Futures trading is the practice of investing in a commodity like gold or wheat and speculating on its future value. The aim is for the trader to buy low and sell high later, or visa versa. It has the potential for high profits, but it is also an incredibly volatile practice that can result in heavy losses when executed incorrectly. Unfortunately, learning about this practice is not nearly as easy as it is to learn the 1099 deadline. As a futures trader, you will want to educate yourself on some of the vital mistakes you can make. Here are four big mistakes you will want to avoid as a futures trader.
Going In Without A Plan
Futures trading is all about predicting outcomes at a later point in time. Therefore, it simply makes no sense to go into trading without a plan. You need to know what your potential profits and losses are. You also need to have done research on when you should sell for maximum gains. Without a plan, you will be walking into the market blindly and losing money along the way. Avoid being unprepared, and you won’t have to suffer failure like novice traders.
Having Outrageous Expectations
Keep your expectations reasonable. This is a mistake too many Visium Asset Management clients make. Futures trading will not allow you to quit your job within a year. You will not be able to earn your living solely off the passive income from futures trading. Becoming a futures trader requires you to set realistic expectations for yourself from the start. Otherwise, you will be sorely disappointed. Do not make this mistake. It is one too many beginner futures traders make.
Not Using Protective “Stops”
Risk-taking is inherent in futures trading, but there are ways to minimize losses. You can buy protective “stops” that place limits on how far you go with certain investments. If they drop too low, your stop will automatically sell your stock to prevent further loss. Even if you have confidence in your investment, it is a mistake not to take precautions against unforeseeable events.
Given the volatile nature of futures trading, you need to have discipline in order to maximize profits. This is actually one of the registered investment advisors requirements. If you find that a certain commodity is on the up-end, do research on when it seems that rise will end. Be patient with the results, and wait until the prime moment to sell. Too often, future traders will just listen to a hunch and make investments without waiting to see if those hunches will pan out. Be disciplined. Do not make the mistake of pulling the trigger too early.
Leveraging is common in futures trading. Traders place large amounts of money into certain commodities hoping that their investment will pay off enough to off-set any initial costs. Undisciplined traders are prone to mistakes in this area. They try to invest too much money in one place or use too much of their account balance at once. This greatly increases the risk of losing everything in an instant. Patience is a virtue. Try to make smart, safe moves rather than make the risky trader mistake going for a home-run.
Do Not Be Too Cautious
With the above said, it is important to not be too cautious. You are investing, after all. What is investment banking if not a risk? Always be willing to learn new strategies. Markets change, and so too should your futures trading strategies. If you do not, you risk being left behind and missing out on potential profits. Be sure to try out new strategies that you learn of as a futures trader. This will help you to learn and grow with the market.
There is a lot of risk involved in futures trading, even if you use Sawgrass. A few wrong moves can have you losing thousands of dollars in the blink of an eye. Losses are going to be inevitable, but you can minimize these losses and increase your chances of making large profits by avoiding the mistakes that can be made by any futures trader.
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