Home > Investing Articles > Futures Trading, Is It The Best High Yield Investment? Yes And Heres Why

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

Todays Date: December 13, 2018

Futures trading could be the best high yield investment your ever going to find, but trading futures with little experience by yourself or without a proven strategy is like an ill prepared soldier heading into battle with a rifle thinking to himself that its the saving grace that’s going to get him through even though he hasn’t thought about what’s going to happen next. The analogy sounds ridiculous with an obvious answer that “no one would be that dumb” but the fact is this is what most new traders do and inevitably they bring about a quick end to their new trading career. Futures have long been regarded as one of the riskiest investments in existence, and understandably so with close to 95% of new traders losing almost all of their original principal within a 6 month time frame. So let me ask you this: If people only lost money trading futures then why does anyone invest in them at all? Simple because the other 5% that know how the game is played are making a killing! So does this mean that the 5% are reaping the benefits from the losses of the other 95%? In partial yes, but whether or not money is made has little to do with new speculators. The just add more liquidity to the market by providing extra buyers and sellers that would otherwise not be there. This is similar to a liquid housing market loaded with plenty of buyers and sellers allowing for homes to be bought and sold without dramatic price changes. Hedgers and fundamentals consist of most of the movement in the market not new traders.

So now we’re left with this question: how is the other 5% making money? The answer is simple they use software and back test their trading systems for spot on execution when entering and exiting the market. The popularity of automated trading systems has grown over the last 8 years with the bulk of orders no longer being phoned in but executed on a server. But this is a small part of the big picture. You still need to find a trading system that can withstand changing market trends not just designed to trade the current market. One of the key points that decide whether a system lasts or completely flops is the fact that a computer system isn’t a person and won’t change its pattern unless you tell it to. Once the trend dries up the system runs in direct defiance of the market patterns. For this reason my personal choice is to use a trading strategy that doesn’t run contrary to the market. When the system sees the market moving hard in one direction or the other it gets in short or long accordingly. Trading futures has major advantages over traditional investments because your success isn’t affected by a recession, you can trade both directions of the market and profit when it’s losing as well as gaining.

Another widely misunderstood fact about futures is that you’re not actually investing in anything. What a futures trading strategy really is “like the one I use” is actually just an equity machine. There is no waiting period to get your capital back, your money isn’t tied up for more than a day, and you are leveraging a large volume tangible commodity or cash to your advantage. Allow me to explain: When you trade futures or forex you are trading a contract for a bulk order of currency or a commodity. The money that you have in your trading account is used as a good faith deposit just like earnest money on a house. When you initiate a buy or a sell in any of the futures markets you are using your earnest money to control that commodity or currency for a short period of time just as in the same way you have the right to buy or transfer the rights to a house you have a deposit on. When entering the market you are then hoping to take advantage of a price difference just like equity in a home and then sell back your contract for a profit. What’s nice is that unlike home equity you can take advantage of the loss of value on a futures contract, the value will also change much much faster than a home even in one day, and the market is always liquid with plenty of buyers and sellers.

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.

Are Futures extremely risky? I’ll let you decide. Most financial advisers will discourage you from futures and for very good reasons as I stated above. But when you do your homework and find a good strategy using common sense principals as I’ve discussed in this article you will have the best high yield investment you can find that performs ten fold to what your regular investment portfolio can produce, and the best part of all is that the state of the economy will have nothing to do with how well it performs.

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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