Leveraging Losses and Gains in Futures Trading

Trading in commodity futures market can be very profitable only if you trade keenly. One of the downfalls that are faced by many traders is the inability to control their trading. People often get enticed by the trade patterns and fail to take precautions when trading. Managing losses is a big challenge for many traders and this is because the market can be engulfed by surprise events that move prices too quickly for a trader to exit at the pre-determined point.

Since it is not possible to eliminate losses completely, it is important that you keep losses as low as possible. When you are trading, you need to ensure that you do not over leverage your trade. You have to apply a loss margin. You can leverage your lose risks to about 2% of your account equity.

When you over leverage, you are likely to be caught up in a margin call meaning that you risk losing the entire capital you have invested in the market. The difficult aspect in managing losses is that traders want to make big money in any one trade. This is a risky move and you should avoid risking too large amount of your account.

It is essential that you have a stop loss order to protect you should the market shift against your trade. This will ensure that you do not suffer hefty losses when you begin trading in a loss. On the other hand, it is of paramount importance that you maximize your gains. When you are trading in profit, you should not exit prematurely.

You can hang on in a profiting position as long you do not over stay in the trade. If you have reached the gain margin that you had set for that trade, you need to exit even if you are still trading in profit. This is because, when you wait, something may happen unexpectedly and the market shifts its trading leading to untimely losses.

The key point to note when you are trading in futures commodity is to ensure that you minimize the percentage of losses and keep them minimal and maximize your profiting positions. At times, traders exit prematurely in a profiting trade fearing that they may lose. However, when they notice that the market is still trading upward, they decide to enter again.

This can be a trap because by the time you enter, traders have already profited. If something wrong happens and the market starts to move against your position, then you incur losses. If you have exited prematurely, you should just wait until another time where you can make a new order position. It is crucial that you trade with the trend and avoid speculating the market price movements.

In addition, traders try to pursue bigger profits not knowing that the bigger the profits you pursue, the large the amount of losses you risk in the trade positions. With a good trading plan, you are able to leverage losses and gains and therefore trade profitably in the long run.