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Risks Involved in Futures Trading
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Futures trading is a risky business and anybody who will tell you otherwise, that it is 100% risk-free, is daft or is trying to sell you something. The fact of the matter is, futures trading is a financial gamble. And, like a gamble, you will never know when you will win and when you will lose. The key is simply to play the game based on the cards you are dealt with and hope for the best.
A lot of traders are lured into futures trading because of the great rewards it can potentially bring. However, you must keep in mind the rule of opposites, in that with great rewards, also come great downfalls. Futures trading, because you're gambling with something that is yet to happen, is nowhere near accurate.
There are basically four main risks associated with futures trading. We will discuss each of them in brief here. If you want to know more, it is suggested that you consult an expert on the matter, because how the futures trading works and pitfalls involved cannot be simply summed up in a short article.
1. It is speculative.
By this, it is meant that no matter what experts say or predict will happen to the market months or years from now, nobody will be able to make perfect forecasts. Therefore, if you're planning to invest your hard-earned money into financial trades, do not put all your eggs in one basket.
While it is possible that you will make a fortune out of this risk, it is also likely that it will be the one that will send you to the poorhouse. Tread carefully.
2. To be able to trade in your personal account, you must have pure risk capital of at least USD10,000.
Yes, futures trading involves a lot of money at the onset and is definitely not for the faint of heart and the weak pocketed. Thus, if you are looking to earn sums of money in futures trading in order to be able to pay your piling bills, then you could be in for a major financial crisis. Ideally, any person who wants to enter futures trading should have a net worth of around USD100,000 before he decides to take the plunge.
3. It requires ample know-how.
Note that futures trading involves 4 investment categories: namely, speculation, growth, inflation hedges and income. Without adequate knowledge of these four, you won't be able to move freely in the trading market and might even cause yourself to lose.
Do not simply rely on somebody else to do the research and understanding for you. Being able to make intelligent decisions, no matter how inaccurate, will sometimes make the difference between a win and a loss.
4. Do not put in more than 10% of your net on futures.
This backs item number two. Indeed, futures trading should not be your first foray into financial trading. You should only do it when you're confident that you have enough knowledge and that your other investments are working out for you.
Again, futures trading exists in a very high-risk environment and it is not advisable that you splurge, no matter how attractive the possible returns are.
The above is not meant to discourage you from engaging in futures trading. What it seeks to achieve is clarity on your part, so that you won't merely dive in without knowing what risks it entails. Again, banking on futures is a huge gamble. Thus, you must do it only when you're sure you're ready. Good luck!
Systems Trading Futures News
Deutsche Boerse's Eurex Futures Exchange Gets New Trading System - BusinessWeek
Deutsche Boerse's Eurex Futures Exchange Gets New Trading System BusinessWeek 9 (Bloomberg) -- Deutsche Boerse AG said it's Eurex futures exchange will move to a new trading system in the fourth quarter after its plan to buy NYSE Euronext was blocked by European competition regulators. The platform is being developed internally ... Eurex to introduce new trading system Eurex to launch new trading system Trading system overhaul coming to Eurex |
Bank lending probe lights up dark financial corners - Financial Times
 Bloomberg | Bank lending probe lights up dark financial corners Financial Times It looks equally bizarre that banks have been setting Libor according to daily estimates, not actual trades. But this tradition continued because almost nobody inside the system had any incentive to rock the boat; and few outside this clubby world ... Exclusive: Future of bank benchmark rate under review (NEWS.GNOM.ES) |
RATE FUTURES REPORT: Safety Sought If Greek Crisis Spreads - Wall Street Journal
RATE FUTURES REPORT: Safety Sought If Greek Crisis Spreads Wall Street Journal By Howard Packowitz Of DOW JONES NEWSWIRES CHICAGO (Dow Jones)--Euphoria that Greece might be spared from a default faded quickly on Friday, as traders of US interest rate futures worried once again that credit will tighten in funding markets and that ... |
NYSE Euronext eyes new sectors for growth - Reuters
 BBC News | NYSE Euronext eyes new sectors for growth Reuters N) signaled it would shift focus to faster-growing areas like supplying computer systems and information from trading, as the US exchange looks to an independent future following the collapse of a takeover by Deutsche Boerse. NYSE, whose $7.4 billion ... NYSE Euronext Announces Fourth Quarter and Full-Year 2011 Financial Results NYSE Euronext makes growth plans now merger axed NYSE Euronext Merger Off, Where To From Here? |
CFTC creates subcommittee on high frequency trading - Futures Magazine
 Finextra | CFTC creates subcommittee on high frequency trading Futures Magazine The first working group will be tasked with defining high frequency trading within the context of automated trading systems. The second group will examine whether or not there should be multiple categories of HFT. Specifically, that working group will ... CFTC creates HFT subcommittee. |
BASE METALS: Greek Austerity Deal Lifts Copper Near 5-Month High - Wall Street Journal
 FXstreet.com | BASE METALS: Greek Austerity Deal Lifts Copper Near 5-Month High Wall Street Journal By Matt Day Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Copper futures pushed to their highest price since mid-September on Thursday, as investors bet stability in Europe's banking system and continued growth in China pointed to strong demand for the ... BASE METALS: Comex Copper Slips On Renewed Greece Worry Copper traders brush off China CPI spike |
RATE FUTURES REPORT: Traders Unfazed By Greek Debt Drama - Wall Street Journal
RATE FUTURES REPORT: Traders Unfazed By Greek Debt Drama Wall Street Journal By Howard Packowitz Of DOW JONES NEWSWIRES CHICAGO (Dow Jones)--Greece has yet to put its fiscal house in order, but interest rate futures traders believe that central banks have injected sufficient liquidity in Europe's banking system to avert a ... |
US stock index futures mixed, Cisco seen up - Reuters
 WALA-TV FOX10 | US stock index futures mixed, Cisco seen up Reuters LONDON Feb 9 (Reuters) - * US stock index futures pointed to a mixed open on Wall Street on Thursday, with futures for the S&P 500 and Nasdaq 100 both down 0.1 percent, while Dow Jones futures were up 0.2 percent at 1128 GMT. * Cisco Systems, a Dow ... US stock futures signal higher Wall Street open Business Highlights |