1. Beginner's Guide To Trading Futures: Introduction
  2. Beginner's Guide To Trading Futures: The Basic Structure of the Futures Market
  3. Beginner's Guide To Trading Futures: Considerations Prior to Trading Futures
  4. Beginner's Guide To Trading Futures: Evaluating Futures
  5. Beginner's Guide To Trading Futures: A Real-World Example
  6. Beginner's Guide To Trading Futures: Conclusion

You can only learn so much from reading books and watching trading videos; investing and trading is really a learn-by-doing endeavor. Still, it’s important to put in your time researching and studying the markets before you place that first trade. When you do start trading with real money, make sure you’re trading only one contract at a time. Only after you have a proven track record should you try to trade larger positions. Leverage makes it possible to trade multiple contracts for a relatively small investment – but remember that leverage magnifies both wins and losses.

Trading is much more than hitting the BUY button on your trading platform. To give you a general idea of the steps involves, here’s an example. Keep in mind, however, that this is an overly simplistic example that provides a general overview – one that makes trading futures seem quick and easy. In reality, most of these steps require a great deal of time and research – from choosing a broker and opening an account, to researching your chosen market and learning how to place trades.

Step 1: Choose a brokerage firm and open an account.

Step 2: Decide which category of futures to trade (e.g., agricultural, metals, etc.). For this example, assume you choose metals.

Step 3: Decide what instrument to trade within your chosen category. Remember, even though there are many futures contracts, it’s helpful to focus on just one or two – especially when you’re new to futures trading. For this example, you choose gold.

Step 4: Conduct research on your chosen market. This research might be fundamental or technical in nature depending upon your preferences. Either way, the more work you do, the better your trading results are likely to be.

Step 5: Form an opinion on the market. Let's say that after doing your research, you decide that gold is likely to rise from its current level of around $1,277 per ounce to around $1,350 per ounce over the next six to 12 months.

Step 6: Evaluate the available contracts by size. There are three gold contracts. The standard contract covers 100 troy ounces, the e-mini contract covers 50 troy ounces and the e-micro contract covers 10 troy ounces. To manage risk in your initial foray into the futures market, you choose the e-micro contract.

Step 7: Evaluate the available contracts by month. The e-micro gold contract trades in February, April, June, August, October and December. Remember, with futures it isn't enough to get the direction of the market right, you also need to get the timing right. A longer contract gives you more time to "be right" but it’s also more expensive. Since your market view is for a move higher in 6-12 months, you can pick a contract expiring in four months, eight months, or 10 months. You choose eight months.

Step 8: Execute the trade. Using the trading platform supplied by your broker, you buy one e-micro gold contract at 1,291.00. (For related reading, see Introduction to Order Types.)

Step 9: Post initial margin. In this example, the exchange requirement is $490. Be sure your account balance doesn’t fall below your broker’s maintenance margin level – otherwise, you’ll get a margin call (a demand to bring up your balance).

Step 10: Set a stop loss and a profit target. In fast moving markets, it’s recommended that stop loss and profit target orders are entered at the same time as your original buy or sell order to make sure your position is protected. Otherwise, be sure to place your stop loss order shortly after entering your trade. (For more, see The Stop-Loss Order: Make Sure You Use It.)

Step 11: Monitor the market and adjust the position accordingly.

Note: This example is purely hypothetical and is not a recommendation or opinion. These are basic steps for executing a futures trade and you may find that a different process works for you. As you gain more experience and knowledge, you are likely to develop your own system that you’re comfortable with.


Beginner's Guide To Trading Futures: Conclusion
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