How to Become a Professional Futures Trader - Part III

How to Become a Professional Futures Trader – Part III


This article on How to Become a Professional Futures Trader is the opinion of Optimus Futures.

How to Become a Professional Futures Trader

This last installment concludes our three-part series on what it takes to become a professional-level futures trader. If you haven’t read the previous two posts, we suggest you do so in order to get the overall trajectory of the series and to learn or revisit some (often overlooked) information concerning each stage of the journey.

The Independent Pro – Trading as a Business

What is the one thing that separates an independent professional from a non-professional?

>> If you’re thinking knowledge, it’s not quite that. There are plenty of knowledgeable traders who either seem stifled by what they know or seem unable to apply their knowledge in any manner that produces positive results.

>>It isn’t experience How many traders do you know who’ve been at it for years, never to get any wealthier as a result of their trading?

>>It certainly isn’t technology. Let’s just drop that topic.

>>And lastly, it may not even be a matter of utilizing a sophisticated strategy, system, or technique. Complexity is relative, and often the more complex the process, the more risk you might introduce into the context.

The answer is simple: money. It’s about generating a consistent payoff. That’s all.

Here’s a more subjective take: if you are able to generate over 75% of your income through trading, then no matter how you go about trading the markets–whether your means are contemptuously crude, satisfactorily simple, or stunningly sophisticated–you’re likely an independent pro. Congrats.

There’s a maxim that many professional traders seem to proclaim: trading should be a boring activity. This is not to say that they don’t enjoy trading. They probably do. But rather than experiencing the same kind of thrills that a lesser-experienced trader may encounter, the stress and anxiety of trading may stem from a different context, perhaps one that should be avoided. Let’s explore this a bit.

It’s About Setups, Not Psychology

When you’ve gone pro, trading becomes a necessity. Your livelihood depends on the money you make trading. It may be thrilling to generate a steady stream of profits, but those profits likely entail a reasonable amount of risk to return. If you generate steady profits on a relatively tempered basis–say, x% per week or month–you can imagine how the law of diminished returns can play into your own effective response. It may not be as thrilling as it was before you’ve gone pro.

Naturally, your thrills and anxieties may also reflect the amount of risk you are taking–the larger the risk, the stronger the thrill or anxiety. But a professional trader, one that isn’t reckless, will likely not take such a risk, as his or her livelihood depends on the income. That’s the ideal picture, of course. Many professional futures traders have destroyed their careers by deviating from the path that initially brought them to their level of success.

At any rate, if you’ve reached a level where your trading profits are sufficient and consistent enough to provide full-time income, then chances are you’re busy thinking about the practical aspect of your operations and processes rather than the psychological aspects of your trading (unless that feeds into solutions on a level that’s deeper and more complex than surface  “emotions” or bad trading tendencies…in short, the stuff that “pop trading psychology” books focus on).

This is not to say that professional traders don’t suffer from losing streaks or relatively large losses. But for many professional traders, such scenarios may already be “priced in” to their risk projections and money management strategy. The trader has predetermined not only several risk limits but also contingency steps to measure, test, and recover from various loss scenarios. It’s not a matter of trading psychology. It’s a matter of calculation, and, if a solution is not working, creatively designing a thorough set of solution-driven iterations.

Industry Knowledge

To say that a professional trader fully understands the total context from which s/he is operating may seem a bit obvious. But what’s obvious to a pro may not be obvious to most traders.

For instance, something as simple as “exchange accounting,” or how exchanges list daily balance reports, with prices listed from high to low and oldest trades (even those “held open”) listed to close more recent trades, this simple operation may be surprisingly foreign to even most “experienced” traders.

And then there’s the drudgery of acquiring a detailed understanding of how contracts work with regards to a multiplicity of exchange and FCM rules and operations–rollovers, expirations, delivery, margins, liquidations, and the list goes on and on and on.

Given that, at this level particularly, trading is indeed a business, it behooves any aspiring trader to understand the intricacies of every aspect of the operation, many of which are far from exciting. The reason for this is that any error you make due to a lack of knowledge in any of these rules or processes can cost you quite a bit, depending on the circumstances.

But again, the willingness to do the “business” work, aside from the trading work, is one characteristic that distinguishes a common trader from one who is serious about going pro.

The Business of Trading

Last but not least, while some traders may want to remain “private” traders, trading their own capital, other may aspire to become registered commodity trading advisors, or CTAs. Becoming a professional “money manager” is a whole new ballgame altogether. In fact, it deserves a separate post.

Becoming a CTA involves three general processes: regulatory work, trading work, and sales. To be a CTA, you have to know the rules set forth by the Commodity Futures Trading Commission (CFTC) and the National Futures Organization (NFA). It isn’t a piece of cake, and it entails a lot of work on your end.

In addition to this, you have all of the trading work to do, ensuring that the “product” you are putting out there–your system or your skills as a trader or trading system developer–is favorable enough to attract investors.

Last, you actually have to raise capital by acquiring investors. This involves marketing, sales, and lots of relationship-building with existing or potential clients.

Overall, you have to know how to run a business, one that entails regulatory processes and requirements, customer prospecting and development, and general day-to-day business operations. It’s a lot of work.

Or you can just trade your own capital and attempt to make a living at it. Much simpler, perhaps. Not necessarily easier. Worth it? It’s up to you.

In conclusion, we hope that we’ve given you a taste of what it might be like to experience the entire journey from dabbler to pro. Did we cover every single thing? Of course not. But neither did we give you the same canned advice that many other blog posts seem to regurgitate. At the most, you might have learned something important. At the least, you might have learned something interesting or new.

We wish you the best in your own personal trading journey. No matter where you choose to stop or to push beyond, we have this to say: enjoy it, own it, profit from it if you can, and most importantly, don’t blow yourself up.

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.

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