What are trading futures?
When a derivative financial contract obligates parties to buy or sell assets at a predetermined future date and price, it is known as the future. Regardless of the current market price, the buyer must buy, and the seller must sell the underlying asset at the set price at the expiration date for future trading.
While success can make huge profits, mistakes can be costly in futures trading. And to avoid such errors, one must have a plan or a guide. Here’s your professional guide to trade futures:
1. Trade plan establishment –
One needs to always plan their trades carefully before establishing a position. It involves setting a profit target and an exit strategy in case the deal goes wrong.
The idea is to reduce the likelihood of having to make critical decisions when already in the market and risking money. Fear and greed should not dictate your actions by tempting you to hold a losing position for too long or abandoning a successful position too soon.
A well-crafted trading strategy that includes risk-management tools like stop-loss orders (discussed below) or bracket orders can help you avoid such mistakes.
2. Protection of positions
Preparing an escape strategy ahead of time can assist shield you from major counter-moves. Too many traders attempt to utilize “mental stops,” deciding on a price in their heads for when they will close out a position and limit their losses. However, even for the most disciplined traders, these are far too easy to overlook.
Consider trading with stop-loss orders to strengthen your commitment. The aim is to first decide on a rescue price and then place a halt at that price.
One-Triggers-Other (OTO) command enables you to place a primary order and a protective stop simultaneously. The protective stop is automatically triggered when the principal order executes, relieving you of the burden of continuously monitoring the market.
However, keep in mind that there is no guarantee that a stop order will be executed at or near the stop price.
3. Watch the bird’s eye, but not just the eye
Keeping track of a few marketplaces is difficult for most traders. Even the most experienced trader can find it challenging to keep up with charts, market comments, and breaking news.
If you try to follow and trade too many markets, you’ll probably give none of them the time and attention they deserve. The contrary is also true: trading only in one market may not be the best strategy. Diversification in the stock market has well-known benefits, and diversification in futures trading can have similar benefits.
4. Slow and steady wins the race
Don’t floor the accelerator if you’re new to futures trading. When you’re just getting started, there’s no necessity to begin trading five or ten contracts at a time. Don’t make the rookie error of using all of your account’s funds to buy or sell as many futures contracts as possible. Because drawdowns are unavoidable, you should avoid building a big position where a few bad transactions might wipe you out financially.
Instead, start small with one or two contracts to create a trading strategy without the extra stress of handling larger amounts. Adjust your trading as needed, and if you find a winning style or approach, consider increasing your order size. You can gradually raise your order size once you’ve found a technique you like.
5. Look left and right
In both rising and declining markets, there are trading possibilities. It’s human nature to hunt for opportunities to buy the market or “go long.” However, if you’re not willing to “go short” on the market, you may be limiting your trading options unnecessarily.
You can buy first and then sell a contract to close out your position. You can also sell first and then offset your position by purchasing a contract. There’s no practical difference between the trades: you’ll have to post the required margin for the market you’re trading regardless of which order you sell or buy. So, don’t pass up the chance to go short.
6. Look before you leap
If you get a margin call, it’s because you stayed too long in a losing deal. Consider a margin shortfall sign that you’ve grown emotionally connected to a position that isn’t performing as expected.
You may be better off leaving the losing trade completely than moving extra cash to fulfill the call or downsizing your open positions to lower your margin requirement. “Cut your losses,” as the old trading adage goes, and look for the next trading chance.
7. Don’t kill the hen with golden eggs.
Don’t get too caught up in the market that you lose sight of the bigger picture. You should keep an eye on your work orders, open positions, and account balances. But don’t get too hung up on every market spike or downtick.
You can not only drive yourself insane but also be thrown by minor zigzags or whipsaws that look substantial at the time but are ultimately simply intraday blips.