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Futures Trading - 4 Main Risks
from: www.TradingExposed.com
Futures trading is always risky business and anybody who will tell you otherwise, that it is 100% risk-free, is daft or is trying to rip you off. The fact of the matter is, futures trading is a financial gamble. And, like a gamble, you will never know when you will hit the jackpot and when you will lose. The key is simply to play your best game based on the cards you are dealt with and hope for the best.
Many traders are lured into futures trading because of the great rewards it may 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 are 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 learn more, it is suggested that you consult an expert on the matter, because how the futures trading works and pitfalls involved can not 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 weeks or years from now, nobody will be able to make perfect forecasts. Therefore, if you are planning to invest your hard-earned dollars 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 USD 10,001.
Yes, futures trading involves a big money at the onset and is definitely not for the faint of heart and the weak pocketed. Thus, if you are searching 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, anyone 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 investing in futures trading. What it seeks to achieve is clarity on your part, so that you will not 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 are sure you are ready. To your incredible success!
Christine Gray is a recognized authority on the subject of online trading. Her website Trading Exposed provides a wealth of informative articles and resources on everything you will need to know about futures trading. All rights reserved. Articles may be reprinted as long as the content and links remains intact and unchanged.
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