Learning to trade futures contracts isn’t nearly as difficult as you may think. Below are my steps to help any new aspiring futures trader learn the basics of how to get involved in the futures trading markets. Don’t think for a second trading futures is easy, but if you dedicate time to learning, there are lots of upsides!
Before we go any further, my top rated and recommended trader evaluation company is Apex Trader Funding.
You can read my full Review of Apex Trader Funding here.
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Futures Trading Starting Topics
In order to begin in the world of futures trading, you should have your arms around the topics below. I encourage you to research each of the topics below as a starting point. Note that almost all of it has nothing to do with the actual trading. Learning the basics before diving in is very important.
The terminology itself of futures trading is unique from other trading. I plan on doing a full article on beginners terms, and I can list a few here for everyone, but really familiarize yourself with the terms. If you see something you don’t understand, look it up!
To begin your journey, understand the following terms and not just what they mean, but how they work: contract, lot, margin, roll over, long/short, prop/proprietary firm, commissions.
There’s luckily not too many choices for software to trade futures, but there are still several. The 2 big name software packages out there are Ninja Trader and Tradovate. There are pros and cons to each, and also not every account can connect to all software. So it is important to understand what you want to use and if it’ll work with your chosen brokerage or prop firm.
Beyond the main software, there’s plenty of 3rd party software packages. For example I use a program called Jigsaw DayTradr, which sit’s on top of Ninja Trader and presents the information in a different way.
As well different software serves different purposes. Not everyone would be able to nor want to use Jigsaw Daytradr. It serves a very specific purpose and type of trader.
Brokerages & Prop Firms
Most people think of opening an account at a brokerage, much like you would with stocks. And that is an option. Depending on where you live though, futures brokerages can be tough to come by, and/or have very high margins. Canada for example, unfortunately, does not have many choices for brokerages. And the ones we do have have extremely high margins.
Proprietary firms though (prop firms) are a great option. These are companies that allow you to trade their capital and in turn they keep a small percentage of your profits for putting up the capital. I’m a huge fan of prop firms and it is the focus of most of my website. You have to try out for them and demonstrate you can trade, but if you pass the evaluations you are guaranteed a funded account. At the time of writing this article, I have over $1.7 million in funding from prop firms.
Learn more about the world of prop firms by exploring my site, you can also read reviews of all my recommended companies here.
There are quite a few products in the futures world. The short list of categories are Indicies, Commodities, Agriculture, Energy, Interest Rates, Exchange Rates. There are a few more, but that covers the most popular.
Indicies are indexes that represent a basket of stocks. We’ve all heard of the S&P 500 in the stock market. Well in the futures market, there is a contract, ES is its ticker symbol, which represents future prices of the S&P. Index futures are very popular as people tend to understand them a bit better since they relate to teh stock market.
There are plenty of fees and costs in futures trading. The trading software can cost upwards of $1,000+ for a lifetime license. Luckily there are cheaper options, some free. But, you have to decide what your needs are. There’s commissions and exchange fees with every trade. If you trade a lot, those add up quick. If you use third party software, that also costs. There’s data fees. If you use a trade journalling software, that will cost also. Some of these are $20, $30 a month, but they start to add up. Be aware of the costs.
Trading futures is different than buying stock. You don’t have to put up the full amount of money in order to buy the contracts you are trading. In fact, in futures trading the amount you have to put up as collateral, or margin, is relatively very very small. This is fantastic for leverage, and part of what makes futures trading so profitable.
Margins can be anywhere from $500 to $10,000+. Most popular products though have lower margins. For example, ES, which is the E-mini S&P, is typically $500 per contract in margin. For $1,000 margin you could trade 2 contracts. The profit per tick, or each price movement, is $12.50 per contract. With ES moving 100’s of ticks per day in range, you could easily trade 1 or 2 contracts for a great amount of profit, all while only putting up $500 per contract (or lot another name for contract).
Your brokerage will dictate what the margin rate are, and usually list them on their website. Depending on your country and brokerage choices, these margins may vary wildly.
The Ultra Bond for example (UB) which I specialize in, is $1,000 per contract typically, but some brokerages have up to $5,000 in margin rates.
Note that you don’t pay margin, it’s not a lost fee. It’s just a deposit that is held while you are in a trade. As soon as you are out of the trade, the margin is freed up.
How You Decide To Take A Trade
Ahh yes, this is probably what you thought the entire article would be about. All the above though is mandatory to understand before even thinking about taking your actual first trade.
The decision to enter a trade is a topic all on its own. There are many different styles of trading. Do you use indicators? Volume? Price action? Order flow? Do you use charts? The depth of market? There are a lot of choices in what tools and set ups to specifically use for trading.
I have an article about the Basics of Day Trading which focuses more on the taking of actual trades.
You’ll be surprised to learn how much of trading comes to psychology. Once you master the initial on ramp type of information above, learning about managing your emotions is very important. Learn about Profitable Mindset of Great Traders here. As well you should realize that Day Trading Should NOT Be Exciting. It’s trading, not gambling.
The world of futures trading is fairly involved and can be daunting at first to new traders. Be sure to explore my site to learn more about the world of futures trading though, and I think you’ll find it isn’t so scary. If you are willing to devote the time, learn the products and terminology, trading styles, software and more you’ll find it’s a fantastic world to be involved in.
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Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
Hypothetical Performance Disclosure:
Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.
You can read more here: Risk Disclosure
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