10 Tips Every Futures Trader Should Know

10 Tips Every Futures Trader Should Know

This list of tips and pointers may help new traders improve their trading experience in futures markets.

Even longtime traders may benefit from revisiting this list from time to time, since we all know how easy it is to form bad habits. So, whether you’re just beginning to learn how to trade futures – or a sophisticated, experienced veteran - we encourage you to read this list carefully.

Come back from time to time – these trading suggestions will never go out-of-date and will be just as valid in 10 years as they are today! 


The number one tip on our list simply can’t be repeated often enough: Plan your trades carefully before you establish a position in the market. This means having not only a profit objective, but also a point in mind where you’ll exit a losing trade.

Developing a trading plan in advance helps you minimize situations where you’re forced to make important decisions when you’re already in the market, with money at risk, and when natural human emotions (fear and greed, in particular) can influence you. You need to make important trading decisions in a calm, rational way – not under stress and pressure. In a nutshell, plan in advance.


At the risk of being at least partially repetitive, always know the point at which you’ll throw in the towel and exit a trade that’s simply not working as you’d hoped. Of course, we all enter new trades with the hope and expectation that they’ll be profitable. But the fact is, futures trading involves risk, and not all your trades will be moneymakers. So decide on your bailout plan before entering the market.


Always trade with protective stop-loss orders. In other words, once you’ve decided on your bailout point, set a stop at that price. This means setting a real stop order in the market – too many traders try to use “mental stops,” and even for the most disciplined traders, these are too easy to ignore.

Charles Schwab Futures offers One-Triggers-Other orders, which allow you to place your primary order, as well as a protective stop, at the very same time. When the primary order is filled, the stop order will be automatically activated on your behalf. This frees you from having to constantly watch the market, and it relieves you from having to worry about entering your stop order at the right time. We encourage you to take advantage of this powerful feature.

Just remember, though, that stops are not a guarantee against losses – markets can sometimes move quickly through them. But there’s no doubt that picking your bailout point ahead of time, and trading with stop orders, is of vital importance.


Don’t spread yourself thin by trying to follow and trade too many markets. Most traders have their hands full keeping abreast of a few markets. Remember that futures trading is hard work and requires a substantial investment of time and energy. Studying charts, reading market commentary, staying on top of the news – it’s not easy. If you try to follow and trade too many markets, there’s a good chance you won’t give any of them the time and attention they require. For most traders, 6-8 markets is about the maximum they can reasonably track.


Though you don’t want to try to follow too many markets, the opposite is also true – trading just one market may not be a terrific approach, either. Just as diversification in the stock market has well-known benefits, there might be advantages to diversifying your futures trading, too. For instance, suppose you expected gold prices to decline, but it turns out that you’re wrong. But you also expected the cocoa market to rally, and this proves to be correct. In this case, the gains on your cocoa position make up for (hopefully they more than make up for) your losses in the gold market. If you’d traded only gold futures, you might have been in bad shape. As the old saying goes, don’t put all your eggs in one basket.


If you’re a new trader, start slowly. There’s no reason to begin trading 5 or 10 contracts at a time when you’re just beginning. Don’t make the beginner’s mistake of using all the money in your account to purchase or sell as many futures contracts as you absolutely can. Occasional drawdowns are inevitable, so you should avoid establishing a large position where just one or two bad trades can wipe you out. Start with 1 or 2 contracts, and develop a trading methodology, without the added pressure that comes with larger positions. Tweak your trading as necessary, and if you find a style and strategy that’s working well, then consider increasing your order size.

In some cases, exchanges offer mini futures products that are identical to standard futures products – except that they’re smaller. The CME Group, for instance, offers an E-mini S&P 500 futures contract that’s identical to its flagship S&P 500 futures contract, except for the fact that the E-mini is just one-fifth the size. There are mini products in the grains, energies, and metals, too. You might consider starting with mini contracts, then slowly increase your order size, and finally, think about trading the standard contracts.

Buy or sell 

Trading opportunities present themselves in both rising and falling markets. It’s human nature to look for chances to buy, or “go long” the market, but if you’re not also open-minded to “going short” a market, you might be unnecessarily limiting your trading opportunities. Remember that with futures, it’s just as easy to sell (“go short”) the market as it is to buy (“go long”) the market. You can buy first, and then sell a contract to close out your position. Or, you can just as easily sell first, and later buy a contract to offset your position. Whether you buy first and sell later, or sell first and buy later, you’ll have to post the required margin for the market you’re trading – there’s no difference at all. So, don’t overlook opportunities to go short!


Don’t get so wrapped up in market action that you lose sight of the larger trading picture. As a self-directed, online trader, it’s true that you should conscientiously monitor your working orders, open positions, and money balances. But don’t hang on every uptick and downtick in the market. Not only can you drive yourself crazy, but you can be thrown by little market zigzags and whipsaws that appear formidable and significant at the moment but which, in retrospect, were only small, intraday blips. In other words, try to maintain a little longer-term perspective. Hyperactively trading in and out of the market many times each day is a strategy that works well only for a very small percentage of traders. You might be more successful by lengthening the duration of your trades, rather than “daytrading” excessively.


If your account should happen to go on margin call, you’ll have two ways to meet the call. First, you can wire transfer additional funds, so that your account equity is brought back up to at least the initial margin level. Or, you can reduce your open positions, thereby reducing your margin requirement until your account equity is greater than or equal to the new initial margin requirement. But think about this: If your account does go on margin call, it’s probably because you’ve stayed with a losing trade too long. It may be smarter to exit the losing position, rather than wire transfer additional funds to continue holding the position. Consider the possibility that your margin call is a wake-up call that you’ve become emotionally attached to a position that’s not working as planned. Remember, when trading futures, it’s important to pull the plug on losing trades sooner rather than later. “Cut your losses” is an old futures trading expression. Look for the next trading opportunity.


Futures trading isn’t easy, and you should take full advantage of every tool and resource at your disposal. Just choosing Charles Schwab Futures to be your futures broker is a definite step in the right direction. We offer a comprehensive package of quotes, charts, news, research, and much more, including all the educational materials on our website.

The most valuable asset you’ll have in your corner, though, is the Charles Schwab Futures customer service team. Our futures desk is staffed 24 hours per day during the trading week, and we’re here to help you in any way possible. Whether you have a question about how to enter an order, you’d like a 15-minute platform walk-through, or you’re confused about how margin requirements work, please don’t be afraid to ask for help – that’s why we’re here!


Want to learn more about trading futures at Schwab? Call the Schwab concierge team at 877-903-7544.