Futures trading is done by most of the people like you and me who are interested in making money in the markets. Trading E-mini futures has become popular with many individual investors apart from professional traders and speculators who also trade other futures contracts. Buy low and sell high, is the basic premise in futures trading as it is in stock trading. You try to go long when the prices are low and go short when the prices are high.
You will like to know what is different in futures trading from stock trading. The fact that you can trade futures with leverage on either long or the short positions introduces an additional element of risk not present in the stock market. Leverage is a risky.
Another major difference with stock trading is that there is no uptick rule in futures trading. Thus, it is as easy to sell short as it is to buy long. This means that you can easily enter into a position to capture a downward move in prices with no restriction.
How do you manage to survive at futures trading even when you are not particularly good at it? How do you become good at futures trading? The answer is simple. You should have the money first to open a margin account. Then you should have the ability to develop a trading plan that enables you to keep making money in the market long enough to capitalize your next big move.
So you wont last long in the market if you dont have a good trading plan. And you wont be able to trade futures if you dont have enough money. The chances are your money will quickly disappear if you start with a small trade size.
You must know this thing that only 5% of the futures traders succeed and 95% of the people trading futures lose money consistently. You need to have at least $25,000 in your account in order to start trading futures. However, $5,000 is the minimum with which you can start trading futures.
When you start trading futures make sure that you understand the risks involved and that you go into trading futures contracts with realistic expectations. You can take advantage of the managed futures accounts if you are not sure how to handle the risk involved in futures trading.
So in order to trade futures, you need money, patience, knowledge and technology to be successful. Without money you cant open a position and without knowledge you wont know when to enter and when to exit. Trading futures contracts is truly a hybrid that uses both fundamental and technical analysis. Only proceed ahead if you have these skills in abundance.
You need to know the futures contract specifications. There are seasonal tendencies in the markets that you need to be aware of. The fundamental side of futures trading involves getting to know the industry in which you are making trades. You should also know the important reports that usually affect the industry in which you are planning to trade futures contracts. You need to keep an eye on the release of those reports.
You will need to develop your own trading style whether it is momentum trading, scalping or swing trading. The technical side of futures trading tells you what the market will do in response to the fundamentals.
As I have said before: Learn technical analysis. Understanding candlestick charts and candlestick patterns can be a good tool in your technical analysis arsenal. Dont try to conquer every type of analysis at once. Instead, go step by step and focus on mastering one item at a time”maybe concentrating only on chart patterns such as the candlestick patterns for instance. Establish a trading plan for getting there, once you know your trading goals.
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading futures and currencies. Trade Dow Futures and S&P Futures!
The E-mini S&P futures contract trade almost 24 hours per day with a 30 minute maintenance break in trading from 4:30 to 5:00 PM daily. The monthly identifiers for the E-mini S&P futures contracts are H for March, M for June, U for September and Z for December.
If you are a new E-mini trader you be careful as traders are expected to pay for the difference between the margins for the entry and exit points. In case you lose at the end of the day you are likely to pay in a big way. The margin requirements for E-minis are much less than the normal contract. The day trading margin is less than the margin to hold an overnight position in S&P 500 E-mini Futures contract.
All futures contracts are settled daily. At the end of the trading day they are assigned a final value price. The values of all positions are marked to the market each day after the official close based on the settlement price. Based on how well your positions fared in that days trading session, your account is then either debited or credited. In other words, cash will either come into your account or leave your account based on the change in the settlement price from day to day as long as your positions remain open.
As losses are not allowed to accumulate without some response being required, this system gives futures trading a rock-solid reputation for creditworthiness. It is this mechanism that brings integrity to the marketplace.
Leverage: Because futures markets are highly leveraged, the effect of price changes is magnified. With stocks, you typically pay the price in full (i.e., without leverage) or on margin (50 percent leverage). If you speculate in futures and the market moves in your favor, leverage can produce large profits in relation to the amount of your initial margin. However, if the market moves against your position, you also could lose your initial margin and then some.
For example, assume that youve decided to put $10,000 into a futures account. You buy one E-mini S&P 500 index futures contract when the index is trading at 1000. Your initial margin requirement for that one contract is $3,500.
You could realize a profit of $2,500 (50 points – $50) if the index increases 5 percent, to 1050 from 1000. Conversely, a 50-point decline would produce a $2,500 loss. Each one-point change in the index represents a $50 gain or loss because the value of the futures contract is $50 times the index. The $2,500 increase represents a 25% return on your initial investment of $10,000. It is a 71% return on your initial margin deposit of $3,500.
Thats the power of leverage. Conversely, a decline would eat up 25 percent of your original $10,000 or 71 percent of your initial margin. An increase or decrease of only 5 percent in the index could result in a substantial gain or loss in your account in either case.
Indeed, leverage is the key distinctive aspect of futures trading as compared with stock trading. It makes your money work harder and produces more in a shorter period of time when everythings going your way, than if you paid for everything in full, up front. In such a situation leverage can be a beautiful thing.
But there is a dark side to leverage, too. For example, assume you use $5,000 in your account to buy an E-mini S&P 500 contract worth $50,000. Instead of going up, however, prices fall by 10 percent and the contracts value drops to $45,000. Your $5,000 is completely gone. Unless you get out of the position with an offsetting sale when your maintenance margin level is violated, youll be obligated to put up even more money if the market keeps moving against you. Leverage is the one ingredient that can produce either horror stories or happy endings. To get the happy ending, it is extremely important that you fully understand the power of leverage and how to manage it well.
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading futures and currencies. Trade Dow Futures and S&P Futures!
Aging Trend: This is the period of consolidation as the trend comes to maturity. Volatility tends to decrease at this stage of the trend as the momentum of the trend exhausts itself. This is the period where lot of profit taking will take place.
Both the bulls and the bears are hesitant to make daring moves at this stage of the trend. Experienced traders now know that the trend has aged and it is the best time to get out of the trend. They try to get out of their trades at this stage of the trend by closing their positions. This satisfies the appetites of inexperienced traders as they consolidate their positions by taking on the positions abandoned by the experienced traders.
Currency prices have moved by a large amount in the previous period of high volatility. This is the period of consolidation and the prices tend to stay calm during this period. The trend takes a short break and the volatility is low during this stage of the trend.
End of Trend: This is the last stage of the trend and this is the time when the prevailing trend ends and reverses itself after some new information is revealed about a currency that changes the opinion of the crowd. As the market players tend to absorb the information, this results in the rapid adjustment of prices within a short time.
Traders become desperate to get out of their positions especially if they have been caught on the wrong side of the market. Many stops will get triggered during this stage of the trend.
There is a sharp follow through of the prices in the reversed direction during this stage of the trend. Now you know and understand that within a trend, currency prices can experience decreased volatility followed by increased volatility as the crowd psychology keeps on changing.
Decreased volatility can be found during trending or ranging phases. Traders with open positions during this low period of volatility are the most vulnerable to unanticipated news.
However deceased volatility provides an excellent opportunity to traders to prepare and profit from an imminent change from low to high volatility. During this time gains can be made from the unsuspecting players and this is known as the Decreased Volatility Breakout Strategy.
But the success of this strategy lies in measuring the volatility of the forex market correctly. There are several technical indicators that can help you visualize the volatility in the currency prices.
One such is the triangle patterns. Though they maybe difficult to identify for new traders but with experience you can learn how to identify the triangle patterns on price charts. You can use triangle patterns as one of the best indicators of decreasing price volatility in the currency price charts. Combine the triangle patterns with technical indicators to confirm or deny decreasing price volatility. Two of the most useful indicators that can help you measure the volatility of the currency prices are: 1) Moving Averages and 2) Bollinger Bands.
When a particular type of triangle has been identified by the trader, a high probability trade may be in sight. All triangles show decreasing price volatility in the forex market. You can take advantage of the decreasing price volatility in the forex market through identifying the triangle formations.
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Get Netpicks Forex Signals Free. Learn Forex Trading!
Always try to understand the crowd psychology. Decreased volatility breakout is one of the subsets of breakout trading. While this strategy is similar to the strategy of trading breakouts, but it is specific to a certain conditions in the forex market. Trading breakouts is one of the most popular ways of making pips from the forex market.
Volatility is a measure of the scale of price fluctuations over time. Volatility tends to be high when prices change to a large extent within a short span of time. The reverse also holds when prices oscillate more or less close to a certain price level without deviating much from it over a long span of time.
It is the volatile nature of the forex market that attracts the risk seekers in search of high returns. However, entering the market in periods of high volatility can be stressful for most of the traders as they dont know whether the trade their way or not. Instead of focusing on the high volatility market, why not concentrate on the low volatility period.
There is a tendency in the currency prices to alternate between periods of high volatility and low volatility in the forex market just like other financial markets. This recurrent pattern is due to the crowd psychology which is the force behind changes in the forex market. Forex market is just people trying to buy or sell currencies. It is the psychology of the crowd that rules the market in the end.
There are four main stages of a trend. These four stages are: 1) Nascent Trend, 2) Fully Charged Trend, 3) Aging Trend and 4) End of Trend. At each stage of the trend, there is a different crowd psychology behind it. These four stages are closely linked to the cycle of volatility in the market. Lets discuss these stages of a trend in detail.
First Stage-Nascent Trend: Most market players are still skeptical about the possible new trend direction during the nascent stage of the trend. In the beginning when the new trend just starts either upside or downside, volatility is low as both bears and bulls tread carefully and are cautious. Nothing is clear at this nascent stage of the trend when it is forming. Market players are trying to confirm or deny the start of a new trend. So everyone is cautious whether the new trend will continue or it will fizzle out.
Fully Charged Trend: This is the second stage of the trend and during this stage the trend becomes well established! The trend becomes fully charged as there is now evidence from fundamental data that supports the trend direction. The trend is in full progress and it is time for more action now. Traders who are caught on the opposite side of the market become exposed when the new information proves them wrong. They become desperate.
During this period a lot of changing positions will take place. This causes the currency prices to move more dramatically within that trend period. Traders who were initially on the wrong side of the market become new converts to the trend.
Everyone wants to jump in the trend. More and more positions are established. Traders become convinced of the direction of the trend and new information convinces most of the traders of the direction of the trend. Hence volatility tends to be high during this period. This brings prices to higher highs in an uptrend or lower lows in a down trend. Always remember, Trend is your friend. Ride the trend as long as it lasts.
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Know These Forex Charts. Learn Forex Trading!
Most of our trading decisions are guided more by emotional than logical thinking. Our mind is capable of playing emotional tricks on us. Human beings are emotional creatures. It is often said that we are our own worst enemy. In forex trading, this is the ultimate truth.
We can get seduced into unfavorable situations by our emotions. Emotions can work for us and against us. Your battles are won or lost in your mind first. A traders mindset is the most important ingredient of success.
You must understand this thing from the start that forex trading is not for everyone. You must ask yourself do you have a strong desire to succeed in forex trading. If you dont have the strong desire, you will end up like the majority who lose their money and never make a profit. Dont just try your luck or dabble in trading. Ask yourself do you have the passion for trading forex?
You must be highly self motivated in order to become a successful forex trader. Are you ready to devote a lot of time and effort into picking up the trading skills and knowledge? You must have a concrete plan of action and not be afraid of failure.
You need knowledge and skills in trading currencies in order to become a successful forex trader. To attain consistent success in forex trading, a huge amount of time, effort and money is required for a trader.
Are you willing to accept losses as part of trading? You are going to make mistakes while trading. Do you understand that you can suffer losses in trading? Are you willing to learn from your mistakes? Do you have a traders log that you use to reflect on each lost trade and learn from it?
Most of the new traders read some market analysis from an analyst. They enter into the trade based on that market analysis. Most of us tend to blame the market analysis and the opinion of the analyst if the trade turns out to be a loser. It is easy to blame others.
Dont be trigger happy? Only pull the trigger when you are confident that you have done your analysis to confirm what others are saying. Is it fair to blame someone when you could have done further market analysis on your own? When you could have planned your trade in a better way, it is foolish to blame others for your mistakes.
Fear and greed are the two most dominant emotions that affect not only the individual traders but also the currency markets. In fact, these two emotions are the main drivers of the forex markets.
Fear and greed are behind the steering wheel of the currency market. Fear makes many traders like you over pessimistic about a currency pair. They start the selling frenzy. Similarly, greed is going to make many traders like you over optimistic in thinking that a currency is going to appreciate. Greed starts a buying frenzy. It develops a bubble based on the irrational exuberance. It is inevitable that this bubble is going to burst. When greed takes over, the market becomes bullish. When fear takes over, the market turns bearish.
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Know Swing Trading. Learn Forex Trading!
You should know the problem of slippage and how to avoid it if you want to successfully trade the news. Slippage occurs when the price you intend to enter or exit the market is different from your actual transacted price. Currency prices tend to move very fast during highly volatile market conditions. The risk of slippage is usually very high when trading the news.
Placing stop loss or market entry orders under fast moving market conditions do not guarantee anything. These orders do get filled but mostly at different prices than you had intended. Slippage is the biggest problem when the market moves fast. There is no way you can avoid it. Some of it is genuine. During times when too many orders are placed by the traders, most forex brokers cannot offset these orders in the interbank market due to the small amounts involved. They have to take the opposite positions themselves. This gives them the chance to take the excuse of slippage.
Many market makers will wait till after the big move is over. Then they will fill your entry order. Sometimes, these entry orders may even get filled past your stop loss or profit target. This means that you would be left with immediate net loss.
Before filling your entry order with wide slippage, many brokers will fill your stop loss or take profit order. It is a trick that many forex brokers use in order to make profit by filling your position with a negative spread.
Suppose you have set your long entry stop for EUR/USD at 1.2564 and your profit limit is 1.2594. The forex broker may first fill your take profit at 1.2594. Then fill your long entry stop at 1.2604 with a 40 pips slippage.
You were confident that you would make a winning trade. If the orders had been filled at the prices you wanted, your trade would have resulted in a profit. But now you have a net realized loss. If the trade goes against you, the forex broker may fill your stop loss order first and then fill your entry order with slippage after that so as to widen their profits. With slippage you cannot predict anything what the broker will do with you.
Suppose, you had set your long entry stop at 1.2564 and your stop loss at 1.2544. The broker could first fill your stop loss at 1.2544 then fill your long entry stop at 1.2594 with a slippage of 30 pips. So instead of planned 20 pips loss, you now have a net loss of 50 pips due to slippage.
The larger the slippage you experience, the more you stand to lose and the more the forex broker stands to make a profit. As an individual trader, you should know that during news when the market moves fast, some forex brokers add slippage to any of your orders to increase their profits. Your orders will be kept pending till you get stopped out or your profit limit is reached.
Many forex traders readily accept the risk of slippage. Most news traders consider slippage as one of the realities of trading the news. However, you as a forex trader should know that slippage can eat up a huge chunk of your profits. In the end slippage can affect your overall profit and loss. Read more in the next article how you can overcome the problem of slippage through the use of stop-limit entry order.
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Know These Forex Broker Games. Learn Forex Trading!
Major short term currency moves are almost always preceded by changes in fundamental views influenced by the news. Traders around the world make a living by processing and translating information into money. The forex market is extremely sensitive to the flow of news related to it.
In an era where information can be extremely powerful and strategic asset, whether to individual or corporation and information equals money especially to a trader, shutting yourself off to the news can be suicidal.
The speed of the news dissemination is very important to traders. Traders especially the day traders require the latest up to the second news updates. This facilitates their trading decisions which have to be made at the lightening speed.
Many opt for instant online news services such as the Dow Jones Newswires, Bloomberg and Reuters which display the latest financial and economic news on their computer monitors.
News is important to currency trading. Each new piece of information can potentially alter the traders perception of the current or future situation relating to the outlook of certain currency pairs. Market work on perceptions! Perceptions change, expectations change and prices change.
News that is of great importance to forex traders is generally related to a countrys economic, monetary and political situations. Socio-political events that are happening around the world like in Middle East and North Korea also tend to affect the forex market in major ways.
A traders action is based on the expectation that there will be follow through in prices when other traders see and interpret the same news in a similar fashion and adopt the same directional bias as the trader as a result. These traders will be preparing to cover their existing positions or initiate new positions based on this news.
This is in a way an anticipatory reaction on the part of the trader as he or she assumes that the other traders will be affected by the news as well. Because of the expected impact it has on other market players, news is a very important catalyst of short term price movements. Markets hate surprises. If a news item has a very low surprise value, market may not react much. But if the news item has a high surprise for the market, the reaction will be extreme volatility until the surprise has been digested by the market.
If the news happens to be bullish for the USD, traders who reacts the fastest will be the first to buy USD followed soon by other traders. Other traders may be slower. They maybe were waiting for some technical criteria to be met before they jump on the bandwagon.
There will be many who will join in the frenzy at a later stage when they get hold of the delayed news in the morning newspapers or from their brokers. This progressive entry of the USD bulls over time is what sustains the upward move of USD against another currency.
Almost the reverse will happen on the surprise bearish US Dollar news. Traders who get the news first will start selling US Dollar instantly on the assumption that when other traders will hear the news, they will also start selling.
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Try Netpicks Forex Signals Free. Learn Forex Trading!
Forex markets are open 24/5 except on the weekends. You can see continuous price action all day in the currency markets. More than 90% of forex traders are speculators.
Forex markets have the tendency to react violently to the release of economic and socio political news. You cant predict when important sociopolitical event will be breaking news.
But economic news release like NFP figures every month, the housing sales number, FOMC meeting etc all are known before time. Just Google Fundamental News and you will see lots of websites that provide this service.
One these websites, you will find the day and time when a major economic announcement is expected. Non Form Payroll (NFP) figures have recently become very important for USD.
Non Farm Payroll (NFP) figures are released at 8:30 AM EST on the first Friday of every month. Pairs like EUR/USD and others become very jittery just before the release of these figures. EUR/USD can shoot up sometime by 50-150 pips in 5-10 minutes.
Markets will mostly stabilize within a few hours after the release of fundamental news unless it is of such a fundamental nature to form a new trend in the market.
News release trading is ideal for those traders who like a lot of action within few minutes. Here is one strategy described below that you can use.
Suppose you want to trade EUR/USD. Enter both buy and sell orders at 10 pips above and below the price of EUR/USD just a few minutes before the announcement of NFP figures.
Put stop loss of 10 pips and take profit of 40 pips on both orders. Immediately on the announcement of NFP figures, EUR/USD will react violently and either shoot up or down.
If it goes up by 10 pips, buy order will be triggered. Lets say, EUR/USD jumps by 60 pips. Your position will be automatically closed at 50 pips. You made 40 pips. Isnt it enough for a few minutes of work?
Suppose EUR/USD shoots down. Your sell order will be triggered and you will still make 40 pips. Sometimes the markets have a tendency to whipsaw so be careful. Practice this strategy on your demo account first ten times before going live.
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading; stocks and forex. Download Forex Scalping Cheat Sheets. Discover The Best Forex Signal Service! Read about Trend Forex System.
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Sep 16 2009