Online futures trading platforms give individuals equal access to the futures markets, whether you’re a first time futures trader or experienced hedge fund manager. Platforms now offer real-time quotes, charts, depth-of-market, order entry and management, as well as increased liquidity making it easier than ever to trade. However, it is critical that the online futures trader understands how the platform works and be aware of potential pitfalls by interfacing with the market directly.
Here are 10 important aspects of online futures trading to consider:
Choose a futures broker who will work with you.
Will your broker work with you as you get to understand the online futures trading platform? Your broker should be able to help you understand the platform and its functionality based on your needs. If you use specific order entry, make sure the platform can support it. If you need charting technical indicators, ensure they are available through the platform.
Try a demo version of the online futures trading software.
Can you use a demo version of the platform? A good demo should closely simulate the live platform to increase your comfort and confidence. It’s important to familiarize yourself with all the features you need to make confident trades. Ensure you’re comfortable with your order entry: are you using a manual order entry? Trading off the charts? Trading off the DOM? Know the ins-and-outs. The time to learn a key feature of the platform is not while a live trade is on.
Understand your support options.
It’s important that the futures broker and trader have an understanding of expectations before opening a futures trading account. If your platform crashes (remember, all technology is fallible), can your futures broker take your order? Do you have a specific broker to call or a “general order desk”? Discount firms may not have the staff available when you most need them.
Review your orders before you place them!
It only takes a second to review and it’s not worth making costly, avoidable errors. Remember, a platform will execute the order as you place it – so make sure it’s correct.
Always know when you have an active position and any working orders.
While it is not difficult for most traders to keep track of active trades, it’s easy to forget about working orders and walk away. Also, I recommend keeping track of your order numbers if your platform goes down and/or you need to talk to your futures broker.
Make sure you know what you’re trading!
It sounds foolish, but I can’t tell you the number of times I’ve seen client’s trade old contract months or illiquid markets. Know what contract month is the front-month (typically the most liquid contract month). If using market orders, take a look at the bid/ask before placing the order. The last trade may have occurred some time ago and not reflect where you could buy or sell the contract now. Simply put, trade where the volume is. If you don’t know, call your futures broker.
Know the difference between order types and order flags.
Examples of order types are: buy stops/limits, sell stop/limits, stop-limit, etc. It’s important to know what they mean and when to use them. Examples of order flags are “day orders” and “GTC” (good-til’-cancelled). Day orders simply work until the close of the session. GTC orders work until they are filled or cancelled by you.
Know the proper margin for your position.
If trading “overnight” or past the close of the day, know the proper margin for your position. The overnight margin is typically higher than the day margin, sometimes by a factor of ten or more. Thus, it’s important to avoid margin calls. Most importantly, it’s dangerous to take on too much risk if you do not have the capital reserves in your account. Here in Chicago, most Asian markets open at 8:30 PM CST and most European markets open at 2:30 AM CST. As such, your position can move drastically exposing yourself to much more risk than you anticipated.
Actively manage your positions and use stops.
Trading online gives you to flexibility to actively manage your position(s). As such, do it! You should know how much risk you’re willing to take before entering a trade. I always recommend for a trader to use stops. Even if it’s a wide “worst-case scenario” stop. The use of “mental stops” can be potentially dangerous as the trader re-accesses risk emotionally and let’s the trade stay on instead of sticking to the trading plan. When brought to an extreme, emotional traders can begin to pyramid their trades, with the hope of a market turning around and making all losses back and possibly more. Do not succumb to emotional trading! Use stops!
Examine your risk upfront.
As a corollary to #9, I cannot stress this enough: truly examine your risk before putting on a trade. Know the typical and extreme volatility in the contract you’re trading. Remember, you’re interfacing with the market directly. If a position were to go limit up or down, where would your position and account stand? These days happen (e.g., the Flash Crash on 5/6/10) and there are times when extreme circumstances cause you’re stops and/or limits to go unfilled! Know your risk.
Trading futures online can make for an enjoyable and hopefully profitable experience. However, don’t let simple pitfalls cause trade errors that cost you time and ultimately money. To learn more about the online futures trading and compare platforms, I invite you to visit the Daniels Trading website at: https://www.danielstrading.com/brokerage-services/trade/trading-software.