Futures traders are not swamis sitting in mystic shops gazing into crystal balls. They are traders who buy and sell commodities such as corn, wheat and soybeans that have not yet been planted, harvested or moved to market. It is the contract for these goods that is being sold- if the trade occurs after the crop is brought in out of the field it would be a commodities trade. Future traders make their money by making a contract with a farming outfit for a certain amount of a crop, at a specified grade, at a set time. If the farmer has surplus of his group after fulfilling his contractual obligations to the futures trader, then he can sell this to whomever he chooses.
Futures trading is about having a little bit of luck, but it is a lot more about having knowledge. To be a successful futures trader you must know a bit about the crop you deal with, the climate in the area that you are dealing with, and the predicted weather patterns for the growing season. There is no sense in investing a ton of money in corn, for instance, if a low season is expected because of repeated flooding. Know that futures trading is a risky venture, even under the best conditions, and that even if you look carefully at every factor, there are twists of fate that nobody can predict or prepare for. What if there is an infestation of parasites in the crop you just sunk your life savings into? Not only will that farmer not make contract, you will have just lost all of your trade capital to boot.
Futures trading is probably best left to the bigger traders and the speculators to deal with. Venture capital is becoming harder and harder to come by, and losing once in the futures market can spell the end of a trading career. It is hard to face, but sometimes it is better to stay out of the game then it is to lose your entire financial standings because of a freak storm or other tragedy.
If you insist on futures trading despite all of this then you must keep in mind that diversification might be the key to keeping your head above water when everyone else is sinking. Do not sink all of your money solely in corn for instance, if there is a chance that corn will perform badly this season. Split your trades between corn and soybeans evenly, or at a percentage that will allow you some degree of comfort if one of those should happen to falter on the open market.
Sunday
Understanding the Rules of Day Trading
To understand the concept of day trading power, you must know a few other key facts first. The definition of what a day trader is and what constitutes a day trade are probably the most important to understand. Day traders are, simply put, traders who do daily trades that are online, with short term investments. Day trading power is the limit of the amount of these trades that can be done by an individual trader, which also includes a minimum amount of trades that can be transacted per day. Figuring the amount can be complicated and for this reason, it is advisable to get your feet wet in the field of stock trading with the guidance of a certified stock broker who can worry about the rules governing trades, whether they qualify as day trades and therefore culpable under the day trading power rules or not.
Once a trading account has been designated as a day trader account, you must calculate the day trading power of that account. That formula is fairly complex, and again is not something that the average novice trader will be well informed about. Unless you are a financial whiz kid or a math expert, this is probably one realm that you want to leave to the trained and paid professionals.
If you are at all curious about what this formula for calculating day trading power and day trading buying power is it goes like this:
4X Maintenance Excess = DTBP.
For those of you currently scratching your head, you must also figure what maintenance excess as well. That calculation is:
Total Positions + Total Cash = Total Equity
Total Equity-Non-Margin Positions= Margin Equity
Margin Equity-Maintenance Requirement= Maintenance Excess
These figures are based on the previous day's closing prices.
Along with figuring DTBP and knowing what makes a trade account a day trader account, you must understand the minimum equity requirements for such an account. In most cases that amount is fairly substantial at $25,000, and can be as much as $5000 more than that. If your day trading account goes below that minimum equity requirement, then you will be issued a "call" to bring it up to minimum, if not, your trades left in the account can be liquidated. Your day trading power can only remain operational if you maintain your minimum equity requirement and your trading activity remains within the set limits.
Once a trading account has been designated as a day trader account, you must calculate the day trading power of that account. That formula is fairly complex, and again is not something that the average novice trader will be well informed about. Unless you are a financial whiz kid or a math expert, this is probably one realm that you want to leave to the trained and paid professionals.
If you are at all curious about what this formula for calculating day trading power and day trading buying power is it goes like this:
4X Maintenance Excess = DTBP.
For those of you currently scratching your head, you must also figure what maintenance excess as well. That calculation is:
Total Positions + Total Cash = Total Equity
Total Equity-Non-Margin Positions= Margin Equity
Margin Equity-Maintenance Requirement= Maintenance Excess
These figures are based on the previous day's closing prices.
Along with figuring DTBP and knowing what makes a trade account a day trader account, you must understand the minimum equity requirements for such an account. In most cases that amount is fairly substantial at $25,000, and can be as much as $5000 more than that. If your day trading account goes below that minimum equity requirement, then you will be issued a "call" to bring it up to minimum, if not, your trades left in the account can be liquidated. Your day trading power can only remain operational if you maintain your minimum equity requirement and your trading activity remains within the set limits.
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