I would like to offer some advice for those who are starting out in the futures trading game. Many may have traded equities already and are thinking of trying their hand at futures. Alternatively, you may have heard about the large potential gains that can be made trading futures and you want to know more. Anyway, here is some advice for those that are starting out that I hope is useful.

Leverage is a Double-Edged Sword
The idea of having control over large amounts of equity with little money down as deposit is very exciting and can lead one to start imagining great quantities of wealth that is just about to be yours for the taking. Well, just remember that you make a lot of money if a trade goes in your favour but you lose a lot if it goes against you! It is very much a double edged sword and I would urge caution when you first start out.

Trade Small Amounts with Adequate Capitalisation
When you first start out you will be relatively inexperienced and will naturally enough make mistakes. It is important that these mistakes don't take such a large amount out of your trading equity that you are either too broke or dispirited to want to continue. This means that you should trade very small amounts when you start out and that you should have a reasonably large amount of starting capital so that a few early losses don't set you back too large a percentage of your account. A friend of mine who is a professional money manager once said to me that one should always trade such as small amount that it almost doesn't seem worth it. That way one is not paniced into making foolish decisions. A professional trader might typically risk less than 1% of equity on any given trade. That way you can afford to get it wrong many times without going bust.

There is no substitute for experience
Basically you are going to have to learn how to trade successfully, so stick with it! It is said that about 90% of all private futures traders stop trading within a year. This is either because they get dispirited with not succeeding or because they've lost too much money. If you want to succeed you have to stay around long enough to learn how to do it!. This is why the previous paragraph on trading small amounts is so important: because you need to survive long enough to learn how to succeed.

Futures Trading is Like Natural Selection: Survival of the Best Traders!
Since futures trading is a zero sum game (before costs such as commissions are considered), those that win do so at the expense of those that lose. Those that lose eventually drop out of the game to be replaced by newcomers to the game. This means the bad traders are weeded out and only the good ones tend to survive and flourish. This means that when you join the game you are basically playing against a few top class traders who have been around long enough to learn how to succeed. This is why the percentage of failure in futures trading is so high, rather than being more of a 50-50 proposition.

Paper Trading or Simulated Brokerage
Before starting it is worth while spending some time paper trading. That is, deciding when to buy and sell and making a note of the profit or loss on paper rather than actually doing the trade with a broker. You will need to be very disciplined in order for it to be realistic. It is no good saying "Oh well if I had stayed around watching the markets I would have bought there" etc. You may well decide that you will not start with real money until you are doing well enough on paper. A word of warning, it is far easier to do it on paper than for real. When there is real money at stake there is a whole new dimension to the game. One way of making things more realistic is to use a simulated brokerage service where you actually phone in your orders to a broker who will give you a realistic fill price and keep track of your accounts for you. That way there's no cheating. See for example AudiTrack whom I can recommend.

Read Books
There are no end of books on trading for you to read. Many of them are useless but there are some very good ones out there. See for example the book reviews and the publications pages.

Don't Believe the Hype
There is a whole industry out there making money from selling traders systems, books, tapes etc for what can be very large amounts of money indeed. In all such cases you have to ask yourself, "if it is really that good then why are they selling it?". It is not for altruistic reasons but because it is far easier to make money selling systems then trading them. Having said that there are some genuine and honest vendors out there. However, there is never going to be any substitute for experince and there is no easy way to make money trading.Caveat Emptor