Five Mistakes Traders Make With Their First Futures Brokerage Account

 

This article on futures brokerage account mistakes is the opinion of Optimus Futures.

Futures brokerage account

Long ago, only institutional traders or large funds traded futures.

Today, you can open an account with as little as $100 and an internet connection.

But make no mistake, with $100 in your account, you won’t get very far if you want to hold positions overnight. And the number of products you can trade will be limited.

You see, many traders open a brokerage account thinking that with just a small amount of money, they can generate a fortune.

That can be true but generally isn’t.

In fact, this is the first of the five most common mistakes traders make with their first futures brokerage account.

We want to walk you through them to help you avoid the pitfalls that caught many before you.

1: Underfunding Your Futures Brokerage Account

Yes, for $100, you can open a futures trading account at Optimus Futures. That will get you up and running to trade micro futures in short order.

If you aren’t familiar with them, E-micro futures typically control 1/10th the notional value of the E-mini futures.

For example, each $0.25 points (1 tick) in the E-Mini S&P 500 futures is worth $12.50, whereas each tick in the micro E-Mini S&P 500 futures is worth $1.25.

You also need to account for commissions. While you can get them cheap, at minimum, you’re still looking at close to $3.00 in total to open and close each trade.

That means you need to get at least 3 ticks to pay for commission before you turn a profit.

This doesn’t work for someone looking to scalp a few ticks here or there multiple times a day.

And all this is only for day trading.

If you plan to hold positions overnight, you’ll need to carry an even larger balance in your account.

The point we’re making here is that you need to fund your account with enough money to comfortably trade the products and strategies you want.

That’s why it’s important to looks for brokers that offer low-day trading margins. From there, you can calculate how much you need in your account.

One last point. Trading is all about probabilities. We all have winners and losers.

Your funds should be able to handle a string of losses and not put you in an irrevocable position. Therefore, you must use your discretion as far as the leverage (margin) that you use.

(There is a substantial risk of loss in futures trading. You may be asked to deposit additional funds to cover margins or potential deficits).

2: Choosing The Cheapest Futures Commissions

Commissions are important. In fact, they are one of the most important considerations when you open your first futures brokerage account.

But they shouldn’t be the only deciding factor.

Opening a brokerage account based on the cheapest commissions is like buying the most inexpensive car for a road trip. Your odds of getting stranded in the middle of nowhere shoot up dramatically.

Commissions aren’t the only cost traders need to consider.

You also have to think about:

  • Data and news feeds
  • Platform costs such as pay for add-on tools that are basic in their nature
  • Computer usage (yes, some platforms use so many computer resources you have to shell out thousands to upgrade your system)
  • Administrative costs, including the time it takes to consolidate and report on your transactions
  • Margin requirements and the hours it is applicable to
  • Products available to trade
You probably have your own list of things you think are important.

We recommend creating a simple spreadsheet to list all these considerations and any you feel necessary. Then, before you open your first futures brokerage account, list out all the costs side by side, so you get a holistic view of your choices.

3: Starting With Standard Futures Contracts

If you listen to financial news networks, you likely hear them talk about the ‘E-Minis’ quite often.

These are some of the most popular contracts traded on everything from S&P 500 futures to Nasdaq 100 futures.

But they aren’t the only products out there.

As we noted earlier, micro E-Mini Futures control 1/10th the notional value of E-Mini contracts without sacrificing capital efficiency.

At the end of the day, most of us trade futures for leverage. To control the larger amount, we put down a fraction of the notional value.

Micro E-Mini futures allow us to do this in smaller sizes, allowing traders to optimize positions whether used for hedging or outright speculation.

Many newer traders form the latter group.

Whether you choose to scalp or swing trade, using smaller contracts allows you to right size your risk for the type of trade you want to take.

For example, a person starting with a $5,000 account might wish to create a trade that wins or loses 5 points in the S&P 500 futures.

Using one E-Mini contract means that person could win or lose $250. But what if that same person wanted to scale into or out of a trade?

With four contracts, that same trader now risks 20% of their entire account.

However, Micro E-Mini contracts let that same trade break up that E-Mini contract into 10 micro contracts, thus allowing them more options for scaling into and out of trades.

That’s especially important when volatility increases and markets start experiencing large swings in both directions.

4: Not Test Driving The Platform

Have you ever been in the middle of a trade and the platform disconnected?

How about seeing a trade pass you by because you couldn’t figure out how to enter an order?

What about the time you bought 1,000 shares instead of 100?

These are issues traders shouldn’t have to face. But they do.

When you open up your first futures brokerage trading account, the last thing most of you consider is the trading platform. It’s like buying a car based on the specs without sitting in it.

Whatever platform you use, you need to be comfortable navigating through different windows, and importantly, executing orders.

Not all platforms are created equal, and many aren’t free.

Part of our design logic for our Optimus Flow platform was to create a user-friendly experience for retail and institutional traders. Yet, we also offer customers a choice of alternative platforms as well.

Many brokers stick you with their platform. And some of those are difficult to navigate, especially for inexperienced traders.

To add insult to injury, those same platforms don’t include all the analysis tools you may need to trade. You either have to purchase them or program them yourself. That’s a big reason why we give traders access to all our tools right out of the gate.

Your platform needs to match your trading style and include all the indicators and charting capabilities you need. Some things to consider when you evaluate a platform include:

  • Analytical tools provided
  • Real-time news feeds
  • Automated Journaling
  • Data speed
  • Navigability
  • Charting
  • Computer resource drain
  • Easy order execution from the DOM and Chart

Giving Customer Service A Low Priority

Customer service isn’t something you think about until you need it.

And when you need it, you need it immediately, whether it’s an account funding issue or technical support.

If you’re opening your first futures brokerage account, chances are you’ll have a few questions. You don’t want to wait days to get up and running or fix your platform.

Here are some typical things to consider:

  • Methods of contact – Telephone, email, and live chat windows and whether you get a live person or an automated system.
  • Availability – Since futures trade almost 24/7, you want customer service available when you’re trading.
  • Knowledge – When you get a hold of someone, can they answer your questions or at least quickly get you to someone who can?
Technical support is a big deal for futures traders. Platforms can run into issues from time to time. Having representatives ready and able to help you over the phone is a must, while those who can remotely fix problems are a huge bonus.

Customer service also extends beyond interactions to include education. Newer traders want easy-to-access material, including FAQs and blog posts to help guide them through the trading process as well as explore new ideas and strategies.

Lastly, you want to consider the ease and speed of opening an account.

Some brokers require reams of information and take weeks to process your application. Others, like Optimus Futures, can have you up and running in a matter of hours ( if all information is provided in a timely fashion).

Plus, you want to be able to quickly and easily transfer funds in and out of your account, especially if trading is a substantial part of your income. It should be a fluid process that you can understand and access without calling in every time you want money moved.

Final Thoughts

These are the top 5 mistakes we commonly see for traders opening their first futures brokerage account.

That drove us to become a discount futures broker who strives to offer our customers cheap commissions without sacrificing service and quality.

Our flagship Optimus Flow platform comes with all the bells and whistles you could want, including real-time news and an automated trading journal.

You can try it out today for free by opening your futures brokerage account.

Give us a test drive, including our boutique customer service.

Click here to get started.

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

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