When it comes to being successful in live market futures trading, there are several non-negotiable principles that are best respected. If you have a purpose, fully understand risk, and can trade efficiently, then a long career in the markets is possible. Should any of these elements be lacking, a blown-out brokerage account may be closer than you think. Read on to learn more about these principles and how to adhere to them.
Define Your Purpose for Live Market Futures Trading
To excel in any discipline, it helps to have a purpose. Live market futures trading is no different―success lies in setting realistic goals and working toward their achievement every single day.
At its core, a purpose is the reason(s) behind an effort or action. For a vast majority of futures traders, the primary purpose for entering the market is to make money. However, though making money is an obvious goal, the exact reasons that drive a person to trade vary.
These three questions can provide some clarity about your specific purpose:
- How much money do I want to make trading futures?
- What am I willing to lose trading futures?
- Do I have the resources and expertise to excel at futures trading?
The beauty of live market futures trading is that there are no correct answers to these questions. It’s all personal preference. For instance, let’s say that Erin the E-mini S&P 500 trader wants to make $1,000,000 in five years, is willing to lose $10,000, and has no experience. Erin’s purpose is to earn a 100/1 return in 60 months with limited expertise. To say the least, Erin is taking a real long shot and may need to consider adopting more realistic expectations.
To have any chance of succeeding in the markets, your resources and goals must be in alignment. If they aren’t, it’s time to temper expectations, bulk up resources, and get a trading education!
If you ask any veteran futures trader, they’ll tell you that inefficiency costs money. Missed opportunities, slippage, and a general lack of consistent trade execution all severely undermine profitability. In order to mitigate these negative factors, it’s imperative that you trade as efficiently as possible.
So, what is efficient futures trading? Efficient futures trading is entering and exiting the market in a timely, precise, and cost-effective manner. This may be accomplished by completing the following tasks:
- Limiting all trade-related latencies
- Implementing a comprehensive trading plan
- Selecting a competent, reputable broker
The futures markets are dynamic atmospheres that are capable of shifting rapidly. It’s impossible to trade them perfectly without slippage or mistakes. Nonetheless, being as efficient as possible saves money and promotes success over the long run.
Risk is commonly defined as being “a situation involving exposure to danger.” As it pertains to futures, the consequence of risk is capital loss. Unfortunately for active traders, no matter the strategy or product being traded, the chance of losing money exists.
Although risk is unavoidable, it may be successfully managed. The first step is to understand its primary drivers in the live futures market. Here are two facets of futures risk that must be fully vetted while trading:
- Volatility: Volatility is the range of price changes experienced by a product over a given period. The greater the periodic price range, the higher the volatility and risk.
- Leverage: In futures, the use of leverage involves purchasing or selling contracts using broker-extended credit known as a margin. The availability of margin enables traders to open sizable positions in the market, effectively magnifying gains and losses. The greater the applied leverage, the larger the position size and risk exposure.
Volatility and leverage are the two primary underpinnings of futures risk. However, there’s good news: You can tame both of them. By implementing prudent position sizing and balancing risk with reward, it’s possible to protect your trading account while seeking profitability. Devices such as stop losses, trailing stops, and multi-bracket orders can limit exposure in even the most turbulent markets.
Getting Started in Live Market Futures Trading
If you’re interested in the opportunities that live market futures trading offers participants, feel free to check out the brokerage service suite available at Daniels Trading. Our suite features a diverse array of self-directed and broker-assisted options, and the Daniels team is ready to help you achieve your futures-oriented goals.