Before diving into futures commodities trading, it is crucial to recognize the following:
1) High Risk: Trading in these contracts involves a high degree of risk for financial losses.
2) High Leverage: Futures trading has the potential for high leverage.
3) High Volatility: Commodities futures are subject to significant fluctuations. Therefore, only use risk capital—funds that will not negatively impact your lifestyle.
1) Familiarize Yourself with Contract Sizes: Know the contact sizes and point values for each commodity traded, particularly focusing on those trading in the US, especially in NY and Chicago.
2) Determine Margin Requirements: Inquire about the margin requirements for different commodities. These requirements will help you decide the commodities to include in your portfolio.
3) Choose Your Trading Approach: Decide whether you will use a mechanical trading system, technical trading system, or trade based on fundamentals. Make sure to trade with a methodology rather than relying on hunches or “tips” from unreliable sources.
4) Select a Broker: Decide whether to use a full-service commodities broker or a discount online broker, considering your experience with other financial instruments. Full-service brokers may charge more but can offer valuable guidance, especially for beginners.
5) Practice with Paper Trading: Before investing real capital, practice trading using a manual log or simulated online trading platform. This will provide a sense of the daily volatility in the futures market and how different commodities fluctuate.
6) Seek Guidance: Whether you choose a full-service broker or an online trading platform, ensure that the brokerage provides the time, staff, and patience to support and guide you when needed.
It is important to remember that past performance is not necessarily indicative of future results, and there is a substantial risk of loss in futures trading.
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