When you hear about the kinds of profits that traders can make you may want to get into Futures Trading. Let’s look at what kinds of things you can trade, what sorts of profits are possible and how much to Start Futures Trading. Investopedia provides a beginner’s guide to trading futures.

While futures can be used to effectively hedge other investment positions, they can also be used for speculation. Doing so carries the potential for large rewards due to leverage but also carries commensurately outsized risks. Before beginning to trade futures, you should not only prepare as much as possible, but also make absolutely certain that you are able and willing to accept any financial losses you might incur.

Because futures contracts are large how much to start futures trading can be quite a bit.

Agricultural Commodities, Interest Rates, Energy Products, Precious Metals

Futures are traded on gold, oil, natural gas, corn, soybeans, interest rates and many more. Go to the CME Group site and you can look at live cattle futures, lean hog futures or class III milk futures. Live cattle futures are traded in 40,000 pound lots in cents per pound. June 2016 futures are settling for $1.20 pound which makes a 40,000 lot worth $48,000. Multiply that by the number of lots you want to trade and you start to see how much to start futures trading.

Margin Accounts

How much to start futures trading is the initial Margin and how much to continue trading is the maintenance margin. The Options Guide explains futures margins.

Initial Margin

Before a futures position can be opened, there must be enough available balance in the futures trader’s margin account to meet the initial margin requirement. Upon opening the futures position, an amount equal to the initial margin requirement will be deducted from the trader’s margin account and transferred to the exchange’s clearing firm. This money is held by the exchange clearinghouse as long as the futures position remains open.

Maintenance Margin

The maintenance margin is the minimum amount a futures trader is required to maintain in his margin account in order to hold a futures position. The maintenance margin level is usually slightly below the initial margin.
If the balance in the futures trader’s margin account falls below the maintenance margin level, he or she will receive a margin call to top up his margin account so as to meet the initial margin requirement.

If a trader receives a margin call and cannot add money to his Margin Account the broker holding the account will exit the trade and close the account taking all available assets to satisfy the trader’s debt to the account. Because it is extremely unlikely that the value of oil, corn, soybean or gold will drop to zero traders can use a margin account to leverage their trading capital. Commodity futures trading is often very profitable because prices for corn, wheat and soybeans can be very volatile. The Alberta Agricultural Marketing Guide provides a good example of trading grains on margin. In this case farmers use futures as a hedge to protect their profits but can also make money by speculating.

How Much to Start Futures Trading PPT