Trading in Futures and Options: Understand the Risk
2 of 10 in Series: The Essentials of Futures and Options Trading
Futures traders are, by nature, risk takers. And options are an integral part of the trading game that futures traders play, although it is worth noting that options and futures are viable stand-alone vehicles for trading. But is trading in futures or options right for you?
Many experienced traders say that you need $100,000 to get started, but the truth is that there are many talented traders who have made fortunes after starting out with significantly less than $100,000. However, it would be irresponsible to lead you astray by giving you the impression that the odds are in your favor if you start trading at a very low level.
The reality is that different people fare differently depending on their trading ability, at any level of experience. A trader with $1 million in equity can lose large amounts just as easily as you could with $10,000 worth of equity in your account.
If you don’t have that much money and are not sure how to proceed, you need to reconsider trading altogether, develop a stout trading plan and the discipline required to heed its tenets, or consider managed futures contracts.
Futures trading is risky business and requires active participation. It can be plied successfully only if you’re serious about it and committed to it. That means you must be able to develop your trading craft by constantly reviewing and modifying your plan and strategies.
Remember that trading is not investing; it’s speculating, assuming a business risk with the hope of profiting from market fluctuations. Successful speculating requires analyzing situations, predicting outcomes, and putting your money on one side of a trade based on which way you think the market is going to go, up or down.
To be a successful futures and options trader, you’re going to have to become connected with the world through the Internet, television, and other news sources so you can be up-to-date and intimately knowledgeable with regard to world events.