Experience and talent mean nothing if you don’t have a solid strategy in place.
With that in mind, here are the top 5 tips for beginner futures traders in the UK looking to get their feet wet:
Educate Yourself
One of the most important things to factor in when developing your strategy is what kind of market analysis tools you will be using.
Technical indicators like moving averages, momentum oscillators and candlesticks can be crucial for trading success, no matter which type of trading you pursue.
For example, regarding futures traders, the moving average convergence divergence (MACD) indicator has been proven time and again as an effective and reliable technical tool that is best used with crossover strategies.
The good news for beginners is that free online trading courses are abundant, so take advantage of this free education to learn all you can.
Trading the News
As with any investment, there is no way around it; at some point, the news will affect the market’s direction.
Traders should always be on top of their latest news stories as futures traders because not only will they have the edge over other traders, but they’ll also be able to better prepare for upcoming trends.
To ensure that your trades are profitable, being aware of all significant economic events that could impact a particular asset class is crucial if planning on making a long run out of trading.
The first step to trading the news is identifying what makes a sound or short piece of news.
Good news includes announcements that are expected to increase the value of an asset, while terrible news includes anything that could devalue it.
With that in mind, just because something is deemed good or bad by the market doesn’t mean it will necessarily have a significant impact on a particular tradable asset.
Hedge Funds Are Coming
When people think about hedge funds, they don’t necessarily equate them with success, but more and more traders are turning towards this method for executing their trade strategies.
Bloomberg has reported that hedge fund managers have nearly doubled since 2007.
A large part of this resurgence can be attributed to regulatory changes during the financial crisis, which led many hedge funds to start trading with derivatives and non-traditional investments, thus increasing their profits.
For those interested in following this trend, it is essential to be familiar with the basics of what hedge funds are and why they’re popular among big-time traders.
Hedge funds typically deal with higher amounts of risk capital than mutual funds and operate with looser regulations (and therefore access different types of market information), making them appealing to active investors.
Before you begin trading, though, there are some critical points that you should never forget:
Don’t invest more than 5% of your capital at once
Many beginner traders want to aim high right away and put their entire trading budget into just one product.
While this may sound like an attractive option, it is hazardous as fluctuations in price can see your entire investment wiped out before you know it.
Trading futures contracts is very similar to stock trading; it’s the price change in percentage terms that you should consider when sizing up a trade.
Watch out for early exercise and delivery charges
While we don’t recommend holding onto your futures contracts until expiry day, there may be times when an unexpected event causes the market to move significantly, giving an early warning of a price swing.
You may want to hold onto your contract until expiry day and accept the charges from exercising early.
On the other hand, if there is little chance of the trade working in your favour, then you might be better off cutting your losses as soon as possible.
Remember that these charges will be taken from your account immediately, even if the value of the contract has dropped since purchase.
Link to Saxo Markets for more information.
