{"id":9334,"date":"2022-02-11T13:23:25","date_gmt":"2022-02-11T18:23:25","guid":{"rendered":"https:\/\/optimusfutures.com\/tradeblog\/?p=9334"},"modified":"2022-02-11T13:23:25","modified_gmt":"2022-02-11T18:23:25","slug":"10-things-to-get-right-before-you-start-trading-futures","status":"publish","type":"post","link":"https:\/\/optimusfutures.com\/blog\/10-things-to-get-right-before-you-start-trading-futures\/","title":{"rendered":"10 Things to Get Right Before You Start Trading Futures | Read This if You Trade Stocks."},"content":{"rendered":"

This article on 10 Things to Get Right Before You Start Trading Futures is the opinion of Optimus Futures.<\/strong><\/p>\n

\"10<\/a><\/p>\n

Futures trading is exciting. And with the introduction of multiple new micro futures products<\/a>, it\u2019s become more accessible to retail traders than ever before.<\/p>\n

Now, before you dive into trading, there are a few things you need to get right.<\/p>\n

Some are obvious, like picking out your strategy and risk management. But, if you don\u2019t understand tick size or leverage, you can quickly find yourself overextended.<\/p>\n

And then there are less obvious considerations like expiration and settlement procedures.<\/p>\n

That\u2019s why we\u2019ve compiled 10 things you should get right before you start trading futures.<\/p>\n

1. Picking Out Your Futures Trading Strategy<\/h2>\n

There are probably as many trading strategies as there are stars in the sky.<\/p>\n

Before you start trading futures, you need to pick the one best suited for you.<\/p>\n

Start by choosing between day trading futures and swing trading futures strategies.<\/p>\n

Day trading futures typically involves capitalizing on small movements in the futures market multiple times a day. You may only find yourself in a position for a few seconds or a few minutes.<\/p>\n

Swing trading futures<\/a> often means you hold smaller positions for larger movements that can last hours or even days.<\/p>\n

This distinction is critical since the margin requirements for day trading<\/a> and overnight are very different.<\/p>\n

2. Leverage<\/h2>\n

Stock traders may be familiar with leverage and margin accounts. However, futures products take this a step further.<\/p>\n

Take the micro E-Mini S&P 500 Futures. This product controls a notional value of $5 x S&P 500 Index, or roughly $22,500.<\/p>\n

Futures day trading margins for this micro futures product only require $50 per contract. Overnight margins require $1,188.<\/p>\n

That means if you start trading futures with micro E-Mini S&P 500, you get 450x leverage for day trading and almost 19x leverage overnight.<\/p>\n

(CME Group changes margins periodically. Please inquire with us what is the overnight and day rates).<\/p>\n

This capital efficiency helps traders and investors, whether retail or institutions, hedge their portfolios or speculate outright without tying up enormous amounts of capital.<\/p>\n

However, it also means you can lose more money than you hold in your account should the trade go against you.<\/p>\n

And while we\u2019ve talked about the micro E-Mini S&P 500 Futures, the standard E-Mini S&P 500 Futures contract has 10x more leverage.<\/p>\n

In fact, many futures products contain standard and micro-sized contracts. So be sure to research each one and understand the margin requirements and value of each tick.<\/p>\n

3. Futures Risk Management<\/h2>\n

Before you start trading futures, you need a risk management strategy<\/a>.<\/p>\n

That starts with understanding the relationship of risk and reward for each trade as well as volatility.<\/p>\n

For example. Let\u2019s say I want to trade the micro E-Mini S&P 500 Futures. My trade setup captures 5 points or 20 ticks per win with equal risk.<\/p>\n

That\u2019s a risk to reward ratio of 1:1.<\/p>\n

Since each tick in the micro E-Mini S&P 500 Futures is worth $1.25 per contract, my potential profit and loss are $25 per contract. Fees and commissions for this product run about $3.00 round trip.<\/p>\n

That might make sense for an account that has $500 to $5,000 in it when you trade only a handful of micro contracts.<\/p>\n

But an account with $50,000 might want to go with one standard E-Mini S&P 500 Futures contract that is the equivalent of 10 micro contracts to lower overall fees and commissions.<\/p>\n

Choose the contract size and amount that fits with your strategy and account size that gives you the flexibility to absorb typical volatility.<\/p>\n

4. Creating Trade Review Process<\/h2>\n

Traders don\u2019t get everything right out of the gate. Plus, markets and conditions can and do change.<\/p>\n

That\u2019s why a trade review process is so critical.<\/p>\n

Everyone needs a regularly scheduled review process to ensure:<\/p>\n