Futures, Options Trading and Investing Book for Beginners and Beyond: Covers trading in the zone basics, options-indexes, technical analysis, us stock futures, call options, swing trading & more

Futures, Options Trading and Investing Book for Beginners and Beyond

Covers trading in the zone basics, options-indexes, technical analysis, us stock futures, call options, swing trading & more

Neil Hoechlin

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I. Who Trades Futures and Options?

Successful traders know how important it is to get connected through television, Internet, and other news sources to stay up-to-date. They need to constantly search for information, especially regarding current local and world events. Being a trader in general requires going beyond occasionally watching headline news shows. You will need to spend some time, money, and effort to prepare yourself for this endeavor.

To get started, you will need a computer, a brokerage account, trading program, and enough money to serve as capital and survival funds. In essence, all traders must make the necessary changes or their trading careers will be nothing more than just a quick endeavor. The ranks of futures traders are made up of persons who are interested in earning profit through the markets. To start trading futures and options, you must have a certain amount of knowledge, as well as financial and technological means.

Getting started

Your success will depend more on how well you prepare yourself intellectually, financially, technologically, and emotionally by developing a detailed, but easy to execute trading plan. A lot of experienced traders will say you need $100,000 to start trading, but the truth is that there are plenty of successful traders who started with less than that.

If you do not have that much cash, and are unsure how to proceed, then you need to reconsider trading, develop a solid trading plan, and practice discipline. You may also consider managed futures contracts. Make sure, though, that you have carefully studied and understood the risks involved, and that you are trading with realistic expectations.

You should also invest in an efficient computer system to help you look at huge amounts of data, and be able to run multiple – if not fully-loaded – browsers or monitors at the same time. A high-speed Internet is crucial, as well, since you might not be able to catch up with a terribly slow one. Full-time traders who are home-based can avail a high-speed Internet connection through Digital Subscriber Line (DSL) and cable television service. One of these two will serve as a backup, just in case.

Going short

This trading concept normally bothers stock investors because it means trying to make profit whenever prices fall. Going short involves borrowing asset from somebody, so you can sell it at a high price, and buy it back when the price falls. The asset will be returned to the lender, and you get to pocket the difference. It may sound confusing, but there are trading software available out there that simplify the process with a short-selling button.

In futures trading, all transactions involve traders who trade short, and those who trade long. You can bet on the falling market, as well, by using put options. These allow you to decide whether you wish to sell at a predetermined price prior to a certain future date once the put option contract has expired.

Managing your funds

To become a successful trader, you must have a sound fund management system that includes these three components:

>Having ample funds to start: You need enough funds for a good start. Undercapitalization is the number one reason why traders fail. Make sure you set aside the needed capital in order to keep trading.

>Setting attainable limits: You must set appropriate limits to determine how much you are willing to risk, how you will diversify your account, how and when you take profits, and how much you are willing to lose. This is important when it comes to successful trading. You can achieve this by developing, and regularly updating, your detailed trading plan, and applying techniques like stop-loss orders under your trades to limit your losses in case you made the wrong decisions.

>Preventing margin calls: A margin call happens when your account equity drops below critical levels. The margin levels vary, based on the contract you trade. Margin calls take place when you hold a position that falls in value beyond the exchange’s set limit. When this happens, your broker will ask you for more funding. Failure to provide the needed money, either by selling what is left of your widgets or wiring it, will force the broker to sell those widgets to raise money and your account becomes inactive until you have raised the amount required.

Studying your markets

One of the most crucial steps you can take to become a good trader is to develop a knack for studying the markets. It means you have to understand both the fundamental and technical aspects of each market with respect to the asset you are trading. While studying the fundamental aspects of a market may sound boring, the information that you will get can definitely boost your success rate. Monitoring various markets to see which ones are either moving or likely to move.

Assuming that you already understand the environment and the variables that influence market movements, you can now trade them. Knowing these factors will allow you to have more activity in your trading account. The only disadvantage is that you certainly will not be an expert in all markets when you are only starting. Do not feel disheartened by this, since you are going to take it one step at a time to limit your losses.

It is advisable to develop expertise in at least one or two markets, both on the fundamental and technical aspects, and exclusively trade them. You will get a good feeling for these markets’ subtleties, and your chances of success will likely increase. However, you may have some dead time or dull moments when your chosen markets do not move much.

Always remember that you will feel a surge of excitement when you are ready to trade. This is normal because the thrill of hunting is one of the major reasons why people trade. You will, however, need to temper this excitement and use it to your advantage. If you can manage the bliss of trading and use it to stay aware of what is happening around you, then you have a big chance of succeeding.

II. Understanding the Futures Markets

A futures contract is a form of security, conceptually similar to a bond or a stock, but with significant difference. For example, buying a stock means you are getting a part of a company, while acquiring a bond makes you a lender to a corporation or a government. While a stock makes