Risk Management for Futures Trading

Define Your Risk Management Strategy To Protect Your Account

Trading futures carries a significant degree of risk, making a risk management plan a critical component of any trading plan and strategy. Effectively managing risk is often the difference between success and failure and can help reduce stress when trading. 

Let’s explore the types of risk management available in futures trading, along with tools and considerations that should play a part in any successful risk mitigation strategy. 


Two Main Types Of Risk Management In Futures Trading

As a reminder, traders should only trade with risk capital. Risk capital is money you can afford to lose without affecting your lifestyle or changing your retirement horizon. 

Bank

Account-Level Risk

Many traders choose to risk only a small percentage of their total account equity on any one trade. This risk management concept is called “fixed fractional.” For new futures traders, starting with a smaller trade size can help reduce overall financial risk until they can manage trades consistently and are comfortable trading in a live market environment.

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Trade-Level Risk

At the trade level, stop-loss orders play a key role in many risk management strategies to help prevent an unfavorable trade from becoming an unmanageable loss. A stop-loss order refers to any order that closes out a position when the price moves against you. A safety stop should provide a reasonable risk-reward profile that limits losses but also provides some room for price movement against the position without being stopped out consistently. 

Customize Risk Settings For Your Brokerage Account

NinjaTrader brokerage clients can take advantage of customizable settings to help manage their account-level risk.

Profit Targets

Profit targets are calculated on net profit and loss and calculated in real time. You can set up a daily or weekly trigger based on your targets and objectives.

Loss Limits

Loss limits are calculated on net profit and loss and calculated in real time. You can set up a daily or weekly limit based on your risk parameters.

Trailing Max Drawdown

Both end-of-day and real-time trailing max drawdown calculations can be enabled to help you track account activity versus your risk preferences.

Key Considerations To Include In Your Risk Management Strategy

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Trade Sizing

Determining the appropriate trade size for your account can help you avoid significant losses, allowing you to build your trading experience. Micro futures contracts are 1/10 the size of traditional E-mini contracts, allowing traders to start small and scale up as they increase their live trading experience. Traders who are struggling to reach consistency should limit the number of contracts and markets they are actively trading to allow for focus and reduce their overall account-level risk. 

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Diversification

Futures products span the globe across index futures, currency futures, and leading commodities. By diversifying trading across different types of uncorrelated futures contracts and markets, traders can reduce their overall risk exposure to highly correlated markets all moving in the same general direction—like major market indexes, bonds, currencies, and other markets. 

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Market Environment

Traders need to pay close attention to news stories, government reports, and other events that may move the market significantly. There are many online resources available for traders to monitor noteworthy news stories and their potential impact on key markets, including NinjaTrader’s daily livestreams at the market open and close. 

Automate Stops And Targets With Advanced Trade Management

Advanced trade management (ATM) is a key element of NinjaTrader Desktop’s powerful order entry features, providing semi-automated trade functionality to help keep traders focused on their goals. 

ATM strategies manage positions automatically to reduce the impact of emotions on trading decisions. Within milliseconds of entering a position either long or short, stop-loss and take-profit orders are submitted based on predefined settings. Capabilities available through ATMs include: 

  • Predefine stops and targets to bracket positions 
  • Use multiple targets and stops to scale out of a position 
  • Create custom stop strategies for stop-loss orders 
  • Personalize strategy templates for easy access and repeat use 
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