When you’re new to futures trading, the learning curve can seem steep, but having a solid grasp of futures trading basics can make your journey a little smoother. Here are three essential concepts every new futures trader needs to know to get started on the right foot.
Watch Now:
In the livestream above, Traders Army Founder Chuck Fulkerson discussed many of the key elements and concepts new futures traders need to understand before trading with real dollars. Chuck also talked through how to become a more strategic trader with the support of technical analysis. Learn how traders need to design their own pathway and plan for success and long-term consistency.
Key topics covered:
- Understand the key elements of futures trading
- Become a more strategic trader
- Focus on risk management at the start
Getting Started Trading Futures
Here are three foundational topics to get you started. The idea here is to master futures trading basics and ramp up your knowledge so you can avoid costly mistakes and pitfalls.
#1: Understand How Futures Contracts Work
A futures contract is an agreement to buy or sell an underlying asset at a predetermined price on a specified future date.
Each futures contract market comes with a unique set of contract specifications that defines how each one is traded.
- Expiration and settlement: Futures contracts have expiration dates, meaning you need to decide whether to roll over (extend your position) or close before expiration. Some contracts settle in cash, while others settle in the physical delivery of the asset.
- Margin and leverage: Margin requirements are relatively low compared to the contract size, which is where leverage comes into play. As a new trader, start by understanding margin rules and avoid overleveraging your positions for your account size. It’s crucial to remember that while you can make big profits, large losses are equally possible.
- Tick size and value: Each contract moves in specific increments, known as ticks, worth a set amount of money. You need to know the unique tick size and dollar value for every futures market you’re trading so you can calculate the potential gains or losses with each trade.
#2: Focus on Risk Management and Position Sizing
As you learn more futures trading basics, you’ll find that risk management is key to longevity in futures trading. You cannot trade if you blow out your account. Practicing and refining your trading plan in a simulator is a must for new traders. Once you can prove you can be consistently profitable, start with small trade sizes and work your way up.
- Define your risk per trade: Once you start trading with real dollars, establish a percentage of your account that you’re willing to risk on any one trade—many traders recommend less than 1% to start. This allows you to keep losses manageable while protecting your capital.
- Use stop-loss orders: A stop-loss order can automatically close your position if the market moves against you by a set amount. This is a vital tool for minimizing losses and can help prevent emotional decision-making, a common pitfall for new traders.
- Determine position sizing: Position sizing is essential to maintaining consistent risk across trades. Determine the appropriate size of each trade based on your account size, risk tolerance, stop-loss amount, and market volatility.
#3: Develop a Plan and Stick to It
Many new traders start without a plan, relying instead on gut feelings or tips from others. However, having a defined trading strategy is crucial to consistent long-term success in the highly leveraged and volatile environment of futures.
- Choose a time frame and stick to it: Decide on the time frame that suits your personality and availability. Day traders focus on short intervals, while swing traders might hold positions over several days. Matching your strategy to your lifestyle can reduce stress and improve focus.
- Backtest and sim/paper trade: Before risking real money, backtest your strategy on historical data and practice it in a simulated trading environment. Many platforms like NinjaTrader offer sim trading or “paper trading,” allowing you to test your approach without financial risk, build confidence, and refine your strategy.
- Stay disciplined: Once you’ve developed a solid plan, discipline is critical. Futures markets can be volatile, and it’s tempting to abandon your strategy mid-trade. However, sticking to your tested approach often pays off in the long run with a smoother equity curve. Make your adjustments systematically, not impulsively, based on data and experience.
Set a strong foundation for future(s) success
Getting started in futures trading requires a blend of knowledge, experience, discipline, and patience. By mastering futures trading basics—including understanding how futures work, practicing sound risk management, and committing to a well-defined strategy—you’ll set a strong foundation for your trading journey. Remember that every successful trader started where you are now. So, keep learning, stay focused on what’s important, and manage your risk carefully as you grow your skills in the world of futures trading.
Unlock Free Exclusive Training
Explore the foundational concepts of technical analysis with our free multi-video trading course “Technical Analysis Made Easy.” Learn how to analyze and anticipate market movements using market prices, volume data, and more.
We’re Live Every Trading Day
Prep for the trading day ahead, analyze the markets in real time, and explore our award-winning platform during our daily livestream. Watch live here or catch what you missed on our YouTube channel.
Trade Futures with NinjaTrader
Haven't signed up for your free NinjaTrader account yet? Get started today with a 14-day trial of live simulated futures trading.
