Before you embark on trading the E-Mini futures contract, or any futures contract for that matter, there are a few things to consider. Actually, there are probably hundreds of things to consider depending on your level of expertise and tolerance for risk but for this article we will focus on some of the key points. A common note that comes across when talking to investors is that they have invested in various instruments before and they wish to use this vehicle to raise their current income.
Very courageous, is what comes to mind. It is possible to accomplish this feat, it is my opinion though that they must first do a great deal of homework and have luck on their side.
As mentioned before, this is a partial list and is not the proverbial “Roadmap to Riches.” What I offer is a good jumping off point:
1. Are you properly capitalized? Easily the most avoided item in the aspiring trader’s tool-box. Here is some basic math to illustrate. To hold one E-mini contract overnight will require around $3,500. This amount fluctuates depending on which one of the mini stock index markets you trade and the current level of volatility. Let’s just say that of your first 20 trades, you have a bad streak of losers. If you lost just $250 on each trade, and did that ten times, that is already $2,500. Add on commissions of $120 and you can see that bad things can happen fast. I recommend that trader start with a minimum of three times the overnight margin. In this case, that would be $11,000. With that kind of capital, you have a better chance of weathering the storm versus going in undercapitalized. Look at it this way; you are basically opening a business. Would you open a flower shop but not have the capital to buy flowers past the first week or pay your rent?
2. Find a method that works for you. There are a million ways to trade any market and be successful. There are an equal number of ways to lose money. Before you get up to bat, investigate as many possible strategies as you can until one clicks with you. Simplest is usually best. If you are less computer savvy maybe you should investigate how indicators work. These are basically overlays to charts that provide an indication as to potential future market direction. If you are more computer oriented, look toward trading systems. These are computer generated models which yield buy and sell points.
3. Join a group. Mine the internet for trading groups in your area. It seems like there is a new “meet up” site starting every day in this wonderful “social networking” world that we live in. From Facebook to Yahoo Groups this is a resource you should tap into. These groups are filled with people just like you that have probably already covered a lot of research ground and are happy to share the knowledge.
4. Read! Seriously, read everything you can get your hands on about the subject of investing. So many people treat investing as a video game that is leaded with unlimited quarters. Before you do any investing, do your investigation first. The actual trading might not come for a long time and that will be frustrating to you but unless you have unlimited funds, the long road is the best.
5. Practice. Virtually all clearing firms have an online demo you can use to try out their software. This is not only an excellent time to get used to their software, but for you to try out your ideas before you put down your money. You might even be able to pay a small fee and use it for whatever length of time you need in order to feel comfortable.
Futures and options trading involves substantial risk and is not suitable for all investors. Past performance is not indicative fo future results.
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