Is Trading Futures Risky Or Safe? See Why Its The Best High Yield Investment!

In my opinion the best high yield investment is futures, there's no doubt in my mind. But trading futures on your own with very little experience or without a long term strategy or a strategy that hasn't been tested is like running onto a battle field with a rifle and thinking "hey I have a rifle, I should be ok as long as I don't get shot at". This analogy sounds stupid but its what so many new traders do on a routine basis, and it's a routine bound for inevitable disaster. Futures have long held the stigma as one of the highest risk investments available, and understandably so with almost 95% of new traders entering the market losing most of their investment within 6 months of the day they started. But let me ask you this, if investing in futures were a guaranteed loser then why would there be any investors at all? The obvious answer is because that other 5% makes money and a lot of it! So the next thing you're probably thinking is aren't those 5% making money at the expense of the other 95%? In partial this is true. But mostly it has nothing to do with those other 95%, they just add more buyers and sellers to the market thus creating more liquidity and being able to get out of the market, this is similar to selling a house with numerous offers on it and having a market filled with buyers and sellers at the same time. The bulk of the futures market movement consists of hedgers and fundamental events that drive the majority of investors or hedgers to buy or sell, it's not so much about what newbie speculators do.

So now we're left with this question: how is the other 5% making money? The answer is simple they use software and back test their trading systems for spot on execution when entering and exiting the market. The popularity of automated trading systems has grown over the last 8 years with the bulk of orders no longer being phoned in but executed on a server. But this is a small part of the big picture. You still need to find a trading system that can withstand changing market trends not just designed to trade the current market. One of the key points that decide whether a system lasts or completely flops is the fact that a computer system isn't a person and won't change its pattern unless you tell it to. Once the trend dries up the system runs in direct defiance of the market patterns. For this reason my personal choice is to use a trading strategy that doesn't run contrary to the market. When the system sees the market moving hard in one direction or the other it gets in short or long accordingly. Trading futures has major advantages over traditional investments because your success isn't affected by a recession, you can trade both directions of the market and profit when it's losing as well as gaining.

Another widely misunderstood fact about futures is that you're not actually investing in anything. What a futures trading strategy really is "like the one I use" is actually just an equity machine. There is no waiting period to get your capital back, your money isn't tied up for more than a day, and you are leveraging a large volume tangible commodity or cash to your advantage. Allow me to explain: When you trade futures or forex you are trading a contract for a bulk order of currency or a commodity. The money that you have in your trading account is used as a good faith deposit just like earnest money on a house. When you initiate a buy or a sell in any of the futures markets you are using your earnest money to control that commodity or currency for a short period of time just as in the same way you have the right to buy or transfer the rights to a house you have a deposit on. When entering the market you are then hoping to take advantage of a price difference just like equity in a home and then sell back your contract for a profit. What's nice is that unlike home equity you can take advantage of the loss of value on a futures contract, the value will also change much much faster than a home even in one day, and the market is always liquid with plenty of buyers and sellers.

Good futures traders and commodity trading advisers tend to make nice returns because they are taking advantage of an asset they don't own for a short period of time. Now even a good trading strategy will lose once in a while, you can't get away from that, but if you've found a good strategy it should make you back 2 or 3 times its average loss. When you are choosing a system take a close look at the long-term chart. You want a system that will produce a nice steady growth not one that makes insane profits but yo yo's back and forth causing sleepless nights. Now you're able to see how you're not in it for the long term, you're just pulling money out of the market on a daily basis.

My recommendation to beginning traders is this, if your going to begin trading futures the best place to start is by finding a good CTA (commodity trading adviser) and having them manage your futures account. There are plenty of CTA's with good track records. Many CTA's use automated trading systems that they monitor and adjust themselves on an on a daily basis. Good CTA's know what trends to look for and adjust trading for your risk tolerance. A commodity-trading adviser has power of attorney on your account he does not have access to your funds. A third party clearing firm connected with the brokerage your using insures and holds the funds. Generally you have access to the funds within 1 business day.

So are Futures Risky or extremely profitable? I'll let you be the judge. Many financial advisers will steer you away from futures and for very good reasons as I explained above. But if you find a good trading strategy using the common sense parameters I gave you above you'll have the best high yield investment with a golden addition to your portfolio that will most likely outshine any of your traditional investments. And best part of all its performance won't have anything to do with the economy only its methodology.


Article Source: FxTradingStock.com

About the Author

If your looking for the best high yield investments, then visit www.phgfutures.com to find the best information on high yield investment accounts for your portfolio

by: Eric Christensen

Total views: 71 Word Count: 1095 Date: Sun, 20 Jun 2010

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