Trading in Futures and Commodities has advantages not found in more traditional forms of investing. In fact, investing may be the wrong word to use. Most who trade in Futures and Commodities are more like speculators, because the time a trader will hold onto a position is usually much shorter than the time investors tend to hold positions.
One of the big advantages of trading Futures and Commodities is the leverage. For a relatively small amount of money, the futures trader can control many times that of the underlying product, may it be Wheat, Crude Oil, Gold or one of the Currencies.
This type of leverage provides the opportunity to make a lot of money from a small amount of money. However, leverage is a two-edged sword, and that means you can also lose a lot of money if you do not know what you are doing.
In this article I will touch on 10 tips to help you avoid unnecessary losses and give you a head start towards being profitable. But beware that this is just the beginning. When it comes to training in futures, there is no end to education.
TEN TIPS TO SUCCEED WITH FUTURES AND COMMODITIES
- Read all you can about how the Futures Markets work and get familiarized with the products and their specifications. You can learn much of this by visiting websites of the exchanges where these futures are traded, such as the Commodities Merchantile Exchange (CME).
- Be sure to shop around for a good discount broker. These days you will find more services being offered for much less than what it was just a few years ago. Be sure they specialize in futures and provide good electronic and phone trading support. You will not only want to pay as little as possible for each “round-turn” in commissions, but you also want to be sure you can get ahold of someone at anytime, day or night, to get you out of a position in the event your Internet goes down or you lose connection through your trading platform. If you are new to trading, see if you can trade a dummy account with the brokerage to get familiar with the platform they offer and to practice trading before you use real money.
- Be sure your trading account is well-funded. Most traders who start with an account that is under-funded end up being wiped out. The reason for this is that when you trade with a small account, you will have the tendency to trade scared (fear). These days where many of the markets have big daily ranges and often are volatile, it is difficult to enter a trade with a tight stop-loss unless you day trade using minute charts. This is one reason why many opt for daytrading. But even if you decide to daytrade, you should not open an account for anything less than $5000, although more is better.
- Trade with the trend. Let me say this again. Trade with the trend! It is a statistical fact that you will have better odds of making profits with less losses if you trend with the wind at your back. Learn methods and indicators that will help you discover the trend and then take only trades that are supported by that trend.