Futures trading systems

It is true that many people are engaged in the futures trading, many have become wealthy as well. If you are well known of the market, avoid greed and fear, and act with it as serious investment opportunity, then the success probability is excellent for you. Let us know about the requirements for futures trading. There are 4 requisites, which mainly influence your ultimate success in futures trading:

1. Take futures trading as business enterprise; apply all orthodox business rules, money management and judgment.
2. Adopt predetermined trading plan - adopt established guidelines and set of rules, which are well known and valid.
3. Utilize risk capital - make sure that if you lose the invested money, it should not alter your living standards.
4. Psychological make-up.

Futures trading, like any lucrative earning opportunity, involves high risks. Online futures trading is no different - its convenience tempts many people to treat trading like a Vegas casino instead of a legitimate investing opportunity.

Futures trading risks

There’s no doubt that futures trading is inherently a risky business. Anyone who tells you it is 100% risk free is either ignorant or trying to sell you something. The truth is futures trading is a gamble. There’s no telling when you are going to win or when you are going to lose. The best strategy is to play this game based on the cards you have and hope for the best.

Interestingly, while futures are contracts meant to reduce risk between producers and purchasers of commodities, the trading of futures is a high volatility market. While there is risk, it can be (somewhat) ameliorated, and there are often trends that are easy to pick out that will help you avoid risk. The key to being successful as a futures trader is knowing when to NOT gamble, when to take what you've got and call it a day with a reasonable return on your investment.

Commodity futures trading

Today, most of the futures commodity trading exchanges are set up in a similar way. Members of the exchange do the actual trading on the floor. Stock stands for equity in a public company, and can be held as long as you want, whereas commodity futures trading contracts have a specified life. In the past, people used commodity futures trading methods generally to hedge risks and fluctuation in prices, or to take advantage of them, and not for actually buying into the commodity.

Different types of commodities

There are many types of commodities that are traded in the international market. These can be very broadly categorized into the following:

• Precious metals like gold, platinum, silver;
• Metals such as aluminum, copper, steel;
• Agricultural products like rice, corn, oils, cotton, wheat;
• Soft commodities such as cocoa, coffee, tea, sugar;
• Livestock like porkbellies, cattle;
• Energy commodities like crude oil, gasoline, gas...

Futures contract trading

According to Emery, a futures contract can be defined as a contract for the future delivery of some commodity without reference to specific lots, made under the rules of some commercial body, in a set form, by which the conditions as to unit of amount, the quality and time of delivery are stereotyped, and only the determination of the total amounts and the price is left open to the contracting parties.

Futures contracts are made only in the ‘ring’ of the commodity exchanges, and not outside the exchanges. Only members of a commodity exchange can enter into such a deal. No outsider can become a party to a futures agreement. Such contracts can be made only in multiples of a fixed unit of trading. No such contracts can be made in fractions of these units.

A futures contract has a limited life span. It is also not the cash commodity that is really in play here. Instead, traders use a futures contract for hedging against price fluctuations or to gain some profits from potential variations in the price of commodities. In other words, if you are the buyer of the futures contract, you will agree with the seller to buy the underlying commodity at a set date and at a fixed price.

Paper Trading

Paper trading refers to trading with virtual money, you do not use real money. You jot down in your notebook when you bought at what price and why. When you sell, you record in your notebook again why you sold and calculate the profit or loss associated with the trade.

If you cannot make money by paper trading, you can forget about making money in real trading. Always test a new trading idea with paper trading first before using real money. Also start with paper trading after a long period of break, to help you get back in touch with trading.

Although there is very little difference between paper trading and real trading in Emini, real trading is subjected to slippage and psychological factors come into play when you are using real money. Do not underestimate the impact of psychological factors on your trading. After you have a reasonable method and money management techniques, it is the psychological factors which will determine whether you make a profit or loss.

Index Futures

Future contracts originate from commodity trading. A future contract is an obligation to buy/sell a certain quantity of commodity at a specific date for a specific price determined at the outset of the contract. Future contracts are frequently used for hedging risks and also for speculation.

Derivatives

A derivative is a financial term for a specific type of investment from which the price over a certain time is derived from the performance of the underlying asset such as commodities, shares or bonds, interest rates, exchange rates or indices like stock market index or consumer price index.

Forwards

A forward contract is an agreement between two parties to buy or sell an asset (which can be of any kind) at a pre-agreed future point in time. Therefore, the trade date and delivery date are separated. It is used to control and hedge risk.

While futures and forward contracts are both a contract to trade on a future date, key differences include:

• Futures are always traded on an exchange, whereas forwards always trade over-the-counter.
• Futures are highly standardized, whereas each forward is unique
• The price at which the contract is finally settled is different:

Futures are settled at the settlement price fixed on the last trading date of the contract.

Options

An option is a contract whereby one party (the holder or buyer) has the right but not the obligation to exercise a feature of the option contract ( e.g. stocks ) on or before a future date called the exercise or expiry date.

Swaps

A swap is a derivative where two counterparties exchange one stream of cash flows against another stream. These streams are called the legs of the swap. The cash flows are calculated over a notional principal amount. Swaps are often used to hedge certain risks, for instance interest rate risk. Another use is speculation.

NASDAQ 100 Emini

NASDAQ 100 Emini contracts is actually one fifth the size of their larger counterparts, the NASDAQ 100 index futures. Each point of the index will represent $20 and the minimum fluctuation ( tick size ) is 0.5 points which is equivalent to $10.

S&P 500 Emini

S&P 500 Emini contracts is actually one fifth the size of their larger counterparts, the S&P 500 index futures. Each point of the index will represent $50 and the minimum fluctuation ( tick size ) is 0.25 points which is equivalent to $12.50.

NQ and ES are symbols for the S&P 500 and NASDAQ 100 Emini index futures.

Futures market trading system

You maybe had a hard time learning to trade without a mentor. It actually took years of commitment, hard work, and a lot of wasted money. If you are new to trading futures, or any market, and you don't have a mentor with a good system that will give you consistent profits, then by all means that should be your first endeavor. It is said that 90 of everyone trading in the futures market loses. Make sure you're in the 5 that are winners.

Futures contract

A futures contract is a legally binding agreement between two parties to buy or sell a specific financial product or commodity in the future, on a designated exchange, for a specific quantity of a commodity at a specific price. The buyer and seller of a futures contract will agree now on a price for a product to be delivered, or paid, for at a specifically set date and time in the future, which is known as the "settlement date." Actual delivery of the commodity can take place in fulfillment of the contract, but most futures contracts are actually closed out or "offset" prior to delivery.

Option contract

An option on a commodity futures contract is a legally binding agreement between two parties that gives the buyer, who pays a market determined price known as a "premium," the right (but not the obligation), within a specific time period, to exercise his option. Exercise of the option will result in the person being deemed to have entered into a futures contract at a specified price known as the "strike price." In some cases, an option may confer the right to buy or sell the underlying asset directly, and these options are known as options on the physical asset.

General categories of trading accounts

1. Individual account. In an individual account, trading is done only for you. An individual account may be setup as either a "non-discretionary" or a "discretionary" account. A "non-discretionary" account, means that you will make all of the trading decisions and the broker may not execute any transactions without your prior approval and consent. A "discretionary" individual account, means that you give permission to the broker firm carrying your account or some third party to make trading decisions on your behalf.
2. Commodity pool. You may also trade commodities through a "commodity pool." This means you are purchasing a share or interest in the pool, and trades are executed for the pool as a whole, rather than for the individuals who have interests in the pool. Pool participants share in any gains or losses.

FOREX or Futures

Forex trading has the advantage of being more liquid than any other market, including the futures market. With the average daily volume in the Forex Market reaching close to 2 Trillion and the daily volume in the Futures Market reaching 30 Billion, there is no comparison. The liquidity in Foreign Currency Trading (Forex) far surpasses that in the Futures Market. This means when it comes time to trade, Forex Trades will be filled much easier than in the Futures Market. This speed means greater potential profit.

Another advantage the Forex Currency Trading System (Forex) has compared to Futures is the fact that you can trade 24 hours a day, five days a week if you want. The Forex Market is open longer and for more hours than any other market.

When you use a Forex Currency Trading System you receive immediate trade executions. There is no delay like there can be in the Futures or Equity Markets. And your order gets filled at the best possible price instead of guessing at which price your order might get filled.

Forex or FX Trading is Commission Free because it is an inter-bank market which matches buyers with sellers in an instant. There are no middleman brokerage fees as in other markets.

Online Forex Trading gives you much greater leverage than playing the Futures Market. However, in the Futures Market, you can also buy or sell options on futures, which increase your leverage. Leverage can be very important when you know what a currency is going to do.

Because of the high volume of trading FOREX transactions are almost instantly executed. This minimizes slippage and increases price certainty. Brokers in the futures market often quote prices reflecting the last trade – not necessarily the price of your transaction.

The FOREX is less risky than the futures market because of built-in safeguards in the trading system. Debits in futures are always a possiblility because of market gap and slippage.

There are definite advantages to FX Trading that may allow you to profit greatly if you develop a good system and stay within your trading limits.

Futures and options

Futures are often thought of in the same category as options. While they are both derivatives, in that they derive their value from some base security, there is one very important difference. While options give the right, but not the obligation to buy or sell the underlying security, a futures contract is a legally binding obligation to buy or sell that same commodity. Thus, while options limit your loss to the price paid for that option, futures trading could lead to a loss of your entire investment and more to meet that obligation.

Good Futures Trader

There is a lot to learn to become a successful futures trader; you'll want a mentor, and a couple of classes to learn the terminology, the regulations, and how to spot market trends (and how to divorce yourself from your own analysis, so that you don't blind yourself to important trends because you're in love with your own ideas.)

2 groups of futures traders

There are two groups of futures traders: the hedgers, who are interested in the underlying commodity and are seeking to hedge out the risk of changes in price; and the speculators, who are interested in making a profit by predicting market moves and buying a commodity "on paper" for which they have no practical use. For example, commodities in the market can be bought today at today's price, with the speculation of selling them at a higher price in the future.

Hedging has two types, hedge sale and hedge purchase. A person can buy a commodity and sell futures at the same quantity as protection against fluctuation in prices when he is still holding the stock.

Futures trading system

An effective trading system must

• Be totally objective.
• Be easy to use.
• Give clear purchase and sell signals.
• Keep draw downs to minimum.
• Produce large profits every trade.
• Take little time.

Futures trading software

If you want to be a successful futures traders you should have futures software, at minimum it should include:

• A ticker tracker: If you want to trade in a future, search for a ticker symbol of that future, get the futures quote, then make up your mind if you like to trade. A ticker is a specific 4-letter symbol distinguishing future.
• Charting: the software package must have a charting function.
• Market averages
• A futures quote function
• Market alerts
• Market indices
• Trading screens
• News alerts

One cannot yield to trade in futures trading without the impartial advice provided by good software.

Stop loss

Stop loss orders are great insurance policies that cost you nothing and can save you a fortune. They are used to sell or buy at a specified price and greatly reduce the risk you take when you buy or sell a futures contract. Stop loss orders will automatically execute when the price specified is hit, and can take the emotion out of a buy or sell decision by setting a cap on the amount you are willing to lose in a trade that has gone against you.

Many futures traders let fear, pride and greed, determine their trading decisions. These futures traders oftentimes lose money due to their emotions. Futures trading system annihilates these problems by creating objective trading decisions on a coherent basis. Futures trading systems will allow futures traders a chance to trade smartly.

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