The financial markets offer extensive diversity, featuring a broad spectrum of securities and asset classes. From hedging portfolio risk to aggressive speculation, futures and other derivative products provide traders unique functionality.
Finding the best futures market to trade can be an intensive process. Unlike simply buying and holding stocks or bonds, choosing a futures product involves a bit more nuance. However, by identifying your available resources, market-related goals, and approach to active trading, picking a suitable one is feasible.
Step #1: The Resource Inventory
Before ever placing a futures trade, you must conduct an honest inventory of your available resources. Without a rock-solid idea of accessible inputs, it’s exponentially more difficult to choose an ideal futures market.
When it comes to active trading, there are three primary resource categories:
- Capital: Being properly capitalized to trade a given market depends upon contract size, assumed leverage, and pricing volatility. Finding a futures product that best fits your capital constraints is the key to mitigating the impact of “bad luck” on performance.
- Time: The time of day when the best trading opportunities present themselves often vary according to product. Having adequate time to capitalize on premium trading hours is an important determinant of success or failure.
- Expertise: Extensive knowledge pertaining to a specific asset class or security can be beneficial in futures trading. If you’re an expert on the DJIA or S&P 500, then the E-mini DOW and E-mini S&P 500 may be attractive targets.
A suitable market must be aligned with each of these resources in order to maximize the odds of success. For instance, trading large contracts such as CME full-sized silver (SI) with a small trading account is setting yourself up for failure. In a similar vein, attempting to trade currency futures such as the Euro FX (6E) without adequate time during the European session, can doom the endeavor before it begins. In each case, certain resources are necessary to ensure a shot at prosperity.
Step #2: Identify Goals and Objectives
It may seem elementary, but knowing exactly what your trade-related goals are is imperative to selecting the ideal futures market. In order to choose the one most likely to produce a desirable result, you first must know your objectives for active trading.
Answer the following questions pertaining to each goal classification before ever entering a futures market:
- Function: What is the main function of trading operations? Hedging or speculative?
- Financial: How much money do you want to make? Are you trading to pay the rent, or do you have a six- or seven-figure annual income in mind?
- Lifestyle: Is being in front of a trading screen 12 hours a day desirable, or do you wish to be done with work by noon?
Much like making sure your available resources fit a specific market, make sure your goals do as well. If your primary goal is to make six figures annually, then trading E-micro currencies is probably not going to get the job done. If your lifestyle objectives dictate only spending a few hours in front of the screen each morning, then WTI crude oil or the E-mini S&P 500 may be the way to go.
No matter what your trade-related aspirations are, there is a futures market best suited for satisfying them. The only real task is finding it!
Step #3: Understand Your Approach to the Market
Adopting a comprehensive trading strategy is one of the tenets of successful trading. Concrete parameters governing trade selection, open position management, and money management provide a strong framework for long haul success. However, in order for a strategy to perform up to its capabilities, you must apply it within the correct context. Selecting the most suitable futures market with respect to your trading strategy is a necessity.
Elements of market behavior, such as volatility and liquidity, must be evaluated when applying a methodology to a given market. No matter if you’re an intraday, day, or swing trader, finding an ideal target for your approach is a key determinant of profitability. Without having optimal levels of market liquidity or volatility, achieving consistent results is a monumental task.
Need Help Choosing an Ideal Futures Market to Trade?
Understanding how your available resources, goals, and approach to trading complement each other is a great way to begin searching for the ideal market. Nonetheless, you have many choices to consider, from cryptocurrencies to agricultural futures. It’s wise to seek out professional advice before jumping into futures with both feet.
For more information about the futures markets and some ideas on which may be optimal for your personal situation, take advantage of a free consultation with a member of the Daniels Trading team.