Futures: How to get involved in Futures
At the risk of repeating ourselves, it's important
to note that futures trading is not for everyone. You can invest in the futures
market in a number of different ways, but before taking the plunge, you must be
sure of the amount of risk you're willing to take. As a futures trader, you
should have a solid understanding of how the market and contracts function.
You'll also need to determine how much time, attention, and research you can
dedicate to the investment. Talk to your broker and ask questions before opening
a futures account.
Unlike traditional equity traders, futures traders are advised to only use funds
that have been earmarked as pure “risk capital”—the risks really are that high.
Once you've made the initial decision to enter the market, the next question
should be “How?” Here are three different approaches to consider:
Do it yourself - As an investor, you can trade your own account, without
the aid or advice of a broker. This involves the most risk because you become
responsible for managing funds, ordering trades, maintaining margins, acquiring
research, and coming up with your own analysis of how the market will move in
relation to the commodity in which you've invested. It requires time and
complete attention to the market.
Open a managed account - Another way to participate in the market is by
opening a managed account, similar to an equity account. Your broker would have
the power to trade on your behalf, following conditions agreed upon when the
account was opened. This method could lessen your financial risk, because a
professional would be making informed decisions on your behalf. However, you
would still be responsible for any losses incurred and margin calls. And you'd
probably have to pay an extra management fee.
Join a commodity pool - A third way to enter the market, and one that
offers the smallest risk, is to join a commodity pool. Like a mutual fund, the
commodity pool is a group of commodities which can be invested in. No one person
has an individual account; funds are combined with others and traded as one. The
profits and losses are directly proportionate to the amount of money invested.
By entering a commodity pool, you also gain the opportunity to invest in diverse
types of commodities. You are also not subject to margin calls. However, it is
essential that the pool be managed by a skilled broker, for the risks of the
futures market are still present in the commodity pool.
Next==>>
Types of orders and
how to place them properly
When people do not respect us we are sharply offended;
yet deep down in our hearts no man much respects himself.
-- Mark Twain (Samuel Longhorne Clemens) --
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