Recently updated on October 25th, 2022 at 11:01 am
If you are a first-time futures trader, chances are that the process is overwhelming. You may be wondering what futures trading is, how it works and what’s the best way to learn about futures trading.
This guide will help you make sense of the futures market and take your knowledge to the next level.
1. Learn about futures trading
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Futures contracts are standardized agreements between two parties to buy or sell an asset at a specific price on a particular date in the future. For example, when you buy a futures contract on corn, you essentially agree to purchase some quantity of corn at a price on a specific date.
The advantage of futures is that they allow investors to bet on what they think will happen with an asset in the future without buying it. The disadvantage is that if you’re wrong about the direction of that asset’s price, you could lose your entire investment.
To prepare for your first trade, start with an excellent place to learn about futures. You can check out the CME Group website, or you can also search Google for more information. You can also refer to topstep review for more details.
2. Make a plan and stick to it
After learning and gaining more knowledge, futures traders repeatedly fall into the same traps. One of these is making a plan and then not sticking to it. Unfortunately, some people even make plans so that they can break them later on.
So, before you start, ensure you have your plan in place and know how long each trade will last. Then stick to it and don’t get tempted by other opportunities.
3. Create an account with a futures broker
Next, create an account with the brokerage firm of your choice. This may require some paperwork and verification, but it’s a simple process.
You’ll also want to set up a margin account with the brokerage firm so that you can trade on margin once you’ve made an initial deposit. Once your account is open and active, it would be best to explore the platform.
Additionally, many brokerages offer educational materials such as videos and webinars that explain these concepts in detail.
4. Read the fine print of your futures broker’s disclosures and agreements
Read the fine print of your futures broker’s disclosures and agreements carefully before trading.
This is particularly important if you are trading with a broker that doesn’t have any physical offices in the United States, as they may be subject to different regulations than domestic brokers.
In addition, know how much leverage is available on your account and understand how interest rates work on futures trades. This will help you avoid losing more money than you planned when making your first futures trade.
5. Give yourself time to understand futures trading
Before jumping into futures trading, ensure you have enough time to learn about it. While beginners can trade futures successfully, it’s not easy.
Before making your first move, you must understand all aspects of this type of trading. It takes time for most people, so don’t rush things — especially if you’ve never invested before.
Now you know what futures trading is and understand the general process around futures trades. Take each one and make sure you do it before that first trade.
That way, when the time comes, all you’ll have left to do is initiate the trade and wait for the results.