Trading Futures for a Living

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

How to trade futures for a living

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

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.

Futures Trading Pack

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. Using market 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 CenterRJO Futures is your one-stop brokerage for futures trading education. You can use our resources to build your trading knowledge, and learn to trade futures and options on futures for 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.

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The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgement at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

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