If you don’t have a background in finance, the futures markets can seem intimidating. Given the complexities of active trading, it’s a great idea to work with a futures broker until you can achieve a basic level of competency.
Why are the services of a broker so valuable to futures market newbies? The answer lies in three key resources: experience, knowledge, and time. For a good broker, these attributes are in abundant supply, each enhancing trader development.
Experience Is the Best Teacher
The popular adage goes “experience is the best teacher,” and this statement may never be more true than it is in futures trading. Experience is a critical part of both analysis and strategic execution. Without ample time in the markets, a trader is likely to make and repeat unnecessary mistakes. Although past performance doesn’t guarantee future results, taking the time to work with a futures broker can put you on the road to sustainable profitability.
At this point, you may be wondering how much experience is enough? One frequently cited metric is the 10,000 hours hypothesis from Malcolm Gladwell’s Outliers: The Story of Success. According to Gladwell, it takes roughly 10,000 hours of “dedicated practice” to gain mastery of any discipline. The 10,000-hour threshold is loosely equated to 10 years in any field and is a hotly debated, controversial subject.
Although it may not take you 10,000 hours to master futures trading, it’s a safe bet that your broker is more evolved than you are. If your experiential base is limited, then drawing on a broker’s deep experience is one way to quickly boost your development as a trader.
It’s Impossible to Know Everything
One of the potential pitfalls of futures trading is how fast the environment can change. Strategies that worked well today often fail tomorrow; participation rates rapidly evolve, as do order flow and volatility. Simply put, attempting to learn everything all at once is largely an exercise in futility. It just isn’t plausible to know it all, all the time!
However, if you work with a futures broker, you will have a better idea of what is essential knowledge and what isn’t. For instance, a broker can offer indispensable guidance in the following crucial areas:
- Selecting an ideal product or market
- Identifying vital market drivers and underpinnings
- Understanding the tenets of technical and fundamental analysis
- Developing a robust, comprehensive trading strategy
To avoid becoming overwhelmed with extraneous information, having a dialogue with your broker can highlight what you absolutely need to know. Personal experience is a big part of expanding one’s knowledge base, but the expertise of a market professional can help you streamline the educational process.
There Are Only 24 Hours in a Day
In addition to experience and expertise, securing access to a broker can increase your efficiency exponentially. Working full-time and raising a family are labor-intensive endeavors, so deferring various trade-related tasks to a broker can help you maximize opportunity in the marketplace.
Because of time constraints, legions of aspiring futures traders choose to take an exclusively “hands-off” approach to the markets. Basically, hands-off traders turn to automated systems or broker-assisted strategies to generate returns in the live market. Here are a few popular ways of doing just that:
- Trade automation: A broker can provide the technological framework necessary for automating trade recognition, order placement, and execution.
- Managed futures: Diversify holdings, hedge risk, or pursue speculative profits via the functionality of managed futures.
One of the biggest reasons to work with a broker is the time factor. If your job and/or family duties total 40 hours a week or more, then odds are you won’t have enough time to trade successfully. However, by employing automated systems or managed futures, you can participate in the markets while fulfilling your other responsibilities. For some traders, this is an ideal way of boosting income while nurturing a career.
