Futures Trading Tips

The first thing you need to do after setting up your futures trading account is to deposit your initial trading capital, and to set objectives and milestones for your futures trading. New traders often wonder what’s a sensible level of investment, and it is perfectly easy to get carried away with the lure of riches when trading in margined investment products. Nevertheless there are a few sensible rules of thumb you should think about employing to prevent the common pitfalls many new futures traders experience.

For starters, your initial deposit should be an amount that you could afford to lose, and an amount that is representative of your experience level. For a rank beginner, you should be looking to deposit anywhere from around £50 (or equivalent) upwards. This gives you enough room to make a few trades, and to test the waters before you become more heavily exposed.

Some commentators suggest that the second deposit should only be triggered at the point at which you have doubled your capital, and this is a good general principle to ensure you really do have the basics down alongside a bit of financial insulation before you start risking any more of your hard-earned money.

Note that with margined trading, doubling your trading capital is not outwith the realms of possibility, and in any event the rate of return of even faintly successful futures traders will far outstrip the returns of the stock market over the same period, and will humiliate the returns you’d be offered at any high-street bank, so it pays to devote some time and attention to getting your trading right.

In addition to planning your first deposit, you should also establish an approach to risk that leaves enough room in your trading account to cover additional margin requirements for losing positions, while also ensure that you are not totally exposed to your open positions. Another rule of thumb for use here is to trade on the 10% rule – keep 10% of your trading capital live, and the remaining 90% as a buffer against the possibility of margin call. This will ensure your account is always in good standing, and while cautious, it will help prevent against overtrading and further common difficulties experienced by overzealous, under-experienced traders.

Similarly, your risk policy should take account of setting stops at a price point around 10% below (or above) the purchase price. This is again to leave room for price fluctuations, while still providing a guaranteed cut-off point for trades that look certain to be heading south.