Futures Trading Instructions

Written by Jacey Harmon
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The first thing you need to do when you start to trade futures is to determine what type of strategy you are going to use. There are naked strategies, such as only buying or selling a single contract. Or there are hedging strategies called spreads--buying one contract and selling a similar contract. In reality there are several variations of each type of the aforementioned strategies, but they all fall into those two broad groups.

Choosing a strategy will depend on your risk tolerance and experience level. Those with lower risk tolerances will be interested in using spreads. Those with higher risk tolerances can simply take the risk with a naked contract. The type of strategy you use will also depend on what type of contract you are going to trade. Though contracts are similar in nature, they all have nuances that make them unique. Fundamental analysis for corn wouldn't exactly apply to oil futures and vice-versa.

Finding Futures Trading Strategies

Futures exchanges offer several examples of various trading strategies. Each exchange will carry select contracts and offer strategies for trading their products. The Chicago Board of Trade (CBOT) has several strategies for trading their mini-DOW contract. They even have a strategy that focuses on spreading between the Chicago Mercantile Exchange's and CBOT's interest rate futures.

There are several resources on the Internet that sell information on various trading strategies. One may feel inclined to disregard these sources as phony attempts to defraud investors. I strongly advise you to listen to what some of them have to say. Those that have taken the time to start a company based on trading futures have a solid understanding of the market. Learning from experienced traders is a great step to becoming a successful trader yourself.


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