Futures Trading for Beginners

We all have to take that initial first small step, when we start a new journey. This is true of futures trading for beginners as well. Even if you have investment experience, you might not know the difference between stock trading and futures. In this blog and the following ones on futures trading we’ll look at futures trading for beginners and I’ll offer you some of the basics to get you going. If you have never tried futures trading, this is ok; the journey may be long  and together we’ll take the first step now.

What Are Futures?
Futures trading is different from investing in the stock market or bonds since you don’t actually own anything. In futures trading, you are speculating on the future direction of the price in the commodity you are trading. This is different for beginners in futures trading; it is like a bet on the future price direction. The terms “buy” and “sell” merely indicate the direction you expect future prices will take. He or she must only deposit sufficient capital with a brokerage firm to insure that he will be able to pay the losses if his trades lose money.
 
Futures trading is a sort of insurance plan for those who are trading and investing. A farmer may sell futures on his coffee crop if he thinks the price will go down before the next crop; conversely, a grain manufacturer may buy futures if they think the price of soy beans is going to rise before the harvest. Regardless of the price movement, both are guaranteed their price. The final component of the equation is the investor in futures trading who looks for changes in the futures markets and seeks to gain advantages by buying or selling at a profit.

What Is The Potential of Futures Trading?
Trading futures has the potential to be an incredible profit maker, however it can also be an incredible loss maker. Our No1 Rule as traders must be “Protect the integrity of our capital, first and foremost”  It is said that Richard Dennis, a famed commodities trader, transformed $1,600 of borrowed money into $200 million over ten years. His results are rare and unusual and not everyone can expect this level of successful trading that he achieved, however the good news is; you can make money in futures trading. Even if you’re a beginner to trading futures, you can start to make small profits.

Futures Markets?
Novice traders in futures trading should  understand that futures are different to trading on the stock market. Some of the locations are well known like the, the New York Mercantile, the New York Cotton Exchange, Chicago Mercantile Exchange  and the Chicago Board of Trade. Some of the main futures markets are:

• Currency Trading – Currency trading, also known as FOREX (foreign exchange) trading, involves buying and selling currency from many different countries such as the British pound, the US dollar, and the Swiss franc.
• Energy Futures – This market centres its attention on natural gas and crude oil futures.
• Metals – This is one of the more popular and best known sectors. The typical commodities in metals are silver and gold futures
• Agriculture – This is a broad, commonly traded futures which includes such things as wheat, corn and soy beans futures.
• Interest Rate Futures – This market focuses on financial transactions, interest rates and bonds, such as ten year notes futures
• Foods – This sector includes items such as orange juice, sugar and coffee futures

What Action Can You Take To Get Started?
There are several things the novice trader can do as a beginner in futures trading:

1. Start Learning – There is no substitute for education. Read books about futures trading, talk with others that trade futures and search the Internet for information about futures trading. Once you start investing your own money, you will be glad to understand futures trading.
2. Create a Commodities Trading Plan – This is vital. It is important to outline your goals and objectives as well as your trading strategies. This way, if greed and fear interferes with your decision making process, you will have a well defined plan of action to refer to.
3. Select a Broker –You can implement your own trades, however we all need someone to place the orders. Some full-service brokers offer more services and most Internet brokers offer lower commissions. Even though you’re a beginner in futures trading, define what you want from your broker and find someone who meets your needs.

To Conclude
Futures trading for beginners starts with that first step into the unknown, learning, growing, defining your trading parameters, implementing your trading plan and having fun. This journey is shorter now for you because you’ve just taken the first step, so if this feels right for you, keep moving towards you goals.  If you would like to see how we trade Futures in our members area register here for a 14 day guest pass to the GT members area.