Stocks & Commodities V. 25:1 (74): Futures For You by Dan O誰eil
INSIDE THE FUTURES WORLD
Want to learn how the futures markets really work? Dan O誰eil, a principal at online futures and forex broker XPRESSTRADE (www.xpresstrade.com), responds to
your questions about today痴 futures markets. To submit a question, post your question to our website at http://Message-Boards.Traders.com. Answers will be
posted there, and selected questions will appear in a future issue of S&C.
STOP BEFORE THE RED
Q: How important are stop orders in futures trading?
A: Most successful traders agree that good risk management is essential in the futures markets. To this end, trading with protective stops is an integral part
of a disciplined trading methodology. While some traders avoid using stops for fear of being taken out of a good trade too early, the risk of inaction is often far greater. A stop is an order that becomes a market order when the futures contract reaches a particular price level; a sell-stop is placed below the market, while
a buy-stop is placed above the market. The underlying idea is to minimize losses should the market turn against you.
In recent years trailing stops have gained in popularity because they allow the trader to profit from favorable
movement in the market while also having protection in place. A trailing stop is usually entered with a primary
order to establish a new position. It is not entered at an exact price, but rather at a specified distance from the price at which the primary order will be filled. Once the primary order is executed, the trailing stop will begin to work according to market fluctuation.