Octavia Trades
Beginner’s Guide to Futures Trading
Futures trading can seem complex at first, but with the right knowledge, it becomes a powerful tool for income,
speculation, and portfolio diversification. This beginner’s guide will cover the basics to help you get started and
provide resources for easier learning.
What are Futures Contracts?
A futures contract is a legal agreement to buy or sell an asset (like commodities, currencies, or stock indices) at
a predetermined price on a specific date in the future. These contracts are standardized and traded on exchanges
like the CME Group (Chicago Mercantile Exchange).
Example:
- You agree to buy 1000 barrels of oil at $70/barrel, to be delivered in 30 days.
- These contracts let you profit/lose from price changes.
Why Trade Futures?
1) Leverage:
- Control large amounts of an asset with a relatively small margin deposit, amplifying potential
gains/losses.
2) Hedging:
- Protect against price fluctuations in assets (e.g., farmers locking in crop prices).
3) Speculation:
- Trade based on expectations of market movement without owning the actual asset.
Key Futures Terminology
Margin:
- The amount of capital required to open a position. Learn more about futures margin at CME Group:
[Link]
Tick Size:
- The minimum price movement for a contract (e.g., 0.25 points in the S&P 500 futures).
Contract Size:
- The amount of the underlying asset in one futures contract (e.g., 1 S&P 500 futures contract equals $50
times the index value).
Expiration Date:
- The date when the futures contract is settled.
Roll Over:
- Moving your position in the next contract month as expiration nears.
Popular Futures Contracts
- Stock Index Futures: S&P 500 (ES), Nasdaq (NQ)
- Commodity Futures: Crude Oil (CL), Gold (GC)
- Currency Futures: EUR/USD (6E)
- Treasury Futures: U.S. Treasury Bonds (ZB)
Steps to Start Futures Trading
1) Learn the Basics:
- Study resources like CME Group’s Beginner’s Guide to Futures:
[Link]
2) Choose a Broker:
- Select a broker specializing in futures (e.g., NinjaTrader, Tradovate).
3) Understand Margin Requirements:
- Brokers require a minimum margin to open and maintain positions. Check the CME Group Margin
Guide: [Link]
4) Study Charting Fundamentals:
- “FULL Futures Trading Guide for Beginners in 10 Minutes”:
[Link]
- “How to Read Candlestick Charts (with ZERO Experience)”:
[Link]
- “Basic Market Structure Course for Beginners”: [Link]
5) Develop a Strategy:
- Go through some strategies on YouTube and pick ONE that you like. Once you decide on one (e.g.,
supply and demand), really study it.
6) Study the Market:
- Download a platform to chart on (e.g., ThinkorSwim, TradingView) and study what you’ve learned
by watching price.
- ThinkorSwim: [Link]
- TradingView: [Link]
7) Practice with a Demo Account:
- Most brokers (e.g., Tradovate, NinjaTrader) offer simulation accounts to practice without risking
real money.
- Open an account, apply your strategy, and practice paper trading.
- Tradovate: [Link]
- NinjaTrader:
[Link]
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Risk Management in Futures Trading
1) Set Stop-Loss Orders:
- Define how much you’re willing to lose on a trade to protect your account.
2) Use Proper Position Sizing:
- Risk only a small percentage of your capital per trade.
3) Avoid Overleveraging:
- High leverage magnifies losses as much as gains.
Common Mistakes to Avoid
1) Overtrading:
- Don’t force trades. Wait for high-probability setups.
2) Ignoring Margin Calls:
- A margin call occurs if your account falls below the maintenance margin. If you are trading your
personal capital, ensure you always have enough funds.
3) Trading Without a Plan:
- Always define entry, exit, and risk management rules before taking a position.
Essential Resources
1) CME Group Education Center: [Link]
2) Books:
- Trading in the Zone by Mark Douglas
3) Websites and Tools:
- [Link]
4) Communities:
- Join Discord servers, forums, reddit threads, or follow knowledgeable traders on social media to
learn from others. Avoid Discord servers that give out trade alerts/signals.
Next Steps
Futures trading requires time and discipline to master. Start small, focus on education, and practice before
committing significant personal capital. With persistence and a well-thought-out strategy, you can take
advantage of the flexibility and opportunities that futures trading offers.
Prop Firms: What You Need to Know
Proprietary trading firms, or “prop firms,” are companies that allow traders to trade using their capital. In
exchange, traders split a percentage of the profits with the firm. While prop firms can provide a pathway to
trading larger accounts, they are not suitable for beginners and should ONLY be considered by experienced
traders.
What are Prop Firms?
Prop firms evaluate traders through assessment programs (i.e., challenges, evaluations, combines). If you pass
their evaluation, you’re given access to trade a funded account.
- My Funded Futures (MFFU): [Link]
- TopStep: [Link]
These firms typically offer leverage, making it possible to trade larger positions than you could with personal
funds.
Why Prop Firms are Only for Experienced Traders
1) Strict Rules:
- Prop firms have tight risk management rules, including daily loss limits and maximum drawdowns.
Violating these rules results in disqualification or loss of funding.
- For example, if you exceed the drawdown limit, even on a winning streak, your account will be
terminated.
2) Evaluation Challenges:
- You must pass their challenges, which often require hitting profit targets within a set timeframe
while adhering to risk rules. These challenges test not just your strategy but also your ability to
handle psychological pressure.
3) Psychological Pressure:
- Trading someone else’s capital is stressful, especially when you know that a mistake could mean
disqualification. This added pressure often leads to poor decision-making, especially for less
experienced traders.
4) No Room for Trial and Error:
- Unlike trading with your own funds, you cannot afford to experiment or learn on the job with a prop
firm account. Only traders with proven strategies should apply.
Who Should Use Prop Firms?
Prop firms are ideal for traders who:
- Have a consistent and proven trading strategy.
- Understand and apply strict risk management rules.
- Are comfortable with the emotional demands of trading.
- Have experience trading similar instruments in live markets.
Why Beginners Should Avoid Prop Firms:
- Lack of Experience: Without a tested strategy and discipline, beginners are likely to fail the evaluation
or lose funding quickly.
- Costly Mistakes: Most firms charge fees for evaluations, and repeated failures can become expensive.
- Better Learning Environments: Beginners should focus on developing skills through demo accounts
before attempting prop firm challenges.
