The Dangers of Futures Trading

Futures trading -- the dangers are many, varied, and often unpredictable.

The basic reason for this is that futures contracts are traded in a leveraged manner. An example would be a wheat contract, which would require a margin of $750. A wheat contract is 5,000 bushels of wheat. A fifteen-cent change in price would equal the entire margin of $750. That is fine as long as the price move was in the direction you expected. If it was in the opposite, you have lost all your margin money. A move like this can happen in a single trading day.

Futures Trading Online Info

Futures tracing online info can be obtained from many sources. The various exchanges have real time info and end of the day Open High Low Close. The exchanges offer this info on markets that they trade.

There are private real time quote providers, as will as end of the day price providers. These are used in conjunction with software programs that will produce technical information like charts and moving average lines on the charts.

The US Government publishes crop reports and weather information for crop areas within the country.

There is no lack of information, but the problem is how to use it to predict the future price of the commodity. Futures trading is all about forming an opinion on the future price of a commodity. Taking a position in that direction and seeing your prediction either go right or close the position if it starts to lose money.

Online information for futures trading can also be obtained via a good brokerage firm. Good ones have staff experts that are getting their information from the grower or the maker of the finished commodity. This information can be of better quality and timelier than government reports. Private weather experts can be of significant value when trading grains or cotton. They are especially useful in their long-term weather predictions.

Private futures trading online info does not come cheap. The better the quality the higher the cost. But it can easily be worth the price, as the profits from these trades will cover the cost.

A severe weather change or a crop report can be a significant market mover. A change in government policy can cause the market to lock at the limit and those traders on the wrong side cannot get out of their positions, as there is no one willing to take the other side of the trade. This is why the market is locked at its daily trading limit. This happened in the grain market when President Ford announced there would be no grain trading with certain countries. This news came after the market was closed and when it started trading, it locked for five days in a row. A trader on the wrong side of this move was out thousands of dollars per contract in five days. Surprises are vicious in the futures market.

Stock traders get hurt trading futures, as a buy-and-hold trading style can be a killer in futures trading. Also, most stock traders do not short stocks. Shorting the market is an every day trade in futures. Futures traders do not care which side of the market they are on. They only want it to be the correct side.

Learning the futures trading dangers can be expensive and never ending. There is never a time when a trader has seen it all.

Futures Trading Win and Lose

Futures Trading Basics

What Are Futures?

Futures Trading FAQ

Futures Trading for Profit

Benefits of Futures Trading

The Dangers of Futures Trading

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