V.13:08 (337-341): Should You Trade Futures? by Jay Kaeppel

V.13:08 (337-341): Should You Trade Futures? by Jay Kaeppel

Here's some helpful advice to novices who are considering trading commodity futures. This should give you some idea of what's involved. And whether you should.

Each year, many individuals take a deep breath, open futures trading accounts and begin trading on their own. Their reasons for doing so are numerous and diverse, but they generally fall into one of several categories. For the most part, these individuals have:

• Had a lot of success in stocks, mutual funds or bonds and want to parlay their winnings by branching out into futures.

• Had some degree of success in stocks, mutual funds or bonds but have gotten bored. They want to try something.

• Had little or no success in stocks, mutual funds or bonds and figure they had better try something else.

• Heard of someone from somebody else who didn't know much about trading but made a fortune in pork bellies, cotton or some other market, and figure, "Why not me?"

Whatever the primary reason, in most cases it is the lure of easy money that draws people to the futures market. And in fact, they do come to the right place. Few areas of financial investment offer the potential rewards that successful futures trading can generate. Unfortunately, many new futures traders are so busy focusing on the "potential reward" part of the equation that they tend to overlook the "potential risk" downside. It is this failure to properly prepare for the potential pitfalls associated with futures trading that causes the high rate of failure among individual futures traders.

The first question that an individual who is considering entering the futures market should ask is not "How should I trade?" No, the first question to ask is, "Should I trade?" Before answering too quickly, most prospective new traders would be well served to consider the possibilities and pitfalls.