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Tips For Trading Futures

To some, living in Phoenix, AZ  the stock market may seem as mystical as voodoo, or are unpredictable as the weather, especially something with the mysterious name “futures.” But in reality futures trading, while complex, can be very rewarding, especially for those that make smart, calculated risks and know how to manage their investments wisely.

If you’re thinking of futures trading in Phoenix, AZ there are a few basic tips you should be following to get ahead. But first, the basics.

What’s Futures Trading?

A future is a class of trading known as a “derivative,” where the price of futures is derived, that is dependent and calculated, based on something else, such as commodities like wheat or oil, or even stocks like Amazon or Ford. Futures are based on an agreement to buy a set amount of an asset at a specified price and date. So rather than agreeing to buy 10000 shares in Apple today at the current price of $120 per share, you agree to buy 10000 shares of Apple a year from now, at an agreed price of $100 per share.

Trade Intelligently

The most important tip when it comes to trading in futures is to make sure you understand the market upon which your futures are based. If you trade in currency futures, study the currency markets, understand what economic and geopolitical forces shape the rise and fall of currency value. If you trade in commodities futures, understand what raises and lowers the price of wheat, or gold, or petroleum. If you trade in technology futures, understand the major players in the market, their projects that may yield innovations, and their executives that may help or hurt a company’s fortunes by retiring or defecting to another company.

Know When To Cut Your Losses

One of the biggest errors that futures traders make is being stubborn about refusing to acknowledge when it’s time to quit. If the price of an asset is dropping, some traders will continue to hold onto that asset, convincing themselves that there will be a rally and that the price will rise again, and they will eventually reap a return on their investment.

This type of thinking only makes sense if, as with real estate, you’re willing to hold onto investments for potentially years. With something as volatile as the stock market, it’s often better to set your own “stop loss” point, where, if the price drops below a certain point, you automatically sell  the stock and minimize your losses, rather than continue to watch those losses grow as you hold onto assets whose value may never recover.

Always Think Independently

It’s easy for traders in Phoenix, AZ to chase trends, but it’s important not always to be a follower. Don’t just keep switching investments and interests based on the latest article you’ve read in the business news. Cultivate a specific interest and knowledge, become more familiar and in-depth with your commitment to your investments. When you think for yourself, and focus on specific goals, rather than chasing the latest hot trend, such as Cryptocurrency, you stand a much better chance of not being victimized with losses when the bubble bursts on a trendy market.

Price Discovery And The Futures Market

Price discovery is one of most basic economic principles. There is a point where the supply curve intersects the demand curve. This point is known as the value in which parties will exchange a good or service for a premium. The process of identifying this premium is known as “Price Discovery,” and is extremely relevant when trading on the futures market.

Using Modern Technology For Price Discovery 

More than a century ago, the open outcry system was the means by which buyers and sellers discovered the price of an asset. The open-outcry auction system allowed buyers to bid against one another until there was a clear winner.

Conceptually, this process of price discovery was relevant because buyers would not bid more than they were willing to spin. Thus, the auction was the “Price Discovery,” and the sale price was where the supply and demand curves crossed. Buyers and sellers used the auction system for:

  • Stocks
  • Bonds
  • Commodities
  • Currencies

Now, although there are still traders on the floor of popular exchanges like the New York Stock Exchange, price discovery is significantly different because of technology. Technology now allows trades to occur in a matter of seconds, involving participants around the world. The technology was born out of necessity, as markets were growing in size.

But since then, technology has also made trading more accessible. For instance, in 2017, more than 25 billion contracts were exchanged on the global options and futures markets. Investors can now trade volumes larger than ever while also maintaining depth-of-market and liquidity.

What Is Order Flow? 

Order flow is a term used commonly by investors in futures markets. It refers to the order in which buy and sell orders are placed in a market by active participants. Order flow is relevant to price discovery, especially in the digital marketplace, because it allows for real-time negotiation. Because of the digital market, traders can buy or sell orders instantly, which provides pinpoint price discovery.

For instance, order flow in the digital marketplace has resulted in tighter bid and ask spreads. Buyers and sellers are connected in real-time. However, the order flow could also result in more volatility, as a single transaction could cause a massive spike or dip. Although bid and ask spreads are tighter, the futures markets have also seen wider trading ranges. Experienced investors see this as an opportunity on which they can capitalize.

Lastly, order flow drives price discovery because of sustained supply and demand. When there is a steady order flow, there is substantial depth. There is never a shortage of buyers or sellers, which increases the likelihood of traders finding a desirable fill.

Learning More About The Futures Market 

Futures serve as an excellent way to diversify your portfolio. While price discovery is straightforward in concept, it can prove challenging to comprehend in practice. Learning the nuances of price discovery, order flow, and other relevant topics could do wonders for your portfolio. Investors should make sure that they understand these topics before entering the futures market.


US LAW requires trading and trading education accompanied to post legal disclaimers as to market and personal performance, as well as investment risk. Please carefully read and study the Legal section of this website and any agreement you sign. Any agreement to doing business with SP500Trader.com website or Delta Trading Group, Inc is verification that you have read, understand, and agree to the terms of risk associated with futures trading and financial investing as described.

Important Futures Trading Disclaimer

Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. You must review customer account agreement prior to establishing an account.

Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial. Carefully consider the inherent risks of such an investment in light of your financial condition. Though proper education, tools, and practice are necessary, they do not guarantee profitable results. 

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SP500Trader.com and the Delta Trading Group, Inc. are educational entities; be sure to consult with your financial advisers, brokers, and other professional services about the risk of trading. Though we offer a common language to learn about trading and risk, we are not a signal service. You must use your own discretion when doing any kind of trading in any financial market. SP500Trader.com and the Delta Trading Group, Inc. are not responsible for interpretation, opinions, or losses by its members, liaisons, instructors, mentors, vendors, contractors, or administration, as none of these entities can guarantee your success. 

Internet Trading Risks

There are risks associated with utilizing an Internet-based deal execution trading system including, but not limited to, the failure of hardware, software, internet connection, or services provided by third parties. Since SP500Trader.com and the Delta Trading Group, Inc do not control vendor signal power, its reception, or routing via Internet, configuration of your equipment or reliability of its connection. We are not be responsible for communication failures, distortions, or delays when trading via the Internet. 

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Slippage

Your broker may have a contractual agreement not to seek redress for slippage, it’s obligation to execute stop loss orders at the stop loss price or better, will not apply to limit and stop loss orders during hours when it is closed. This also does not include bad price spikes. Bad price spikes are removed from the price charts quickly to alleviate confusion.

How The E-Mini Changed The Game With Electronic Trading

In 1997, the wave of the future in trading was born. This was when E-mini exposed the market to a new breed of online trading, which paved the way for the current electronic market. Upon its debut over 20 years ago, very few understood just how much this mini version of the S&P 500 stock index futures contract would change the game with both equity and electronic trading.

A Revolutionary Creation

The E-mini contract was revolutionary at the time. It was created as a direct response to the Chicago Board of Trade (CBOT) acquiring the license to create a futures contract based on the Dow Jones Index, acontract geared to retail traders. This was a burst of sudden success for the CBOT at the time. Many were surprised that the CME did not acquire the contract, as it had the license for the S&P 500 for years.

From its earliest days, the E-mini S&P showed the world exactly what it could do, leading to its long-term popularity. Touted as the best contract ever made, the E-mini S&P show edit’s brilliance as being one-fifth the size of the standard S&P contract.This meant that traders could now either combine five E-mini contracts to equal one standard S&P contract, or divide one standard contract into five E-minis. Before E-mini was created, futures contrast consisted of only professional and commercial traders who could afford to fit the margin requirements.

A New Breed Of Traders

At the time of its debut, the bull market was larger than what some traders liked. This smaller size of the S&P meant that big contracts no longer had to be traded if one didn’t want to take the risk. It was a way to increase volume and still keep smaller traders in the market. Plus, it opened up futures to a whole new breed of online traders, proving that it was possible to have a product that was completely screen-traded. The success of E-mini S&P paved the way for all of the E-mini versions of the CMEGroup’s contracts and was embraced by other futures exchanges.   

Global Trading Capabilities

Not only did this revolutionary creation open futures trading to retail traders, it opened markets globally since all-electronic markets could be traded 24 hours a day, Monday thru Friday. This included the major markets of:

  • The US
  • Hong Kong
  • Japan
  • The UK

Instead of waiting for different markets to open, one could trade continually. This opened the exchange to a mix of market participants to help with liquidity. The more diverse the participants, the more vital and dynamic the trade. Though the smaller contract size appeals to retailers, the CFTC’s Commitments of Traders data shows a mix of asset managers, dealers, and leverage accounts that use the E-mini S&P. With benefits such as better granularity for speculation and hedging, faster fills, and screen-trading ability, it’s easy to see why the E-mini S&P still reigns supreme.

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