The futures markets are fast-paced, highly competitive environments. It’s common for individuals new to the arena to be intimidated by the complexities of the business. From learning the nomenclature of the industry to efficiently implementing advanced technology, becoming a competent futures trader can be a formidable task.
A futures broker can be a valuable resource when engaging the marketplace. Whether a trader entering the markets aspires to trade in a broker-assisted or independent capacity, competent futures brokers bring a wealth of experience and knowledge to help build up your trading skills.
Mastering the Basics
The active trading of futures products is an inherently risky business. Capital is frequently put into harm’s way with hope of substantial reward. In simplest terms, mistakes cost money.
The most important contribution a broker can bestow upon a developing trader is a working knowledge of futures basics:
- Language: Understanding the language used in the futures market is crucial to avoiding potential pitfalls. Expressions such as “expiration,” “taking delivery,” “slippage,” or “margin call” are just a few entries in a dictionary of futures terminology. Although a trader does not need to be a savant in market jargon, it’s important to understand the language used to describe basic functions. Regular interaction with a broker can greatly reduce the vocabulary learning curve.
- Market dynamics: Knowing when to become active in the market and when to remain on the sidelines is a function of experience. Being able to correctly “read” a market is a valuable skill, and one that can be imparted from broker to trader.
- Trade execution: Brokerage firms are in the business of placing trades on behalf of their clients. There may be no industry professional more accustomed to entering and exiting the market efficiently than a broker. Under the guidance of a broker, becoming familiar with various order types, trading platforms, and position management strategies is easily accomplished.
- Risk management: Futures trading is a capital-intensive business. Being able to properly address margin requirements, position limits, and leverage are absolute necessities. An experienced broker can help a trader not only understand these principles but also develop safeguards to ensure the best possible chance of success.
Becoming Independent
In general, independence is viewed as being a positive personal attribute. A sense of empowerment and confidence stems from not needing the assistance of anyone or anything. However, the futures markets can be unforgiving to ignorance. If a trader isn’t truly ready to be independent, then mistakes and capital loss are all but assured.
In an attempt to gain the experience and knowledge-base necessary to sustain profitability, individuals use several types of brokerage relationships. For this reason, many traders decide to follow a specific progression before becoming independent:
- Full-service: Full-service futures brokers work side-by-side with the trader. Market advice, strategy development, trade execution and account management are all assets furnished by the broker. Full-service brokerages are popular choices among novice traders and individuals with time constraints
- Broker-assisted: The individual is in charge of executing day-to-day trading operations and account management. However, a dedicated broker is available for consultation should any issues or questions arise.
- Self-directed: Self-directed traders go at the markets alone. They handle trade execution and account management, and overcome any obstacles that may present themselves.
Navigating the futures market is a formidable challenge. To do it successfully requires dedication, desire, and know-how. Capable futures brokers can help in establishing the proper mentality for achieving longevity in the marketplace. A market professional stands ready to impart the comfort and confidence necessary to engage the market from a position of strength.