Futures and Commodities Trading
While trading any instrument in the financial markets is risky, the individual
considering becoming a Futures Trader must understand the financial risks
involved. You need to determine how much time you want to invest in trading
Futures. If you want to trade your own Futures trading account, be sure the
money you plan to trade with is completely discretionary. Make certain you can
afford to lose those trading funds and that they are not set aside for anything
special such as a college fund or retirement, for example. In general, depending
on the broker, a Futures trader would need a minimum of $2500USD, to open a
Futures trading account.
Trading Futures can be very competitive among buyers and sellers. The Futures
market is extremely liquid and complex. Futures are traded on the Chicago
Mercantile Exchange with everything from hogs to oranges to oil as well as emini
futures. Traders who plan to day trade Futures normally don’t go very far in
depth of the actual Futures market. There are two ‘players’ in the futures
markets – speculators and hedgers. Day traders are generally considered
‘speculators’ since they move in and out of any Futures position based on what
the instrument is doing now. Futures day traders do not care about what tomorrow
will bring for the instrument they are day trading because at the end of the
trading session, they are all cash and are not holding any, open positions. Day
traders or speculators have no intention of owning the commodity they are
trading. Futures day trading is merely an action in an attempt to reap the
maximized profit, of any one individual Futures trade, in as short of an amount
of time as possible. Futures traders can go long or sell short, any available
In order for a Futures trader to ‘short’ an instrument, they must have a margin
account with their broker of choice. Margin account requirements will fluctuate
daily. During high market volatility, margin requirements can be increased by
the Futures Broker.
If a Futures Traders margin account drops to a certain level, the broker can
initiate a margin call. A margin calls requires the Futures Trader to either
make an additional deposit or, liquidate positions. When a margin call is made,
Futures Traders should not disregard it and act immediately, accordingly.
Futures Brokers have the right to liquidate a trader’s position(s) to make up
for any losses incurred.
Because the Futures markets are so heavily leveraged, a small change in a
Futures price can result in a huge win or huge loss, for the Futures Trader.
The minimum movement of a Futures Contract is referred to as a ‘tick’. A ‘tick’
is the minimum amount a commodity can move up or down. Trading will shut down on
a commodity if prices reach their daily limits which could affect the liquidity
of any Futures instrument. The Commodity Futures Trading Commission - CFTC – and
Chicago Mercantile Exchange impose limits on the number of contracts or
commodity units, any one individual can invest to assure no one person controls
the market price of any particular commodity.
Some Futures Traders will trade the ‘spread’ which is the most conservative form
of Futures Trading. Trading the ‘spread’ enables the Futures Trader to take
advantage of the difference in price of two different contracts, for the same
Be prepared to spend months, if not years, demo trading before you place your
first live Futures trade with your broker. New Futures Traders should utilize a
professional Futures Day Trading Room, while in training to become a Futures Day
Trader. No individual should attempt to take on the process of day trading
futures, without the assistance of a qualified futures day trading room.