Futures trading Chicago and ordinary trading have some things in common, but there are also numerous differences. In the first place, when you trade futures, you don’t actually have to purchase the underlying stock or commodity. All you have to do is to put down a deposit – often as little as 1% of the contract price. In return for this you are then exposed to all increases and decreases in the price of the contract.
Let’s say for example you have $1000. On a futures contract that trades at a leverage of 100:1, this can buy you exposure to a $100 000 contract. Should the price of the contract go up with 1% to $101000 during the contract period, the full $1000 profit will be yours. You will in fact have doubled your initial $1000 deposit.
Unfortunately the opposite is also true. If the price of the contract drop by one percent to $99 000 during the contract period, the full loss is for your pocket. You will therefore lose the full $1000 deposit you put down at the beginning.
This is why futures trading is considered to be a highly leveraged form of trading. One can easily double your money in a short period of time, but you can equally easily lose your whole investment account with one bad trade. Another common problem with futures is what is called ‘over-trading’ – making numerous small trades that in the end bring in less than the commissions on those trades combined with the few losing trades you are inevitably going to have.
When you trade futures, you should therefore stick to a number of golden rules. Firstly, don’t risk more than 2% of your available funds on any single trade. Secondly, always use a stop loss which is set wide enough for the market to go about its normal ups and downs, but small enough not to cause a major financial loss if the trade goes the wrong way. Third, try to catch the bigger moves – avoid scalping unless this is really your preferred style.
It’s not a bad idea for futures traders to use technical indicators to make things easier for them. You should, however, not overdo indicators. If you can trade profitably using two indicators, do not assume that you will make more money by using ten of them. The reverse might be true: you could simply confuse yourself.
Futures trading Chicago can generate large profits in a short period of time. The trick is have a system and to stick to that system. You can modify your system over time, after careful analysis of your profit/loss history. If you change your system every second day, however, you are only going to end up chasing the price and make major losses in the process.
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