4 Tips to Successfully Trade in Futures

1. 4 Tips to Successfully Trade in Futures

2. Futures are used by people to speculate on the price of a commodity or security in the future. For example, if you think the price of coffee will be higher next year, you could buy the futures contract now and make money when the price rises. Futures are also known as derivatives because they derive their value from an underlying asset, index, or interest rate. In this case, it’s coffee that’s priced in dollars per pound. When buying futures, you don’t pay for the actual coffee, but instead are speculating that it will cost more at a laterdate. If you are thinkingabout futures trading, whether you have some experience or not, putting in the time to read about it is time well spent. There are a few tips and strategies that can actually help you avoid common mistakes while ensuring you achieve your desiredgoals. Here are five tips to successfully trade infutures

3. Outline An Effective TradingPlan One of the most important steps you can take to improve your future trading performance is to establish a trading plan. A well-thought-out plan will help you navigate many situations, such as when to get in and out of a trade, and what to do if the market moves againstyou. You don’t want emotions influencing your decisions by convincing you to hold a losing position too long or exit a profitable position too soon. This is where having a clearly defined trading plan will come to youraid. Similarly, for example, if your goal is to generate supplemental income from trading, then it may make sense to focus on short-term strategies that produce more frequent trades while keeping capital requirementslow.

4. Perfect The Art ofShorting Shorting allows the investor to hedge against a bearish market, thereby reducing your risk exposure to it. It also allows traders who are bearish on certain instruments or markets to make money on their views without having to invest in options and derivative strategies. The key difference between a long position and a short position is that in the former, you profit only if the price rises, and in the latter, you profit only when the pricedeclines. Short selling is an integral part of futures trading. For example, if you are an intraday trader and believe that the price will decline on a particular stock or index, you can initiate a short position in that stock or index to profit from it. Or if you have bought some shares at a higher price and want to limit your losses or even profit from them by selling them off first and buying them back later at a lower price (this is called short covering), then too you need to initiate a short position in thatstock/index. With a thorough understanding of shorting and how you can leverage it, you can unlock a whole new world of opportunities to solidify your portfolio with greater returns even when the market isn’t having itshighs.

5. Have A ConcentratedApproach With futures trading, more choices don’t necessarily mean better returns. In fact, it can often be the opposite. This is why while you should focus on diversification, you shouldn’t spread yourself too thin either. That’s the advice most experienced futures traders have for new traders. Instead of trading in too many markets, keep your focus on one or two markets that you really know well and then apply disciplined trading tothem. Regardless of how many markets you follow, make sure you’re keeping tabs on only those that really matter to you. For example, if you’re interested in trading metals such as gold or silver but know nothing about agriculture commodities such as soybeans or corn, it makes little sense to spend yourtime

6. Be Careful With The MarginCalls Brokerage firms issue margin calls with the intent of protecting themselves against the possibility of further losses, or even bankruptcy since there is a real risk that additional funds may need to be deposited to maintain open positions. In other words, a margin call is the brokerage firm’s way of taking steps to limit itsrisk. Keep in mind that your broker will typically require you to promptly deposit additional funds or securities into your account to meet a margin call, as well as deliver money if you have open short positions. If your account falls below minimum maintenance requirements, it can be liquidated by your brokerage firm without prior notice. Of course, this means the value of the securities in your account will be sold at whatever price they can fetch — regardless of whether it’s above or below the purchaseprice. If you’re facing margin calls, it’s a clear indication that you have stayed with a losing trade for far too long than what you should have. In such a case, taking margin shortfall as a signto exit the position is a good idea. Cutting your losses, which can be difficult especially if you’re emotionally attached to the position, is essential to keep your portfolio healthy.

7. Finalwords If you are completely new to the futures trading market, now is a great time to get started. With some simple research and adequate planning, you can develop a sound strategy and put it into action to achieve optimalsuccess. Remember, while futures trading is a complex activity, some of its core concepts are not as difficult to understand as people imagine. The purpose of this article is to help you understand some essential tips and insights so you can best use futures in your portfolio. Now, take a step ahead and start tradingfutures.

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