How to Day Trade Futures

A futures contract is a binding agreement between two parties to buy or sell a specific quantity of a commodity at a specific price in the future. In the United States, futures contracts and future options are subject to the rules of a commodity exchange. As a private day trader, you cannot trade directly on an exchange. A person or firm must day trade for you and must be registered with the Commodity Futures Trading Commission (CFTC).

Difficulty:

Moderately Challenging

Instructions

Things You'll Need

• Individual account with a broker firm
• Commodity pool

1. Define your financial goals, including the amount of risk you are willing and financially able to take.

2. Open an individual account with a brokerage firm. In this type of account, the broker will trade for you, but you will make all of the trading decisions. The broker cannot execute any trades that you have not requested.

3. Join a commodity pool. You purchase a share or interest in the pool, and trades are executed for the pool, not for the individual. You will share ratably in gains or losses.

4. Read the risk disclosure statement your broker is required by law to provide you with. You must sign and date an acknowledgment that you received the statement before any broker can accept money, securities or property from you.

5. Check the registration status and disciplinary history of a broker or pool before you open an account. You can check this status on the National Futures Association website (see Resources below).

6. Pay close attention to news and weather reports. Weather predictions offer insights into how profitable the next crop of commodities--like corn, soybeans and sugar--will be. News about things like improvements in oil extraction techniques can change the price of oil and often in directions you didn't foresee.

Tips & Warnings

• Place stop/loss orders to limit your losses to a certain amount. A stop/loss order tells your broker to sell when the price hits a certain point. Place the stop/loss order when you place your primary order.

• Trading commodity futures and options is a risky and complex undertaking. Make sure that you have enough resources available to absorb the significant losses that often occur in the futures market before you begin trading.

• Although funds you have deposited in an individual account with your broker must be held separately from the firm's funds, your account is not insured. You may not be able to recover all or any of your money if the firm goes bankrupt.

Resources

• Check broker registration status at the National Futures Association.