade all of the future assets with a single trading strategy.
Many of new investors who consider futures trading career they come with the basic knowledge of stock which is not enough to get in.
Buying a Futures Contract
In the cash market, you have to pay the entire cost while here in the futures trading market you can buy a contract with the margin money. Means offering collateral which may be even 5% of the total contract value.
In futures upfront payment is called margin and it just ensures that trader has the ability to bear the losses serve as collateral of margin position.
It also reduces the risk of the exchange and improves the integrity of the market.
Settling of Contract in Futures Trading Market
To sell a contract you just need an opposing order. Like in the first pale you buy a contract with the buy order. When there is need to exit from the future contract you just need a sell order. Inventors can exit any time they do not want to settle at maturity. keep in mind it’s not simple as stocks or forex so remember to use when you start your futures trading career.
Steps Involved in Buying
In the futures trading market, one need to maintain the four different types of margins, without this buying and selling will not become possible.
Initial margin: This is the upfront cost which an investor has to pay while buying or selling.
Exposure margin: It is set to control volatility.
Premium Margin: Paid to contract sellers/writers
Mark to Market Margin: It is used to covers the difference between contract cost and closing cost of the contract.
The best thing which the majority of investors like about this market is the initial margin remains the same, even it is the same from years which is really helpful in calculating the initial cost. Margins make it possible to trade a contract with the least possible investment.
There are many important other terms which you must know before taking a real start of futures trading career.
Follow the Trend in Futures Trading
This is the hardest advice to follow as to when a trader suit in front of the trading terminal there it is hard to hold the horses. Futures trading is easy if as an investor you follow the trend the bigger one. Even if you are familiar with the swing trading strategies then you can get the maximum benefit from trading futures.
Follow a System - Don’t Descend into Chaos
You need to stay clear about the reasons to step in the futures trading market and become sure that. You need a proven trading system to profit from the futures trading.
If you have time then you can make your own. Before starting in real and investing you must paper trade and make a trading system for your future trading career.
Avoid Over Trading in Futures Trading
Overtrading in the futures trading can affect the performance. Performance is everything as the gains will depend on this especially when it comes to futures trading techniques.
You must avoid trading to stay stable in the trading futures. Only enter into a position while following your trading system when you are sure about the entry and exit. Get grip on trading plans to avoid over trading in your future trading career
Volatility Can Be Explosive in Futures Trading
Volatility can fill your pockets if you make a right decision and erode all of your balance in case of wrong decisions. You have to make hard decisions and handle unforeseen force. Before entering into the market, you must consider risk to reward and consider position sizing seriously.
Avoid Emotions in Futures Trading
Always trade an established trading plan to avoid emotions. If you sit to trade without a trading plan then there will be a greater chance to make emotional decisions. And use clear entry and exit points objectively.
Your futures trading career will become highly profitable if you learn to control your emotions.
When you make a decision, you need to stick with those decisions until you take profit or stop loss reached. If there is a second analysis even a technical one or a fundamental then you may opt-out from your positions. Technical analysis will help you a lot of maintaining discipline in futures trading.
Impulse Trading is Out
A certain winning may not make you but a certain loss will do. Avoid impulsive trading and move on to objective trading because in the long run, it will be more beneficial.
Cut Down your losses
Do not marry with your losing trades always let the profits run and cut you’re losing trades. This will make you enable to withdraw your profits into the pocket. It will pave the way for letting your profits run and make money for you.
For a trader, it’s not easy to admit the mistakes but as early your admit your mistake, the less it will cost you term of money.
Learn how to cut down your losses before starting real futures trading career.
Don’t Overstay a Bull Market
The market never remains the same all the time, when you are in the bull market prefer to take your share and exit. Like if you stay long the market can turn bearish and sometimes it turns quite fast.
Your profits will depend on whey you pull in and when you pull out. You must know it before starting your futures trading career because long holding will give you dividends, like one get in the stock market.
Don’t Add to a Losing Position
Good and successful traders do not add to the losing positions as it will increase your losses. And may margin call knock at your door. If you think that averaging the losing is a way to cover the losses then you are on the wrong side. In a strong trend, the market may not turn back for months. Make sure that you will not bet on the losing side and is possible with good analysis.
Above is the overview of all the things which one need to know before starting the futures trading career. As compare to stock trading futures trading offer better benefits and it also offers greater earning potentials. With just basics, one can make good earning from it. But to earn a living from this business an investor or trader needs to understand and grip strategies which work well. Results will be definitely awesome if you make your own trading strategy. Futures Trading career is the best choice for those who are ready to learn more.