Despite its bad reputation however, many experts would claim that futures trading could only be as risky as you want to make it. And if you take on good strategies and give yourself the proper exposure, then this can make you very rich.

What Are Futures?

Futures are standardized and transferable contracts that require a buyer to purchase a stock at a specific sum and within a certain time period in the future. This contract gives the buyer the obligation of purchase, and the seller the obligation to deliver the specific asset traded.

Unlike options, futures contracts obligate the traders to buy and sell instead of just merely giving them the right.

People basically profit from futures by performing speculations in order to provide liquidity and to assume risks for price fluctuations in the market. These valuable functions provide them with substantial returns and potentially large gains. But take note that along with these, substantial risks are involved as well.

How And Why Are Futures Traded?

Trading futures has become quite popular in many markets, especially in day trading. These kinds of trades offer a wide variety of markets and it can be traded at a low cost.

Futures can be traded in both up and down markets. If a particular trader expects the market to go up, a long trade is usually done wherein the trader buys a contract and then sells it. On the contrary, if a trader believes that the market will go down, and then he will most probably make a short trade by entering a trade through selling a contract and then exiting by buying another contract.

With this system, traders are able to profit regardless of what direction the market trends are going. This is the main reason why most traders are only concerned if the market is moving at all, instead of which direction it is actually going.

In futures trading, instead of taking or making deliveries, a trader merely speculates his position in the market’s volatility by predicting directions of trends. If prices move in the right direction, then the trader would be able to profit. If this does not happen, then a trader would experience some losses.

This particular arena in trading can be very promising, but it involves so many risks as well. But if you are well experienced in trading stocks and have adopted quite an understanding in the different trends, behaviors and strategies that the industry has to offer, then chances are, you may probably do well in this particular playing field.

All of this may sound pretty easy at the moment, but if you are planning to engage in futures trading, make sure that you do your research and prepare yourself with the necessary knowledge and skills to successfully execute transactions.

Along with huge profits possible, there are a lot of risks involved and trading futures without the right background can be very detrimental.

1. Never put up trading money you can’t afford to lose.

Never trade with your house payment, rent, car payment, etc. Never mortgage your property for trading capital. You are playing with fire if you violate the first rule of trading. The fact will always remain that you can or may lose a good portion or even all of your trading capital. This is why rule #1 is so important.

2. Keep your trading costs down.
There are many great brokers that offer low cost commissions, with great service and excellent trade executions. If you are a high volume trader or a frequent trader, you can save a good sum of many just by trading with a different broker. Sometimes the difference between being profitable and trading with a loss can be the cost of commissions. Explore your options, check out several brokers.

3. Be a student of the markets. Learn and use both Technical Analysis and Fundamental Analysis.
The top pros in every profession are constantly trying to improve their game. Trading is no different. It is one of the most competitive industries in the world with some of the brighest people involved in it. You should constantly be a “student” of the market(s) you are involved in. Constantly learning and improving your edge. Don’t rely only on Technical Analysis or just Fundamental Analysis. Although you may focus on one, understand how both pictures can influence the market.

4. Do your own homework.
Never trade solely on someone else’s suggestion or tips. Study methods are markets that you are unfamiliar with completely for YOURSELF before you put trust in it. Understand the idiosyncracies of the signals of each before you trade with it. Be responsible for your own decisions.

5. Pick your spots to enter the market. Do not enter the market blindly just because it’s moving.

Find your entry points based on careful evaluation and analysis. Don’t rush into a market just because it is moving up or down right now. Markets have a tendency to move back to retracement levels. Find an entry point based on careful analysis and stick with it. Then make small adjustments if you do not get the fill you want… but, NEVER chase a market just to get in…just find another entry point. Chasing markets usually end up being very costly.

6. Have your gameplan in advance. Don’t make it up along the way.
This goes along with rule #5. Have an overall trading game plan, and a plan for each particular trade, and stick with it. Realize trading plans involve time of entry, price of entry, contingency plans, price and time of profit and total time anticipated for the trade, along with stop loss plans. And those are just the basics. Without at least, these basics involved in each trade, you are trading haphazardly, and possibly blind.

7. Always use protective stops.
A successful Chicago floor trader once said…”Always keep your powder dry…You need your ammo for the next battle.” In other words, if you blow all of your capital or most of it on one trade, you won’t be around to trade another day. Trading opportunities come and go, but they will always appear again in the future. Always use protective stops so that you will have capital for that next trade.

8. Always use price profit targets to close part or all of your position.
A good rule of thumb is to take half of your position off the table if you are fortunate enough to be on a trade that doubles in value. This way you get your initial capital back, and still have money on the table for the trade to mature even more. A better rule of thumb is to take all of your money if you realize a double in a very quick amount of time, and then reconsider and re-evaluate the market and your options.

9. Never let a winning postion turn into a money losing trade.
If you use stops and move them along with profitable winning positions you can protect your profits. For example, if you are long only move your stops UP, if you are short, only move your stops DOWN. Move your stops only in the direction of the PROFIT. Not the other way around. Also…

10. Never let a “pre-stopped loss” turn into a bigger loss.

The brother of rule #9…Never let a small loss turn into a bigger loss. Never let a pre-determined stop loss turn into a larger losing trade. Get out when your stop is hit. Never widen your stops on a losing trade, just to stay in the trade. By changing your stop you are potentially opening the door for a much larger loss and you are deviating from your trading plan. Don’t do it. Never let a potentially small loss turn into a potentially big loss.

11. Never over-leverage yourself.
Never trade more stocks, options, or futures contract than you can afford to lose. Sure if you win it’s great, but if you lose it’s that much more dangerous.

12. Always take trading breaks. Get rest.
Trading is exciting and exhausting. Although not much physical energy is involved (unless you are a floor trader), the mental energy used is tremendous. Take breaks away from the markets just to refresh yourself, and get a different perspective on the markets and life. There is more to life than trading. Remember this.

13. Diversification is important…and safe.
The old saying goes, don’t put all of your eggs in one basket. Diversify your capital into different stocks, futures, or whatever you are trading. Keep in mind to diversify into different sectors too.

14. Don’t try to make it all in one trade, or one day, week, month, or year.
Let your methodology work for you. Making money in trading consistently is the key….and becoming a consistent trader takes time, patience and skill. There is no such thing as instant or overnight success in trading and investing. Look at trading or investing as a career or profession (even if you are only involved part time). Treat it seriously. Do not take it lightly… and remember rule #12.

15. Learn from your mistakes.
This is why rule #4 is so important. When you study your trades and understand WHY you are trading the market….When you lose money with an un-profitable trade, consider it an error in judgement, and learn from it, so that you avoid making the same mistake(s) in the future. Pros rarely make the same mistake more than once, amateurs keep on doing the same stupid things over and over. You can not afford to be an amateur in the trading business. Consider your losses an education at the “UT” – “University of Trading”, and then remember them.

Keeping these 15 rules in mind when trading should help you minimize losses and maximize your return on investment.