Commentaries by Bruce Babcock for New and Experienced Traders
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Futures trading is a way to participate in the Financial and Physical Commodity markets using very small amounts of capital margin to control a very large contract size, this is known making money through futures trading leverage. The Futures Industry is highly regulated. All Futures contracts are standardized so everybody knows what to expect while in a position.
Futures contracts are simply a derivative of a cash market product. The startup cost and commissions are much less than the Equity markets. But just like any worthwhile endeavor, there is a lot more to learn before you can receive the rewards of a professional trader. The following making money through futures trading will outline some of the obstacles and expectations of becoming a professional trader. For years people have swarmed to the Futures markets hoping to find the holy grail trading system and get rich overnight.
Part of the reason would be because they are smart enough to know it does not exist. Successful futures trading requires extensive ongoing education, repetition of what you have learned, a back tested and written trading plan explaining your trading style, risk management rules, a well capitalized trading account, plenty of free time to analyze the markets both post and pre market, discipline to follow rules and the list goes on.
Learning to trade is not just a financial obligation. You must be willing to commit time and make sacrifices along the way. The rewards of trading are endless, but the skills to maintain this status is an ongoing process.
For dreamers a Professional trader is somebody who has made millions or billions of dollars trading, has 3 or 4 homes, drives expensive cars and treats money with complete disregard. There is nothing further from the truth of a Professional trader. While there may be a handful of Professional traders like this in the world the majority live a completely different lifestyle than the making money through futures trading thinks they do. Most people who trade live a lifestyle well below their means.
Even though they have made enough money to buy most of the lavish things in life they choose to live within their means. Many self made millionaires choose to live this same way. I seem to be getting asked more frequently now by students about how much money they can expect to make as a trader. Imagine how difficult it is to answer that question. How much money you can expect to make as a Professional trader is as individual as your fingerprint is.
For each of making money through futures trading the term successful means something different. Being successful does not have to mean making millions of dollars either.
While some will be happy to make just enough to supplement another income they already have. A lot depends on the lifestyles each of us has chosen. If you have expensive taste and feel you must have making money through futures trading biggest, fastest, most expensive, etc toys then you will need much more money to live. For others they will be content to make a comfortable making money through futures trading and save for their future retirement.
There is no magical number anybody can give you to expect to make in the Futures markets. You want to be a successful Professional trader? All you need is a true passion for trading. This means not trading because you are only doing it for the making money through futures trading, but because you love to trade.
Then because you are doing something you are passionate about you cannot help but be successful because you will be happy doing what you are doing. Again successful does not mean you are making millions of dollars. Another difference between Professional and Dreamer type of traders is risk management. Professional traders are more concerned with risks than they are rewards.
Because I have been trading Futures for 25 years many think I am a great trader. To be honest, I am an average futures trader. What I am great at — risk management. Every trade I look to enter the first place I look on the chart is the point where I will be wrong on my trade.
As soon as I see this I know two things:. Many successful traders use a good risk to reward ratio for each of their trades. Since trading has no guarantees of success we must be prepared for a loss or a series of losses. This allows us to have larger winners than our losers. A typical ratio is 1: Each trader must define how much risk they are willing to accept for each trade. With such small percentages you can see why having an adequate trading account size is important.
While anything is possible in trading it is highly unlikely if the trader uses the exact strategy as planned for each trade. While this article may have sounded a bit negative about some areas of Futures trading I did this intentionally.
There are too many media ads showing all the promises of getting rich trading Futures. At Online Trading Academy each of our classes will show the trader about risk management and how to use it. We want to help you become Professional risk managers as well as helping you learn to trade. In closing remember that Futures trading can be as rewarding as you want to make it.
There will be some bumpy roads along the way. But remember, a road with no obstacles probably does not lead anywhere. Commodities March 5, Futures Trading: Disclaimer This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever.
Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for making money through futures trading actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results.
Reprints allowed for private reading only, for all else, please obtain making money through futures trading.