Now that we know how futures can be used to make us money, do you think futures trading is suitable for everyone? I was told that many traders made their fortune from futures trading. Well, Dr Alexandra Elder mentioned in his book that he trades futures primarily and I found the following prominent futures traders from Wikipedia:

• William Eckhardt
• Linda Bradford Raschke
• Robert Krausz
• Louis B. Mendelsohn
• Richard Donchian
• John W. Henry
• Charles Faulkner
• Larry Williams
• Malouf Abraham, Jr.
• …

Is it really easy to make money from futures trading?

You bet…if we do it the right way that is. In part 2, I mentioned that “when the Emini S&P500 moves by $0.25, we would have made $12.50 with 1 futures contract”. I just took a screen capture of the Emini S&P500 (see chart below). It just did a upswing from $948 to $964 in around 30 min. If we have captured this swing, we would have netted $800 in our pockets with 1 contract in 30 min!

Leverage is a double edge sword

This profit potential is possible because of the good leverage that futures trading offer. However, just as the age old saying goes, it is also because of leverage that we can lose an equal amount.

Is futures the only trading instrument with leverage?

Certainly not! Options, forex etc are instruments with leverage as well.

Then why is it not suitable for beginning traders?!

Personally I find there are 2 main reasons:

• mostly day trade - the margin required for day trading is much lesser than that required to hold trades overnight. Not too sure if many beginning traders is willing to or have a huge enough trading account to set aside US$5000 as the margin for hold trades overnight. It certainly doesn’t look attractive to me at all. However, day trading could be quite taxing for beginning traders.
• fixed leverage - beginning traders have no way to slowly adjust their emotions to be accustomed to such a good leverage. Compare this to forex trading, where a beginning trader can start off with a micro account (where 1 pip is ~ $0.10). After he/she is adjusted to the profit/loss amount, he/she can progress on to a mini account (where 1 pip is ~ $1). After he/she has demonstrated successes, he/she can choose to trade with a standard account (where 1 pip is ~$10).

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