Top 4 Reasons Why Future Traders Are Losing Money

by Trading 101  //  sep. 26, 2018

Futures are some of the riskiest assets in the financial world as they can yield great profits but also completely burn a trader’s capital if executed wrongly. Here’s some Trading 101 for you: futures are the same as options except that they’re not optional - they’re a future legal obligation that you need to see through as they’re a proper contract. An option on the other hand gives you the choice whether you want to go through with it or not - which is to be able to buy or sell a certain asset at a predetermined price. With futures the principle is the same, but you’re essentially committing to buying or selling a certain commodity at defined quantities and prices at a determined date in the future.

It’s common to hear stories about traders who made a good amount of profit off of a good futures trade, but then ended up losing all their profit in the following two, three or four futures. This often spirals into not only eating up all the previous profits but also leads to loss in trading capital. Let’s look at what the biggest mistakes are that future traders tend to commit, often leading to strings of losses.

1.Not protecting themselves.

There’s always risk involved in trading, anyone who went through some sort of formal or even informal trading 101 learning knows that, hence it’s paramount to lower the risk as much as possible or find other measures to protect oneself. Sell and buy stops have a place in the futures trading business too and can be one of the most effective ways at protecting one’s portfolio.

2. Losing focus.

To succeed in the futures market, the ability to read market trends is absolutely critical. A trader’s focus should be on whatever market they are planning to have futures in and not deviate from those until a future is guaranteed to profit. Misreading the market because of a lack of focus is a fast way commit to futures that will result in losses. The commitment to use a future trade to buy a certain stock implies that the trader has seen a trend of sorts to believe that setting up a future now will allow them to set a lower price than what the stock will be worth by the time they have to buy it, allowing them to sell it for immediate profit.

3. Losing track of the strategy.

An alarming trend among newer and less patient traders is that many tend to abandon their plan or system as soon as it gets into full swing and starts being profitable in the long term. There’s a reason why the most successful traders of all time have an extremely disciplined approach to their systems and plans, never deviating from them unless extraordinary circumstances present themselves. If it’s working there’s no need to fix it, but there’s the opportunity to improve one’s system. It is far smarter to adapt one’s system to match a trend in the making or to prepare for other changes in the market’s condition, but never should that be enough of a reason to abandon the system that made a trader profitable in the first place.

4. Narrow point of view

There is simply no way to guarantee anything in the trading game. Whether it’s a new market, new fund, new strategy or most importantly, new information - traders need to be flexible and adapt to new trends and realities faster than anyone else in order to gain a competitive advantage. Too many traders have sunk due to the belief that they were experts who already knew everything, causing them to lose sight of trends they didn’t understand because they didn’t do their homework properly.





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