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5 Steps to Help You Get Started Trading Futures

August 11, 2010 by Tom Dosdall| Futures 101

You already recognize the potential benefits of being invested in alternative assets but you need some guidance before you feel comfortable enough to put your money on the line. Follow the five steps below to get on the right track.

1. Determine your available risk capital.

Time and Money Puzzel Pieces
You may already have an interest in trading futures, but are these markets really right for you given your available risk capital? We refer to risk capital in this instance as money that you can afford to lose in the market. While it is everyone’s intention to be profitable, the reality is that many traders lose money in the markets. With this in mind, it is important for you to consider an allocation that would not adversely affect your lifestyle should you lose the money you are trading. Most investors consider anywhere from 5-20% of their overall investment portfolio to be a reasonable amount to allocate to futures trading. However, circumstances differ for each investor and it is important that you are comfortable with whatever amount you choose.

2. Determine how much time you can commit.

Chances are, if you have the money to participate in these markets, you are most likely a working professional or enjoying your recreational time that you have earned through years of making a living. Either way, your time is a valuable commodity in and of itself. It is important for you to make an honest assessment of how much time you can commit to developing your interest in futures trading into something that is actionable. Do you have ten minutes a day? One hour a week? Use this as a starting point and hold yourself to that time commitment just as you would for your equity investments.

3. Determine your approach.

You will have a distinct choice to make based on your assessment of time. Do I want to trade these markets based on my own research and opinions (a), or do I want to defer to a futures trading professional, such as a commodity trading advisor (CTA), to make the trading decisions for me (b)?

a) I have the time to commit to developing my knowledge of the markets and want to trade self-directed online or with a broker.

You’ve determined that you can commit a reasonable amount of time to developing your interest in futures trading and are ready to begin the quest of gaining knowledge.

Great! Follow the three steps below in order:

  • Visit our Education Center and get started with Futures & Options 101.
  • Subscribe to a reliable service that provides daily market overviews, analysis and recommendations. We offer a free trial to our “Insider Market Advisory”, where you’ll find all of this information.
  • Familiarize yourself with the contract specifications for the markets that you are interested in. This will include an understanding of how to interpret dollar for “tick” values (i.e., $10 = $0.10 move in Gold), trading hours, and margin requirements.

(skip to section 4a)

b) I lack the time to commit to trading on my own. How can I find the right type of “hands-off” approach?

You’re not alone! As mentioned above, many investors’ obligations restrict them from putting forth the time and effort to trade the futures markets on their own. View the three videos below to get a feel for the options that exist and select the right “hands-off” approach for you:

  • Trading Advice. This option includes specific trade recommendations from professional traders, which are then executed in your account by licensed futures broker. Minimums for this type of account generally range from $5,000.00 to $25,000.00.
  • Automated Trading Strategies. This approach defers trading decisions to a mechanical program with a specific set of rules for buy/sell signals. These programs are usually developed by professional traders, developers, and/or mathematicians. The biggest difference between this option and Trading Advice is the absence of human emotion – fear/greed/etc. Minimum account sizes generally range from $5,000.00 to $25,000.00.
  • Managed Futures. With this type of a “hands-off” approach, your funds are managed by a registered Commodity Trading Advisor (CTA) with a verifiable performance record and assets under management (AUM). These advisors typically gather a 1-5% management fee as well as incentive fees for performance. Minimum account sizes generally start at $50,000.00.

(skip to section 4b)

4. Take action.

a) Practice trading with a simulated futures trading account.

You’ve gotten comfortable with our Education Center, reviewing and interpreting futures research, and the contract specifications for the markets that you are interested in. The next step toward gaining confidence is to begin practice trading based on your market opinions that are shaped by your unique observations and guided by solid market research. Sign up for a free trial to our dt Pro software and be sure to check out the video tutorials to help you get comfortable.

b) Get a trial to a product that suits your comfort.

You’ve watched the videos in section 4a and you’ve determined which type of approach you would be most comfortable with. Now, browse the available options for third party trading advice and/or automated trading strategies for a trial. Managed Futures CTAs do not provide “trials” per se; however, your futures broker may be able to assist you in retrieving all of the appropriate disclosure documents.

5. Open your futures trading account.

By opening your account with a relationship-focused futures broker, such as Daniels Trading, you will obtain unrestricted access to services like the Insider Market Advisory, as well as many of the free trials mentioned in the “hands-off” approaches mentioned above. It is free to open the account and you can continue to gain comfort and confidence until you are ready to become a participant in the live markets.

Filed Under: Futures 101

About Tom Dosdall

Tom has supported traders and investors worldwide across all dt execution categories. With the understanding that each client is independent of another, Tom has shown an ability to listen to the needs of each and match them with the service or product that best suits their circumstances.

If you are a self-directed trader, you can expect objective guidance on finding the right balance between price and value. That might mean anything from finding a sharp platform to help you do what you already know you want to do or providing consultation on some of the most cutting edge trading indicators on the market.

If you are more of a “hands off” investor, ask Tom about the network of professional advisors that he has come across over his years in the industry. Once he can get a feel for your risk tolerance and objectives he can help you to deploy a program.

Are you somewhere in between fully hands on and fully hands off? Consider how you can leverage Tom’s experience for your benefit in a broker-assisted relationship. Together, you will analyze the markets that you are most interested in and come up with a trading plan that you are comfortable and confident with.

In summary, his goal is twofold: to ensure that each client he works with is guided with the resources needed to trade with confidence and that they are equipped with the knowledge and comfort needed to grow as an investor in the new global economy. Tom holds a Bachelor of Arts degree from Colgate University.

Market Perspective: 80% technical 20% fundamental

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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