Trading in commodity futures market requires a good plan and there are a number of aspects which should be observed to trade profitably. The market is confronted with risks that leave many traders at the losing end. About 85 to 95% of traders in this market do not trade profitably and this means that the money is earned by a few traders. These are the traders who apply strict trading discipline and manage their losses effectively.
If you are a beginner, you should not risk trading with a large amount. You may begin with a few hundreds of dollars and trade carefully. It is essential that you do not go for big profits because this means trading with big risks. The larger the amount you trade with, the more you risk losing that money. Therefore, when you are wrong, you will suffer big losses. This can send you out of the market fast than you anticipated.
Commodity futures market can shift in price movements unexpectedly. Most of the successful traders make a lot of losing trades but the good thing is that they leverage what they have to lose. They trade with manageable amounts and even when they trade with big money, they apply the stop loss order strategy very effectively.
When you realize that you are faced with a margin call, it means that something is wrong in you trading. You should never accept to be confronted with margin calls because it implies that your trade is not correct. You have to check the contract size. For example, if you have$5,000 account equity, you should not trade with more than $250 in any one given trade.
You need to give yourself a risk or loss margin of about 2% and this will ensure that in the event you trade in loss, the total amount lost is not too big. Losses cannot be eliminated and therefore you have to manage them. You will incur numerous losses as you trade but you have to keep them minimal. When you get a profiting trade position, you have to optimize that chance.
This means that you have to hang on in that position until you have earned something substantial. The numerous losing trades you face are covered by the large profiting trades you occasionally get. In essence, if you are a beginner in futures commodity trading, you should not risk your money by trading with big amounts.
You need to trade with a plan and follow the trend. Trade with low amounts and scale down your losses significantly. With about $200 dollars, you can start trading in a commodity futures market. This means that you will not get a lot of profit but the good thing is you are gaining experience.
As you begin to understand how the market trades, you can increase the amount successively. You need to have a long term goal and avoid short end goals that will only plunge you into pitfalls. Many beginners who trade in this market lose their amount before they even learn the basics and tactics of trading in commodity futures markets.
Showing posts with label commodity futures. Show all posts
Showing posts with label commodity futures. Show all posts
Monday, November 18, 2013
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.
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.
How Easy Is It To Trade Profitably In Commodity Futures Market?
Trading in commodity futures market can be quite easy if only you follow the cardinal rules which have been applied by the successful traders. Almost every trader in futures market loses but the secret in profiting in this market is to manage risks. Many traders are not able to manage risks because they do not have trading plans, and do not manage their equity. They also do not leverage their gains and losses. Moreover, they do not get substantial education on how the market works.
If you want to trade easily and profit in this market, you have to follow the rules and be disciplined in your trades. The following tips can help you trade easily and profitably in the long run in futures commodity markets;
- You need to scale down your losses. Every trader in futures market experiences losing positions. There are many losses you will trade in any given trading period. In fact, you may find that the losing trades are more than the profiting trades. The big question is; how to you leverage the losses and gains?
- In order to manage losses and increase your gains, you have to trade with very minimal amount in relation to your equity. The amount with which you trade with will largely be determined by your account equity. You need to leverage the risks of loss to about 2% of your total equity. This means that in the event you trade in losses as it is likely to happen most of the time, you will only incur small losses
- You need to use stop loss orders properly. This is essential because you do not know when the market movement will turn against your position. At one moment you may be trading in profit and the next moment you are trading in loss. When this happens, you may be saved from suffering huge losses in your account by a stop loss order.
- You also need to maximize your profiting trade. Because you will occasionally get a profiting trade, when it happens, you need to optimize it. This does not means that you have to trade with a big percentage of money. You should always ensure that you do not exceed a risk loss of more than 5% of your account equity. When you are trading in profit, you need to hang on and ensure your position keeps on running until you have gained substantial amount. This is the amount which offsets the numerous small trading losses you have incurred.
- You should avoid exiting profiting market prematurely and should let the profits run but on the other hand, you should not overstay a position. If you have gained the targeted amount, you may decide to exit the market even if the position is trading in profit. This is because, the more you hold on, the more you are likely to lose at the end of the trade.
Why Should You Avoid a Margin Call When Trading in Commodity Futures Market?
A margin call occurs when the value of positions in your account exceeds the amount that is available as equity in your account. Mainly traders result to margin calls because of poor trading practices. When trading in futures markets, you are advised to watch the contract size and ensure that you do not over trade your account. There are a number of things, which you can do to avoid being issued with margin calls and they include;
• Trading with very low risk margins
• Not overtrading your account
• Using stop loss orders appropriately
• Avoiding entering a trade unprepared
• Avoiding premature entry and exit of positions
• Trading with the trend and avoiding speculations
It is essential that you leverage the loss that you can bear. You should not risk more than 5% of your account equity. If you can maintain a risk percentage of about 2%, it means that even if the prices of the commodities go against your trade, you will not suffer from margin calls.
It is your responsibility to understand what a margin call means. You need to keep your account fully margined in all your trades. The futures commodity trading is highly profitable to the disciplined and experienced investors. However, for those who lack self management in trading, they are prone to risks of losing their money through extended losses.
When you are trading in this market, there are risks which range from system failures, illiquidity to market volatility. The possibility of changing political and economic conditions also affects the market substantially. There is a lot of enticement when it comes to futures commodity trading. This is because there is a high degree of leveraging available.
You can leverage what you want to gain as well as what you are willing to lose. If you want to gain big profits, you have to risk big losses. Because of the volatile nature of the market, price movements can change unexpectedly and this leads to a disproportional effect on your equity. Whereas the market movement may work in favor of your position, it may also go against your trade.
There is a possibility to sustain a total loss in initial margin funds and this is where you are required to deposit additional funds in order to maintain your position. When your account becomes under-margined, it means that it is insecure at that time and there is no adequate collateral equity in your account to support any further price movements against your position. At this time, a margin call is issued. This means that your order is cancelled and you meet any deficiency or debt balance as a result of the call.
In essence, if you trade with the trend and avoid speculating the market movement, you are able to avoid getting into a situation where your account equity is put at risk. In addition, if you understand the right time to enter and exit the market you are also able to manage unexpected losses.
You should trade with very minimal percentage of your overall equity in order to bear the losses in the event of an untimely change in market movement. You also need to safeguard your position with a stop loss order.
• Trading with very low risk margins
• Not overtrading your account
• Using stop loss orders appropriately
• Avoiding entering a trade unprepared
• Avoiding premature entry and exit of positions
• Trading with the trend and avoiding speculations
It is essential that you leverage the loss that you can bear. You should not risk more than 5% of your account equity. If you can maintain a risk percentage of about 2%, it means that even if the prices of the commodities go against your trade, you will not suffer from margin calls.
It is your responsibility to understand what a margin call means. You need to keep your account fully margined in all your trades. The futures commodity trading is highly profitable to the disciplined and experienced investors. However, for those who lack self management in trading, they are prone to risks of losing their money through extended losses.
When you are trading in this market, there are risks which range from system failures, illiquidity to market volatility. The possibility of changing political and economic conditions also affects the market substantially. There is a lot of enticement when it comes to futures commodity trading. This is because there is a high degree of leveraging available.
You can leverage what you want to gain as well as what you are willing to lose. If you want to gain big profits, you have to risk big losses. Because of the volatile nature of the market, price movements can change unexpectedly and this leads to a disproportional effect on your equity. Whereas the market movement may work in favor of your position, it may also go against your trade.
There is a possibility to sustain a total loss in initial margin funds and this is where you are required to deposit additional funds in order to maintain your position. When your account becomes under-margined, it means that it is insecure at that time and there is no adequate collateral equity in your account to support any further price movements against your position. At this time, a margin call is issued. This means that your order is cancelled and you meet any deficiency or debt balance as a result of the call.
In essence, if you trade with the trend and avoid speculating the market movement, you are able to avoid getting into a situation where your account equity is put at risk. In addition, if you understand the right time to enter and exit the market you are also able to manage unexpected losses.
You should trade with very minimal percentage of your overall equity in order to bear the losses in the event of an untimely change in market movement. You also need to safeguard your position with a stop loss order.
Top Reasons Why Traders Lose Money in commodity Futures Trading
As much as the commodity futures market can earn you good money and in an easy way, on the other hand, you can easily fall into the market’s trading pitfalls. Apparently a big number of those who lose in this market display some common trading characteristics. If you have to be among those who benefit in this trade, you need to avoid the common mistakes, which are made by about 80 to 95% of those who trade in futures market. Some of these mistakes are;
• Lack if an in-depth training on the market
• Over leveraging in commodity trading
• Poor account equity management
• Lack of a concise commodity trading plan
If you plan to trade in commodity futures market, you do not have to be the best trader but it is important that you acquire fundamental knowledge and skills on how this market trade works. What this means is that you have to gain more knowledge other than the typical futures margins, contract sizes, ticker symbols, or entering and exiting an order position.
The good thing is that there are many resource books, which you may read and can help you trade wisely. In this trade, you are competing with some of the most professional traders in the market who have a wealth of experience. You have to remain focused and follow the strategies which have been applied by others that have succeeded in the trade.
Moreover, many traders fall in the trap of poor leveraging strategy. You need to leverage between what you can lose and what you can gain. The most impacting part is the losing trade. When you enter into a contract that risks your entire account, you could easily lose all your money with just a couple of losing positions.
It is therefore important not to risk your account with one trading position. In addition, you should not trade in contracts, which are too large for your account. You need to watch on the contract size you are trading in.
Managing your account becomes a challenge for many people who trade in futures commodity market. This happens because many traders want to gain big money so fast not realizing that a wrong move could leave their accounts wiped out completely. You should not risk more than 5% of your account in just a single trade position. You can leverage your risk to about 2% on one trade.
However, this becomes a challenge especially when you find that you are trading in profit. Since you want to maximize your profits, you end up risking more so that you earn more. What happens is that in the event the market prices shifts somewhere down the line in your trade, you suffer greatly.
However, you can manage this aspect by placing stop loss orders away from your entry so that you are safeguarded from huge losses should the market prices shift against your trade. A plan is essential in order to monitor your trading. However, many traders trade blindfolded without any plan and this means that they are prone to making erratic trading mistakes that cost them dearly. The plan may entail the markets, which you will trade.
The contract size you have to use as a well as your exit and entry strategies may also be featured in the plan. In addition, your plan has to feature the stop loss order strategies that you apply in any given trade. The risk management strategies are also included in this plan. With this tool, you are able to trade carefully and reduce risks, which face most of the traders.
• Lack if an in-depth training on the market
• Over leveraging in commodity trading
• Poor account equity management
• Lack of a concise commodity trading plan
If you plan to trade in commodity futures market, you do not have to be the best trader but it is important that you acquire fundamental knowledge and skills on how this market trade works. What this means is that you have to gain more knowledge other than the typical futures margins, contract sizes, ticker symbols, or entering and exiting an order position.
The good thing is that there are many resource books, which you may read and can help you trade wisely. In this trade, you are competing with some of the most professional traders in the market who have a wealth of experience. You have to remain focused and follow the strategies which have been applied by others that have succeeded in the trade.
Moreover, many traders fall in the trap of poor leveraging strategy. You need to leverage between what you can lose and what you can gain. The most impacting part is the losing trade. When you enter into a contract that risks your entire account, you could easily lose all your money with just a couple of losing positions.
It is therefore important not to risk your account with one trading position. In addition, you should not trade in contracts, which are too large for your account. You need to watch on the contract size you are trading in.
Managing your account becomes a challenge for many people who trade in futures commodity market. This happens because many traders want to gain big money so fast not realizing that a wrong move could leave their accounts wiped out completely. You should not risk more than 5% of your account in just a single trade position. You can leverage your risk to about 2% on one trade.
However, this becomes a challenge especially when you find that you are trading in profit. Since you want to maximize your profits, you end up risking more so that you earn more. What happens is that in the event the market prices shifts somewhere down the line in your trade, you suffer greatly.
However, you can manage this aspect by placing stop loss orders away from your entry so that you are safeguarded from huge losses should the market prices shift against your trade. A plan is essential in order to monitor your trading. However, many traders trade blindfolded without any plan and this means that they are prone to making erratic trading mistakes that cost them dearly. The plan may entail the markets, which you will trade.
The contract size you have to use as a well as your exit and entry strategies may also be featured in the plan. In addition, your plan has to feature the stop loss order strategies that you apply in any given trade. The risk management strategies are also included in this plan. With this tool, you are able to trade carefully and reduce risks, which face most of the traders.
Understanding the Futures Contracts
Futures market is a marketplace where buyers and sellers engage in commodity selling contracts. Although the futures contracts state the price and when it is paid as well as the date of delivery of the products, almost all futures contracts end without the actual delivery of commodities. The futures contract is an agreement between two parties.
One party takes a short position and this is the party who agrees to deliver a commodity and a long position is taken by the other party who agrees to receive a commodity. The price of futures is represented by an agreed-upon price of the commodity in question. A financial instrument may also be used to determine the price of the commodity.
The profits and losses of futures contracts largely depend on the daily price movements that are witnessed in the market. The profits and losses are calculated on daily basis. Unlike the stock markets, the futures positions are adjusted or settled on a daily basis and this means that profits and losses are deducted or credited on the traders’ accounts on a daily basis based on the movement of the price as agreed upon in the contract.
Since the accounts of the parties engaged in a futures contract are adjusted every day, this means that most transactions in this market are settled in cash. What happens is that the actual physical commodity is bought and sold in the cash market but not in the futures market. Depending on how the prices change every day, when the two positions decide to close their contract, one will have lost and the other gained but this depends on how the prices have changed over that period.
In the real sense, none of the parties actually go to the market to buy or sell these commodities and this means they only act as speculators of the price movements. This is how the futures contracts are derived. The futures contract is more like a financial position and the position takers are actually speculators.
The short speculator is the one who agrees to deliver the commodity and the long speculator is the one who agrees to receive the commodity. But because neither of these parties will go to the market to buy or sell the commodity even after the contract expires, it means that all the deals are settled in cash.
Futures markets are important economic tools since they help determine the supply and demand of commodities today and in the future. The continuous flow of information from around the world affects the prices. Factors like war, weather changes, debt defaults, government regulations on major currencies as well as crop reports all affect the market prices.
It is this kind of information and the way people tabulate and absorb it, which constantly keeps on influencing the price of the commodities in the futures market. This is a process known as price discovery. Because the price of commodities is pre-set, this reduces the risks. The traders know how much they will need to buy and sell.
One party takes a short position and this is the party who agrees to deliver a commodity and a long position is taken by the other party who agrees to receive a commodity. The price of futures is represented by an agreed-upon price of the commodity in question. A financial instrument may also be used to determine the price of the commodity.
The profits and losses of futures contracts largely depend on the daily price movements that are witnessed in the market. The profits and losses are calculated on daily basis. Unlike the stock markets, the futures positions are adjusted or settled on a daily basis and this means that profits and losses are deducted or credited on the traders’ accounts on a daily basis based on the movement of the price as agreed upon in the contract.
Since the accounts of the parties engaged in a futures contract are adjusted every day, this means that most transactions in this market are settled in cash. What happens is that the actual physical commodity is bought and sold in the cash market but not in the futures market. Depending on how the prices change every day, when the two positions decide to close their contract, one will have lost and the other gained but this depends on how the prices have changed over that period.
In the real sense, none of the parties actually go to the market to buy or sell these commodities and this means they only act as speculators of the price movements. This is how the futures contracts are derived. The futures contract is more like a financial position and the position takers are actually speculators.
The short speculator is the one who agrees to deliver the commodity and the long speculator is the one who agrees to receive the commodity. But because neither of these parties will go to the market to buy or sell the commodity even after the contract expires, it means that all the deals are settled in cash.
Futures markets are important economic tools since they help determine the supply and demand of commodities today and in the future. The continuous flow of information from around the world affects the prices. Factors like war, weather changes, debt defaults, government regulations on major currencies as well as crop reports all affect the market prices.
It is this kind of information and the way people tabulate and absorb it, which constantly keeps on influencing the price of the commodities in the futures market. This is a process known as price discovery. Because the price of commodities is pre-set, this reduces the risks. The traders know how much they will need to buy and sell.
Tips on How to Take Positions in Commodity Futures Trading
When you are trading in commodity futures market, you are out there to make profits. However, the trading market is characterized by randomness meaning that at one time the market is trading with profits and the next moment it is trading with losses. If you have set a predetermined price when you will exit, then you are in a better position to trade profitably.
Taking a position involves a number of things and the most important is to trade with the trend. Because of the volatility of the market, prices can shift unexpectedly and if you are wrong, in your position, you incur losses. Leveraging the potentials for losses and gains is the best approach in realizing profits in the long run.
In most cases, you will face numerous trading positions with losses. When you find that you are trading with loss, the best thing to do is not let the loss run. You have to close that order position. Through the stop loss orders, you are able to control the losses you suffer when trading.
It is typical to suffer losses as you trade in commodity futures and forex market but the adverse effects of these losses on your equity can be managed by stop orders. You have to set the position in such a way that you exit when there is a trading loss. This will ensure that you keep the losses minimum.
On the other hand, when you trade with profits, you should allow the position to run. This will ensure that you optimize on that order. It is only by optimizing the profiting trading positions that you can cover up the losses you have suffered in the subsequent small losing trades. Since losses cannot be avoided in futures commodity market, you only have to control them.
Before you take any position, it is important that you examine how the trend in market prices has been going on in the past. You may consider a 4 weeks period and follow that trend. When you realize that today the closing price is higher than what the closing price was 25 market days ago, then you can buy that order position.
When you move with the trend, you are likely to trade the big profit markets. If you spend much time speculating and anticipating that things will favor you and you do not have a strategy, then you are likely to suffer more losses than gains. In addition, when you discover that you are trading with profit, you also have to exit when you have attained your predetermined price.
Holding for long or overstaying a position can plunge you into a huge loss if the market shifts sharply against your price. Overstaying arises because you want to keep holding on the position as the market is still trading with profit.
Although it advisable that you keep profiting position rolling, then again, you have to be careful. You should not overstay. You should have a pre-calculated move and exit when it is the right time to do so. Always ensure that you optimize profits and reduce losses significantly in a forex trade or futures market trade so that the overall long term trading becomes profitable.
Taking a position involves a number of things and the most important is to trade with the trend. Because of the volatility of the market, prices can shift unexpectedly and if you are wrong, in your position, you incur losses. Leveraging the potentials for losses and gains is the best approach in realizing profits in the long run.
In most cases, you will face numerous trading positions with losses. When you find that you are trading with loss, the best thing to do is not let the loss run. You have to close that order position. Through the stop loss orders, you are able to control the losses you suffer when trading.
It is typical to suffer losses as you trade in commodity futures and forex market but the adverse effects of these losses on your equity can be managed by stop orders. You have to set the position in such a way that you exit when there is a trading loss. This will ensure that you keep the losses minimum.
On the other hand, when you trade with profits, you should allow the position to run. This will ensure that you optimize on that order. It is only by optimizing the profiting trading positions that you can cover up the losses you have suffered in the subsequent small losing trades. Since losses cannot be avoided in futures commodity market, you only have to control them.
Before you take any position, it is important that you examine how the trend in market prices has been going on in the past. You may consider a 4 weeks period and follow that trend. When you realize that today the closing price is higher than what the closing price was 25 market days ago, then you can buy that order position.
When you move with the trend, you are likely to trade the big profit markets. If you spend much time speculating and anticipating that things will favor you and you do not have a strategy, then you are likely to suffer more losses than gains. In addition, when you discover that you are trading with profit, you also have to exit when you have attained your predetermined price.
Holding for long or overstaying a position can plunge you into a huge loss if the market shifts sharply against your price. Overstaying arises because you want to keep holding on the position as the market is still trading with profit.
Although it advisable that you keep profiting position rolling, then again, you have to be careful. You should not overstay. You should have a pre-calculated move and exit when it is the right time to do so. Always ensure that you optimize profits and reduce losses significantly in a forex trade or futures market trade so that the overall long term trading becomes profitable.
5 Mistakes You Should Avoid When Trading in Commodity Futures Markets
The ability to trade profitably in commodity futures markets is impaired by a number of things and it is important that traders keenly observe the tips and advices, which are provided by those who have successfully traded in this market. Often, people think that they can be smart and spend most of their times studying the market yet the most successful traders spend little time in researching the commodity futures market.
Although it is recommended that you remain updated of the trends, news and what is happening in the market, on the other hand, there are simple things you can avoid, which will enable you trade profitably and get a good share of the market.
Below are five things you must avoid to trade successfully in futures markets;
With a good plan and risk management, you are able to earn big from this market in the long run. You should avoid margin calls at all costs because these are signs that you are not trading well. Margin calls means that your capital is in danger and could be consumed leaving you with no money to trade in the big profits. Margin calls can be avoided by following the cardinal rules of profitable commodity futures market trading.
Although it is recommended that you remain updated of the trends, news and what is happening in the market, on the other hand, there are simple things you can avoid, which will enable you trade profitably and get a good share of the market.
Below are five things you must avoid to trade successfully in futures markets;
- Avoid trading without a plan. The cornerstone in profiting is devising a plan that will help you know when it is the right time to enter a position and when to close a position. You should also leverage what risks you have to take. You should know where and when you are going to exit the market if you are wrong. In addition, you should have a safety stop or stop order in case the market sharply shifts against your trade in order to avert huge losses.
- Moreover, you must avoid trading without a money management strategy. Managing your money in commodity futures trading means managing risks. In this trade, you will experience a cycle of losses and profits. The losses may be more than the profits and therefore you must know when to make stops. If you are trading with a loss, you should exit. If you hold on to a losing position, you will incur more losses if you are wrong. By managing money, it implies controlling your risks by executing stop orders. It also implies balancing your potential losses against your potential gains. The amount you risk in each and every trade should be minimal in order to avoid your account being wiped out by large losses.
- Avoid letting losses run. Many traders do not want to lose and they never accept losses. This compels them to hold on to losing trades when they could actually exit through a stop loss order. When you realize that you are trading with a loss, you should stop and wait for the market to turn. You have to accept the loss. A successful trader is one who is able to leverage losses by only allowing small losses. If you leverage your losses and ensure that they are small and keep your profit positions running, then you will gain. In addition, with a predetermined exit price for your trade, you are able to get big profits and only realize small losses. This is the characteristic trading pattern of the successful traders. Since losing is part of the trade, the only way to remain on the safe side is to minimize the losses and maximize profits.
- Another thing you should avert is stopping prematurely when the market is trading with profit. Due to fear or lack of confidence, you may exit a position, which is trading with profits because you think that the market may change suddenly and lose that large amount you have earned. It is important to monitor the trade and continue running until that time it starts to change its movement. This is where you should close a position, which is trading with profit. If you close a position prematurely and the market continues to rise, you are tempted to enter again. By the time you enter, it has already earned other traders big profits. When it starts to move against your market, then you get losses.
- Avoid overstaying a position. If the market trades in your favor and meets your price target and you find that you do not have a close stop loss order, then you may be overstaying your position. You must take profits at a predetermined level. Although you are recommended to let your profits run, on the other hand, overstaying a position could cause more harm than gain. If the market breaks sharply and moves against your price, then this could deal you a blow. You will watch all that big profit you had made drain away within a short period.
With a good plan and risk management, you are able to earn big from this market in the long run. You should avoid margin calls at all costs because these are signs that you are not trading well. Margin calls means that your capital is in danger and could be consumed leaving you with no money to trade in the big profits. Margin calls can be avoided by following the cardinal rules of profitable commodity futures market trading.
Great Strategies that Can Help you Trade Profitably in Commodity Futures Markets
As much as you can earn pretty good money by trading in commodity futures markets, there also lies a big risk of losing in your trade. The most successful traders leverage what they can earn and what they can lose. This means that they are prepared to lose. The following strategies can help you trade profitably in commodity futures;
In essence, these are some of the cardinal rules of commodity futures trading that can help you trade profitably while minimizing big losses and maximizing profits. The truth about the futures contract markets is that you will be faced with numerous losses and have to cut them short, otherwise, they will wipe out your entire capital long before you enjoy the big profits.
- Trading with the trend is certainly one of the important tactics you can use to profit in commodity futures. Apparently, many traders find it difficult to trend with the trend. It is hard to exit a position because the give-up point appears to be further away. What happens is that you want to remain in that position hoping that you will earn more before you exit. However, this potentially causes a larger loss if the market shifts against your trade position.
- You can follow an entry rule by buying if today’s closing price is higher than the closing price of 25 market days ago. This way, you are trading with the trend.
- It is important to cut losses short but surprisingly, traders never want to exit a market when they are trading with a loss. They want to cling on their position hoping that the market price will shift in their favor. There are many reasons that compel traders to hold to a position when trading with a loss and the immediate one is that they think that the market will suddenly turn around and give them a profit instead of a loss. This anticipation is what traps many traders in losing large amounts of money in a single trade.
- The best trading practice is to keep the losses short while you trend in the direction of the trade. Even when you experience successive large number of losses, you should remember that as long as you are trending with the trend, the big profits will come their way. You have to ensure that the losses are cut short before they take up your capital and fail to profit when the time comes for a favorable commodity futures trade.
- Another way you can optimize your profits is to let profits run. It is important that when you are trading in a profitable position, you keep the profits running as long as possible. This is because the trade is likely to continue trading in profits for longer. This way you maximize your profits.
In essence, these are some of the cardinal rules of commodity futures trading that can help you trade profitably while minimizing big losses and maximizing profits. The truth about the futures contract markets is that you will be faced with numerous losses and have to cut them short, otherwise, they will wipe out your entire capital long before you enjoy the big profits.
How to Reduce the Risks of Trading in Commodity Futures Market
The most important aspect about commodity futures trading just like the financial market trading is that you must manage risks. Managing risk entails basically keeping the losses at minimal and this means that in the event the market goes against you, you are not put into financial problems. The following tips can help reduce the risks of trading in commodity futures;
- A single shift of prices could mean a big fluctuation that may affect the capital you have invested to trade in commodity futures market. It is advisable that you do not trade with fear even in times of losses because this is part of the trade. What you can do is reduce the amount you may lose in any one given trading position.
- Avoiding large single or individual losses is one thing that traders need to ensure so they minimize the chances of plunging into financial pitfalls when trading. A long term success in futures trading is determined by the ability to realize risks and face them. Besides leveraging the amount that you put at risk, there is also another element of managing risks in this trade.
- The market you trade in particularly important. When you trade, you will discover that some markets are more volatile and risky than others. Therefore, if you have small amount to trade with, then you should refrain from trading big money. You have to keep risks in proportion to your capital. This means that you have to emphasize on risks over the big profits you can make in a given market.
- Commodity futures markets are faced with surprise turn of events, which affect the market too fast and move prices against your trade and the movement can be too quickly to exit a position. Within seconds, the prices could drift against your trade and wreck havoc on your trading position causing immense losses.
You have to examine the risk of surprise events like crop reports, floods, freezes, wars and currency interventions as these can catch you unawareness meaning that by the time you exit a position, the market has very quickly turned against your trade and big losses have been realized. You may trade very well in the better part of a trading period only to lose all that money you have profited for that long period within a blink of an eye.
- The bigger the profits you pursue in your trading positions, the bigger the risks you have to take. The good thing with commodity futures trading is that you are able to make big money in a very short time. But again, you can even lose much more in a very short time.
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