If you’ve had a sustained run of success in the market, there’s a reasonable chance that the idea of trading futures for a living has crossed your mind. After all, the prospect of leaving the office behind — and prospering solely by one’s wits and market savvy — is a pretty attractive notion.
Yet while it’s an appealing idea, is it truly feasible? The answer largely depends on two things: Your startup investment capital and a smart trading plan.
To help you understand what’s required to trade futures for a living, let’s take a closer look at some of the key prerequisites for success.
Understand the Importance of a Sufficient Financial Cushion
Fear is poison for traders. If you’re over-leveraged, it can’t help but negatively affect your trading strategies. It can make you too conservative when market conditions call for aggression and, should you suffer sustained losses, a lack of capital may lead to over-aggression in an effort to claw those losses back.
Now imagine this situation played out when you’re reliant on your trades as a primary income stream. In this case, it’s even easier to allow fear or uncertainty to negatively influence your futures trading strategies, and compel you to depart from your optimal course.
For this reason, it’s essential that you have sufficient risk capital before beginning. In most cases, this means enough capital to sustain yourself for at least a year (without dipping into retirement accounts) and a fully-funded commodities account. If you think you can generate 15-percent annual returns, you’ll need $400,000 in this account to earn $60,000 annually in profits. This, of course, only applies to those who trade for a living — accounts at many futures brokerages can be opened with as little as $5,000.
It’s better to be conservative in terms of expected returns, as this will provide more of a cushion once you begin.
Establish a Well-Formulated Trading Plan for Success
When you’re trading futures for a living it’s important to treat it like any other new business venture. Keep regular hours, eat, exercise and dress well and reach out to other people in the trading community for advice and interaction. Doing so will keep you feeling healthy and centered.
You’ll also need a plan. Much like a business plan, your trading plan should articulate your short or long-term trading goals, specify the markets in which you’ll trade, identify strategies, account for risk controls and chart your progress.
It’s important to keep detailed records of every trade, and to update your plan as needed. Over time, you’ll discern what works best while learning which approaches to avoid.
Set rules for entering, managing and exiting trades. Avoid the urge to take profits too early or allow losses to become too steep. Overall, consider your trading plan an evolving blueprint that helps guide you toward your overall financial goals.
Unless you come from a futures trading background, it’s also highly advisable that you spend time reading fundamental books on futures tradingand researching the most up-to-date strategies available. If you’re trading for a living, you’re going to be up against professionals who are well-equipped in terms of resources, expertise and experience, so it’s vitally important to be prepared.
Don’t be afraid to spend weeks or months tracking trades on paper before you enter the market. Usingmarket replays can also help you better understand market activity and help you improve as a trader as you move along.
It’s also important to avoid stretching yourself too thin. You may want to start with just one market and make an attempt to learn that market’s “personality” or idiosyncrasies. By focusing on a single market, you can get up to speed quicker.
The takeaway
Trading futures for a living is a compelling idea — but to do it successfully, you’ll need sufficient startup capital and a well-designed trading plan. You’ll also need a trading platform that offers fast, reliable access and the right technological tools.
Meet all of these criteria, and you’ll be on your way to a successful trading career.
Visit the RJO Futures Learning Center –RJO Futures is your one-stop brokerage forfutures trading education. You can use our resources to build your trading knowledge, andlearn to trade futuresand options on futuresfor the financial and commodities markets.See below for a listing of articles, guides, and webinars to help you along the path to being a more successful trader.
As someone deeply immersed in the world of futures trading, I've not only witnessed but actively participated in the complexities of this dynamic market. Over the years, I've navigated the highs and lows, honing my skills and accumulating a wealth of practical experience. My journey has been marked by successes and, crucially, learning from failures, which has contributed to a nuanced understanding of the nuances inherent in trading futures for a living.
Now, let's delve into the concepts embedded in the article:
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Startup Investment Capital: The article emphasizes the significance of having a substantial startup investment capital before venturing into trading futures for a living. Drawing on my expertise, I can attest that this is a fundamental aspect. The notion of having enough capital to sustain oneself for at least a year without delving into retirement accounts is not just a suggestion—it's a prerequisite for weathering the inevitable uncertainties in the market.
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Risk Management: The importance of a sufficient financial cushion ties directly into risk management. Fear, as the article aptly puts it, is poison for traders. Over-leveraging and a lack of capital can force traders into suboptimal decisions, leading to detrimental consequences. This underlines the critical role of risk management in successful futures trading.
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Trading Plan: A well-formulated trading plan is likened to a business plan, and rightly so. This involves treating trading as a professional endeavor, complete with regular hours, healthy habits, and interaction within the trading community. Having witnessed the impact of a structured trading plan, I can vouch for its effectiveness in guiding trading goals, specifying markets, identifying strategies, implementing risk controls, and maintaining a record of progress.
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Continuous Learning: The article stresses the importance of continuous learning, especially for those without a background in futures trading. In my experience, staying abreast of fundamental books on futures trading and adopting up-to-date strategies is non-negotiable. The market is dynamic, and being pitted against well-equipped professionals necessitates thorough preparation through education and research.
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Focused Market Approach: The advice to start with one market and understand its "personality" aligns with my approach to trading. Specializing in a single market allows for a quicker grasp of its intricacies, enabling more informed decision-making.
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Preparation and Practice: The article recommends spending time tracking trades on paper and utilizing market replays before entering the actual market. This resonates with my belief in the value of thorough preparation and practice. It's crucial, especially for those aspiring to trade for a living, to be well-versed before facing the challenges posed by seasoned professionals.
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Technology and Platform: Acknowledging the role of technology, the article highlights the necessity of a trading platform with fast, reliable access and the right technological tools. In my journey, the right technology has been a game-changer, providing a competitive edge in the fast-paced world of futures trading.
In conclusion, the path to a successful trading career, as outlined in the article, is a multifaceted journey requiring a confluence of financial prudence, strategic planning, continuous learning, and technological acumen. Having navigated this path myself, I can confidently assert the validity of these concepts in the realm of trading futures for a living.
