Trading On The Futures Market

The futures market, whether that be commodity futures or index futures, is a centralized marketplace for buyers and sellers from around the world who meet and enter into futures contracts.

The futures market is a constant struggle between buyers and sellers. Buyers always want the price to go higher and sellers always want the price to go lower.

Traders have to observe the market from the perspective of whether buyers or sellers are in control. By seeing control shift from one side to the other, we can be alerted to new trading opportunities.

Trading on the future market is not the same as trading normal stocks and bonds; the risks and rewards can be far greater trading in the futures market! As a result, you need to adhere to a few simple rules when contemplating trading in futures:

1. know what you're doing: unlike equities trading, knowledge really is vital in futures trading. You must know what you are doing and the market has little time or sympathy for those who trade on hunches. You never know, you may get lucky with a hunch, but it won't last.

2. have the best trading system available: both time and knowledge are vital in futures trading, therefore make sure you have the best and most up-to-date trading system your money can buy. 

3. make sure you get professional help: don't be too proud to ask the advice of a professional futures trader - futures trading is fraught with financial danger and it is best that you are made of these facts sooner rather than later.

4. adapt your thinking: if you want to actively trade in futures, you'll need to develop what is known as the "before thinking" mentality. Essentially what this means is that you have to accept that at some time or other your futures trade is going to be realized and you must consequently be thinking of the next deal; next crop; etc. Thus, stay abreast of your investments, don't invest and forget (a mentality often adapted in equities investments).

5. be proactive: you need to go out of your way to find out information others do not know. Essentially, you can guess that if you are reading something, everyone else has already read it. Also, think outside of the box. For example, if you want to invest in commodities, don't only look at what the best climatic conditions are for those commodities, also think about what the best soil conditions are. 

6. motivate yourself: constantly tracking investments over time can become tiresome. Trading in the futures market means that you have to continuously motivate yourself, re-invent yourself, and find reasons to reinvest when your current futures market transactions comes to completion. To be truthful, motivation can be a real issue when dealing in the futures market if you happen to take a hit early on in your investment history (which is also the period when you are most likely to take a hit!).

7. hedge: if you are not altogether confident that you have assessed something correctly, hedge against the chances of any loss you may sustain.

8. never trade if you're not willing to lose the invested money - unlike equities trading, you may find that time runs out on your investment!

9. train yourself: the futures market is full of experts in their field. If you want to succeed, you'd best be as good as them. If you don't already know it, take yourself off to seminars, lectures, speaking engagements and learn.

10. stay healthy: without doubt investing in the futures market is one of the most stressful investment activities you can undertake. If you want to be active in the futures market, you must make sure you maintain your overall fitness and health levels.

Trading is a game of skill. What is critical for the development of any skill is practice and experience. Look for a mentor to help you trade effectively.