General Finance

Trading Futures can Make you Great Profits

As you test the waters with trading futures, you may ask yourself the same question, “how much can I earn doing this?” This question is similar to asking yourself how much money you can make with your full-time job. The reason one might ask themselves this question is because they would like to create a profit and use it as a potential source of income using this investment tool.

The amount of money you can make may vary and is dependent on a lot of different variables. There are some professional and successful futures traders, while some others cannot make the cut and lose their butts. Here we have some of the most important variables that you should consider when thinking about trading futures.

Starting capital

You may have been told that trading strategies and risk management in a specific market are important to generate profit. However, the bottom line is that the initial investment is the place to begin.

  • When it comes to trading futures, you can easily set the trading goals by having a decent investment – usually $5,000 to $10,000.
  • Some futures brokers will require a minimum deposit of at least $10,000.
  • It will help you to tweak your trading system by defining the risk management.
  • You can easily manage your position around the starting capital.

The risk tolerance

A commonly known rule in trading futures is you should not allocate more than 1% of your money to a trade. For example, if you are trading $10,000, then the maximum exposure or risk should not be more than $100. You can increase or decrease this value according to the leverage.

If you are planning to trade more famous contracts like E-mini S&P500 future, then you will need $400 as this is the margin requirement for any standard contract. Futures move in ticks. There should be a tick movement of $12.50. It means that with a risk tolerance of only 1% you will have a 1:1 leverage. On the standard E-mini S&P500, the maximum loss you will suffer is 8 ticks or 2 points.

Trading strategy

Many professional traders spend months, if not years, on perfecting the art of trading strategies in different trading conditions. They test out their trading strategy to assure that they are doing it right.

With the help of trading strategy, you can clear the following points.

  • When is the right time to exit a trade.
  • How much risk you can take.
  • When the trade is going towards a loss.
  • The time to cut the losses short.
  • When you should take your profits off the table.
  • You will know when to trade and when to stay aside.

It depends on how much familiar you are with your trading strategies.

The time you dedicate to trading futures

The amount of time you spend on trading and learning is an important factor to determine the profit that you can make in futures trading. Most individuals consider trading futures as a part-time job. In this case, the amount of profit you generate depends on your approach. I would educate myself on the subject before jumping in, so check out “Market Wizards” by Jack D. Schwager for more information.

You can decide if you want to trade by swing positions, in which you can keep the futures trading positions for a long time. There are strategies in which you can trade for only a few hours. It all about understanding your position in trading futures.

Bottom Line

Trading Futures can be risky, but you can make a lot of money if you do it right. The first thing you should do is educate yourself before you jump in on this one. You should also know that you will need a decent amount of starting capital, since most brokers require a $10,000 minimum deposit. Don’t spread yourself thin and you should be just fine, especially if you are diversifying your risk. I would highly suggest you take a course like Trade Minnerbefore getting started. An educated investor is usually the best investor, especially if you aren’t interested in losing your shirt.

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