Futures Trading, Is It The Best High Yield Investment? Yes And Heres Why

Posted on June 20, 2010
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Trading futures can be the best high yield investment you’ll ever find, but trading futures with very little experience on your own or without a good strategy or an untested strategy is like an unprepared soldier running into battle with a rifle and thinking “hey I have a rifle, I’ll be ok as long as no one shoots me”. This sounds like a ridiculous analogy and you’d think it to be obvious but this is what new traders do on a routine basis, and it’s setting them up for inevitable disaster. Futures have been regarded as one of the highest risk investments in existence for a long time, and understandably so with nearly 95% of newbie traders taking there first trades and then losing almost all of their original investment within the first 6 months of trading. So with that said let me ask you this: If investing in futures only caused people to lose then why would there be anybody investing in them at all? This is obviously because the other 5% makes money and lots of it! So now you might be thinking aren’t those 5% making money at the expense of the losing 95%? This is true in partial. But it mostly has nothing to do with the other 95%; they just bring more buyers and sellers into the market while adding more liquidity allowing for every investor to get out of the market without moving it too much. This is similar to a situation where a house would have numerous offers on it then having a market with plenty of buyers and sellers simultaneously. Most of the movement in the Futures market consists of hedgers and fundamentals that cause most of the hedgers or speculators to buy or sell; new speculators are a small part of the big picture.

So now we are left with the question of: If 5% of futures traders do make money than how are they doing it. Simple, they are utilizing back tested systems usually ran by computers (these days), for consistent execution of entering and exiting the market. Automated Trading systems have gotten very popular over the last 8 years with the bulk of the market no longer phoning in orders but placing them on a PC whether that be manual or automated. Now knowing this is half the battle. You still need to find a trading system that can withstand the test of time and not just work for a short period of time until the market conditions change. This is one of the largest flaws of most computer-generated systems; they aren’t people so they can’t use reason to change their pattern. They tend to operate based on some kind of trend trading contrary to the market direction. Then once the trend dries up the system operates in direct conflict with the markets pattern. I like using an automated system that is based on directional movement not fighting the flow of the market. When the system sees that the market is trending for a hard move in one direction or the other that’s the way it trades. The beauty of trading futures is that it has nothing to do with recessions, or whether the market moves up or down. You are able to profit from it moving in both directions (long: profiting going up) or (short: profiting going down)

A general misunderstanding about futures is that you’re not actually investing in anything. A futures strategy is basically just an equity machine that’s not committed to any long-term stay in the market. You don’t have to wait more than a day to get your capital out and your able to leverage a large volume commodity or currency to your advantage. For example: When you trade futures your using a small amount of money to control something that has much more value than you are using to control it. The money that’s in your trading account is margin or the equivalent of earnest money on a house. The earnest money doesn’t obligate you to buy the house but allows you to control if for a period of time. When you enter into the futures market you are hoping to take advantage of a price difference just like the way you would with equity in a home, then turning around and selling the rights to the contract for a profit. But what separates futures from a home or any other asset class is the fact that you can quickly take advantage of the loss in value of the commodity. The value change and turn around time will also occur much much faster in the commodity market unlike with real-estate and the Futures market is many times more liquid with plenty of buyers and sellers at any given moment.

Good futures traders and commodity trading advisers tend to make nice returns because they are taking advantage of an asset they don’t own for a short period of time. Now even a good trading strategy will lose once in a while, you can’t get away from that, but if you’ve found a good strategy it should make you back 2 or 3 times its average loss. When you are choosing a system take a close look at the long-term chart. You want a system that will produce a nice steady growth not one that makes insane profits but yo yo’s back and forth causing sleepless nights. Now you’re able to see how you’re not in it for the long term, you’re just pulling money out of the market on a daily basis.

This leads me to my last recommendation to those beginning in futures. If your going to begin investing in futures, the best thing to do is start by finding a good CTA (Commodity Trading Adviser) using what is called a Managed Futures Account. There are numerous CTA’s with excellent track records. Most CTA’s use an automated trading strategy that they monitor and make adjustments to on an ongoing basis. A good CTA understands the trends in the market and makes adjustments to the loss parameters according to current market conditions. He will also know how to adjust trading for your risk tolerance. A CTA has POA or “power of attorney” to Manage your futures account for you, meaning he decides which trades you make. He does not have access to the funds, they are held by a third party clearing firm for you to access anytime you want.

So……. Trading Futures Risky or Profitable? You be the judge. Many financial advisers will tell you that Futures are risky and believe me they have every reason to think this. But if you find a good system using the common sense I just explained above you will have the best high yield investment available that will most likely outperform ten fold what any mutual fund or other asset can do and with performance that isn’t related to how good the economy is doing.

Learn more about the best high yield investments. Stop by Eric Christensen’s site where you can find out all about high yield investment accounts and the difference it can make in your portfolio..

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