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Risk Control Method no-2 Proper Account Sizing in stock market
Drawdowns are the bane of futures traders. When you are making money in stock market, everything is fine. It is when losses start to mount that doubt creeps. The longer a drawdown lasts and the deeper it cuts into your equity the more painful it becomes. A trader starts to think “I wonder when I’ll get back to a new equity high in stock market,, or even if I’ll get back up to a new equity high.” It’s like inadvertently getting on the down elevator in a sky rise; you don’t know how long it will be before you get back to the floor you were just on. Drawdowns are never easy to deal with. However, if you experience a drawdown that is within the realm of what you had expected going in, it is a far different situation to deal with emotionally than if you figured you would never experience anything worse than a 15% drawdown and now you are 30% in the hole. Or even worse, if you really had no idea what to expect in terms of drawdowns in stock market when you started out, and you suddenly find yourself deep in the hole in stock market. Under such circumstances it can become almost impossible to maintain confidence in your approach.
Following the steps in Section Two can give you some idea as to what you can realistically expect from your trading approach, both in terms of profitability and drawdown as a percentage of your trading capital. By properly sizing your trading account you take an important step toward minimizing your risk even before you make the first trade in stock market.
Commodity Futures Trading Account – The Sensible Approach to Opening Your Trading Account
You are considering the trading of commodities, or the options on futures as a wonderful way to supplement your income. You can even go one step further and determine that trading commodities and futures is a wonderful way to make a living. This is a great idea! The futures can only go two directions; up or down. All one needs to do is determine the commodity direction and jump on board. What could be easier?
The next logical step is to find a place to execute your trades. You begin by going to the internet to find commodity and futures brokerages. You quickly discover that there are many futures brokerages offering a number of services to the commodity trader. Through your research you discover there are three basic levels of service futures brokers provide to commodity traders, which are full-service, discount, and online futures trading. Through more intense research you find out the very cheapest means to execute your trades is through online trading. Generally speaking the majority of beginning commodity traders will opt for online futures trading because it is normally the least expensive choice. Also, there is the sense of independence when online trading because one can place their own trades, bypassing a commodity desk clerk or futures broker.
The next thing needed is to call several futures brokerages and negotiate the cheapest online commission possible. It has been my experience over the years that beginning commodity traders spend a great deal of time and effort negotiating a commission rate. I believe the primary reason new futures traders spend so much time looking for the cheapest commission rate is because it is what they understand best. By this, I mean when they were young they saw their father haggle with the car salesman to get the the very best price for the new car and mom scouring the weekly grocery ads to find the best price for needed groceries. It is what we all have been exposed to all of our life. This approach is fine for most endeavors but probably the very worst approach to take when establishing a commodity trading account. As explained earlier, pursuing a cheap commission rate is what a new futures trader understands best.
We will now explain the sensible approach to take for a commodity trader when opening a futures trading account. The very first thing one should consider once they have decided they would like to trade commodities is to find a broker that they feel comfortable working with. A commodity broker who has the years of experience, understands charting analysis for the many commodity markets, and also incorporates seasonal tendencies into their futures analysis. Many commodities such as gold and silver have strong seasonal tendencies, not just the agricultural commodities. Make sure the commodity broker you are considering will take the time to work with you, teaching you futures chart analysis, provide you seasonal information, and generally speaking, increase your overall trading knowledge, so you can become a successful commodity trader.
Please keep in mind that the leverage when trading commodities is tremendous. For example; the margin required in your trading account to hold a Corn futures contract is $2100.00. Corn futures pay $50.00 per one cent of movement. You purchase a Corn contract and it moves twenty-five cents in your favor the very next day, your profit for that one Corn futures contract would be 25 x $50.00 = $1250.00. That is almost a 60% return on your original investment, which in this case was the margin money that was required for you to hold a Corn futures in your commodity trading account. That is some significant leverage! The tremendous leverage associated with commodity contracts is the very reason why you need a well qualified, professional commodity broker to work with you, assisting you in improving your trading skills.
Finally, when deciding on a broker to work with, go to the National Futures Association website and check out the history reported by the NFA for the broker you have an interest in working with. Also, check out the Futures Commission Merchant that your commodity broker clears his trades through. This only takes a few minutes of your time and you can verify that your broker is licensed and registered with the proper authorities and does not have a history of poor trade execution.
My name is jack case and I wrote the article explaining the sensible approach to opening a trading account. The reason for this article is to point futures traders in the right direction when considering opening a commodity trading account. I also own Absolute Futures commodity brokerage which is a leader in the commodity futures industry. Visit us to learn more. http://www.absolute-futures.com
Guide to Choose Best Account for Online Futures Trading
Wondering if making online futures trading is exciting? It is , understanding it is actually the best way of earning extra bucks. There are many investors who choose to take advantage of it with an online futures trading (OFT) broker. It is best to choose a broker first then think of the best online account that will suit your online trading capital investment needs. It is best to study the best options, it has to be carefully studied to calculate risk and be able to make a profitable sum in OFT.
An OFT professionally managed account is an online commodities trading product, this type of online trading account is managed by an online trading broker. He will take care of your business portfolio. He will also take care of observing commodities market trends, and help decides in your behalf which route to take. He keeps his line of communication for you, especially when the market is hot and is running profits. It will really depend on your arrangements, whether you would want to decide before investing or you will give him free reign in investing for you.
An exciting type of online commodities trading is called full services account, actually it is the same with a online futures trading professionally managed account, but you will work closely together with you OFT broker, and you will also have a responsibility for the profits and losses of online trading. Your professional online futures trading broker will just assist you one step at a time, until you have mastered the ropes of OFT. A professionally managed account is best for the neophytes of online trading.
A online futures trading broker assisted account is another type of account where an online broker will assist you, it is similar to an online futures trading full service accounts and professionally managed account, the difference actually is you are trading by yourself with a back up online commodities trader on line available for consultation. This account is usually used by an experienced online trading broker and not by those who are just starting. It is actually running an OFT by you, but with the assistance of a future online broker available anytime.
There are some traders who are considered as veterans with online futures trading, and they wouldn’t need an online future trading broker in their behalf, the account is called discount OFTaccount or deep discount account. These type of account allows you to be in perfect control of futures online trading. You are expected to work on your own trades, study market trends of prices of commodity and judge whether to invest or not to invest. Usually an online service broker assistance is needed just to keep the program running. This type of account is for veteran OFT traders.
There are variations of OFT and online futures brokers operate in accordance to what type of account you have chosen. It is best to consult a reliable OFT broker for assistance to be able to make the best decision of what account to choose before embarking on this exciting investment project.
Online Trading Guide is the best place to go for tips and resources for online trading. Please visit our website at http://onlinetradeguide.blogspot.com/
Futures Trading Strategies – Best Future Trading Strategies Online
Future trading strategies performs not involve making of trading decisions on a day to day basis about buying or selling your commodities having a operate account, it only requires that you comprehend the dollars and cents of coming years trading profits and losses are reached. This is a basic understanding you need to have if you intend to trade your own account.
Many of different variations and future trading strategies are used by future traders to speculate profits.
The most basic descriptions are illustrated as follows:
Buying goods to profit from an expected gain in the price. You will find that some people will purchase particular items hoping that the item will gain some profits in the future.
If accurate in foretelling direction of the time change, future trader can be sold later for a profitable price thus making profit. Should the price go down rather than an increment in profit, the trader will suffer a loss.
Note that the profits and losses may be larger than the initial margin deposits.
Futures Trading Strategies
The perfect example to express this would be as follows, assuming its January, and a certain commodity future price is tagged as 20 dollars, and maybe the next coming month it will be expected that the price will have an increment.
You will be required to deposit the initial margin of a certain amount for instance 1000 dollars to buy the futures trade in July.
You can assume that by April the July the commodities future prices will have gained to maybe 24 dollars and you decide by taking your profits by selling the commodity at a profitable margin cost.
Another future trading strategies in tails that in case the commodity pricing was inaccurate and the pricing goes down rather than gaining, to avoid the possibility of making further losses, you should chose to sell the contract at the purchased price to cover the transaction costs.
Do note that losses at anytime will affect the losses at the open position that will reduce funds in the margin account bellow its normal maintenance margin level.
To restore your account, you will need to receive a margin call for the amount to maintain the margin account to its initial margin level requirement. Other than buying future trading, you initialize by selling your future trade.
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Debunking The Myth of Managed Futures
With the lackluster returns in the equity markets, many investors are looking for alternatives for their investment dollars, one of the sectors attracting a lot of interest is the futures markets or commodity markets.
Many of these new investors in the futures markets are looking for someone experienced. They are looking for someone with an established track record to handle the trading decisions of their personal account. In the world of futures, these money managers are referred to as Commodity Trading Advisors or CTAs. Many investors wrongly assume that they do not qualify to have a CTA manage their personal futures account, I will attempt to clarify some of these misconceptions.
Reasons for this common misconception include: - Investors do not know that managed futures with a documented track record exist for individual investors - Investors assume that they would not qualify because of high initial account sizes - Investors have heard the horror stories of a truck showing up at someones front door with a delivery of 5,000 bushels of Corn
Managed Futures has been an investment class that has historically been available to institutions and high net worth individuals, like everything this is changing. The track records and performance information for managed futures remains difficult to find for the average investor. While individual investors might assume that they would not meet the criteria of participating in a managed futures program, this is not always the case. Many managed futures programs have lower requirements than most would expect bringing managed futures as an asset class to the mainstream investor.
These managed futures programs have documented track records and the managers are required to be registered with both the NFA (National Futures Association) as well as the CFTC (Commodity Futures Trading Commission). All managers are required to provide potential clients with a disclosure document that covers the risks as well as the historical performance for their programs. Client accounts are established with a broker that introduces the account to the Manager.
Many investors wrongly assume that they do not qualify for a managed futures account because they assume that they need to meet high initial account balances in order to participate in these programs, this is just not true. Currently we offer a variety of managed futures programs. You might be surprised to learn that you can open a managed futures account with as little as $35,000.
The different managed futures programs that we offer are programs that have shown consistent positive returns with historically low volatility that are managed by proven Commodity Trading Advisors. While we understand that there are many investors and traders that are looking for triple digit yearly returns, experience has taught us that most investors are not looking for the flash in the pan program that shows high volatility but are more comfortable with a consistent return with lower volatility. One of the benefits of investing with a managed futures program is that the performance of the program does not depend on the direction of anyone particular market. Managed Futures have shown to have a low correlation with stock markets. These programs are not dependent on the market direction to provide returns.
Many have heard the old story of I knew someone that had to take delivery of corn and a truck showed up at his front yard with 5,000 bushels of corn this is just not true. A futures contract represents the obligation to either buy or sell a commodity of a certain class at a certain time in the future (why they are called futures), it is the duty of the Commodity Trading Advisor to remove this risk from their trading program. Traders should remember that over 90% of futures contracts never go to delivery they are offset in the market. The process of delivery usually only happens to a trader that is new and unfamiliar with the markets and is trading alone. Brokers usually help new traders by making sure that these small but very costly mistakes do not occur.
Author: Les Jones
Article Source: EzineArticles.com
Provided by: Digital Camera Times
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