When it comes to the topic of trading futures successfully, everyone has an opinion. For traders that have been consistently profitable for any length of time, the formula appears simple: find an edge and apply it religiously.
Aside from having a rock-solid approach to the markets and the discipline trade it, are there any so-called secrets to trading futures successfully? The truth is, there are many insights that can help a trader succeed. However, each comes at a cost, more than likely learned the hard way.
In this post, we’ll cover a few little-known facts that help successful traders preserve their edge as well as long-term profitability.
Theory Be Damned! There Is No Teacher Like the Market
Studying financial theory is a great place to start, but it’s not the be-all-end-all of market education. Many people seek advanced degrees in economics and finance in an attempt to learn how to make money in futures. Others spend large sums on proprietary trading systems and specialty courses. Unfortunately, trading futures successfully requires a skill set that cannot be acquired via book or weekend seminar.
One secret that market newbies do not fully comprehend is that price is dynamic in nature. No matter how strong a strategy, methodology or individual trade setup appears to be, it can and will be fallible. The markets are constantly evolving and represent an infinite timeline: What worked yesterday and today may be irrelevant tomorrow.
Becoming a consistently profitable futures trader takes time and energy. Ultimately, there’s no teacher like the live market. Long-term success is a product of equal parts adaptability, perseverance and the will to survive ― not the lessons of textbooks and guest lecturers.
The Game Isn’t Rigged, But It Ain’t Exactly Fair!
Another secret of trading futures successfully is understanding and accounting for the hidden costs of doing business. From an operational standpoint, calculating your cost structure is a function of basic arithmetic. Add the black-and-white costs of a computer, internet access, exchange fees, and data fees to commissions, and voilà ― total sunk costs.
But, what about the hidden costs of trading futures? Many traders are not aware these exist and how much they can smash the bottom line and any hopes of success:
- Latency: In the digital futures marketplace, latency costs money. Undue latencies slow the transfer of market data, orders to market and trade execution. Over time, being consistently late (even by milliseconds) in and out of the market compromises efficient trade and hurts profitability.
- Slippage: Slippage is the discrepancy between your order price and the price at which your order was filled at market. Excessive slippage is often a product of latency and can render many trading strategies invalid. One way successful traders reduce the impact of slippage is by being well-schooled on the different order types and when to use them.
- Opportunity costs: Most of us go about our everyday lives under some sort of capital constraints. In the futures markets, this refers to your account size and available leverage. These two factors directly impact the account’s purchasing power and the ability to trade multiple markets simultaneously. Missing a great setup in one market due to being active in another is an example of an opportunity cost. Successful traders optimize their use of available capital to help mitigate the negative psychological and financial impacts of missing out on good trades.
Institutional participants have a sizable edge over retail players in limiting each of these costs. Ultra-low latency technologies and exchange-direct market access can all but eliminate slippage. In addition, greater capital resources allow for the engagement of almost any market, at a lower fixed-cost structure due to higher traded volumes.
In addition to accounting for these hidden costs, succeeding as a futures trader means avoiding falling victim to perfectly legal, yet borderline unethical trading practices. Some strategies implemented by market participants are designed specifically to put pressure on others. Stop-running, quote stuffing, and forbidden activities such as spoofing, are examples of such strategies.
One trade secret that can mitigate the negative impacts of these items is to remain as invisible as possible while engaging the market. Camouflaging order size, market entry, and market exit points with respect to popular technical or psychological levels is a common practice among veteran traders. Invisibility is valuable ― be a chameleon!
Begin Trading Futures Successfully Today
The best way to get the inside-baseball on any business is to talk to people in the know.
For a free one-on-one consultation with a veteran of the futures industry, contact Daniels Trading today. When it comes to trading futures successfully, seeking advice from an experienced and accomplished member of the team at Daniels’ makes great sense.