While futures trading allows for much larger gains because of the leverage used, it also comes with an equal potential for losses. We will explore the risks and benefits of futures trading, drawing on my personal experiences to bring this to life.
My Journey in Futures Trading
I turned to futures trading on January 2, 2022 (obviously starting with just one contract and increasing fast to four contracts per trade). At the beginning, I was super successful and made close to half a million dollars in my first month. By the time mid-March rolled in, I had turned that $1 million into a portfolio worth nearly $2.6 million. My lack of risk management finally crushed me, though. By the time April came along, overconfidence resulted in major losses, and my account went to $850k.
The psychological challenge
Futures trading is equal parts psychology and market analysis. Discipline, emotions, and having a plan are key. I had to regain my confidence and fix whatever was preventing me from making money. As I started making my positions smaller and being more selective with entries, confidence slowly came back to me. By May 29, my account was back up to $1.44 million.
Continual learning and adopting
Self-assessment and adaptation should accompany business in trading for the long haul. It is great if you understand a market movement, but more importantly (and what many traders struggle with) is having the right mindset. I am happy to take losses as long as they do not affect me, and I know when not to trade.
Although it is true that futures trading has the potential to build you huge amounts of wealth, there are also instances when these losses will eventually be heavier. With the correct strategy and discipline, it is not gambling! Although that has cost me $156,000 in trading fees over the past six months, it helps to let me learn many interesting and important lessons, which I think will help my goal, which is to reach more than $2 million this year.
Futures trading is a brilliant endeavour but a dangerous sea to be in. The catch is that leverage magnifies gains and losses, and successful trading takes both advanced risk management discipline and psychological fortitude. This will help you adapt to the volatility of futures trading and earn lots of money through it.
The leverage factor
Leverage is one of the most appealing traits of futures trading. This leverage allows traders to control large positions with a small amount of capital. For instance, consider trading Nasdaq Futures (/NQ). On NQ, each point move is worth $20.00 per contract gain or loss, with an initial margin requirement of $17,500 for one (1) contract. While such leverage can increase profits, it will also lead to much larger losses.
Long and Short Trading Ability
Most people also like futures because they can trade up or down simultaneously. If you believe the market will rise, you can purchase contracts, and if the market declines, you can sell (short) to receive payment. If you sell 20 NQ contracts, valued at $5 per tick, at 11,800 and close the position at, say, 11,750, you can earn a profit of $20K from a rate move of just 50 points. However, this is merely a basic understanding, as there will undoubtedly be intricate details and risk management involved in maintaining consistent trading.
Risk management is important.
To be a successful trader in the futures markets, you must have risk control. Price fluctuations can make or break your profits, often within seconds. If you have no clear system to manage risk and stop losses, then one bad trade can very quickly eliminate a lot of your profits. My personal experience demonstrates this. My account experienced a significant increase from $1 million to $2.6 million in just a few months, but it almost returned to its previous level due to exceptional money management, or lack thereof, and a combination of liquidated prowess and boldness.
