The realm of futures trading is exciting and filled with opportunities. Futures trading can make great profits with diligent planning, risk management, and market dynamics. On the contrary, mistakes can be extremely costly when you trade futures online.
Going ahead with a well-thought-out, backtested trading plan and strategies can give you an upper hand in futures trading. This article discusses the 5 best strategies to trade futures online.
Top 5 Best Practices to Trade Futures Online
As a futures trader, having a strong understanding of market dynamics and following certain best practices can help you navigate the complex world of futures trading.
1. Have a Trade Plan
Planning your trades carefully before entering any position is a best practice every futures trader should follow. To plan your trade implies that you won’t be making hurried decisions when in the market with your money at stake.
You must have a profit objective and an exit plan if the trade turns against you. Calculate your moves rather than be ruled by emotions or greed when placing orders or exiting a position.
Use risk management tools like stop loss, bracket orders, etc., when trading futures to limit risk. One-Triggers-Other (OTO) order allows you to simultaneously place a protective stop and primary order.
2. Don’t Try to Trade Too Many Markets
Futures trading requires considerable time and energy. You would have your hands full studying a few markets. Therefore, refrain from trading too many markets to not lose on the opportunities that come your way.
Similarly, limiting your trade to just a single market isn’t a good approach either. There are benefits for diversifying your futures trades too. You can benefit from the arbitrage and offset losses from one market with a gain from another.
3. Take Small Step at a Time
Even if you are a seasoned trader, begin slowly. Don’t put all your money in one go in futures contracts. Develop a trading methodology first to manage large positions.
If your trading strategy works well for you, increase your order size. Downsizing your contracts when needed is also prudent when you hit a rough patch.
4. Hedge Your Positions
Trading opportunities arise in both rising and falling markets. Consider going short of your existing trading positions based on market conditions.
For instance, if the market direction has changed and the price of a particular security you are long on is likely to go down, you can enter a short position, hoping to buy back the futures contract later at a profit when prices fall further down. This way, you can limit the downside risk. However, this technique requires a deep understanding of the market.
5. Cut Your Losses
It is prudent for a trader not to get lost in the market action or lose sight of the long-term picture. Keep a tab on your working orders and open positions. Being patient doesn’t mean you get emotionally attached to a position that isn’t working in your favor. This will result in nothing else but you receiving a margin call.
Thus evaluate your position and, if needed, consider taking an exit. This will help you cut your losses, and you can start looking for the next trading opportunity.
The above best practices to trade futures aren’t exhaustive but are valuable for derivatives traders. Derivative trading differs from regular stock trading and requires a deeper understanding of markets’ operations.
If you are a derivatives trader looking to facilitate your futures trading journey, your search ends with Dhan. Dhan offers great features, including a lightning-fast futures trading app to help you smoothly sail through the world of derivatives.