How To Create A Futures Trading Plan In The UK

When it comes to futures trading, many people feel overwhelmed. After all, the concept of trading derivatives can be confusing and complex. However, with some background information and careful planning, futures trading can be a profitable endeavour.

In essence, futures are contracts that allow traders to exchange the difference in prices between an asset and its future price. For instance, if you believe that the price of oil will rise in the future, you could buy a futures contract for oil. If the oil price rises as you predicted, you would then sell your contract at a profit. Conversely, if the price falls below your expectations, you would lose money on the trade.

One of the benefits of futures trading is that it allows traders to take advantage of price movements without purchasing the underlying asset. For instance, if you believe that the price of gold will rise, you could buy a futures contract for gold. If the price of gold rises as you predicted, you would then sell your contract at a profit. However, if the price falls below your expectations, you would lose money on the trade.

You can trade futures through several platforms, including online brokers and exchanges. When choosing a platform, it is essential to consider commissions, margin requirements, and minimum trade sizes.

Determine the strategy you want to use

Before starting trading futures, you need to determine the strategy you want to use. You can use various strategies, including trend following, breakout trading, and arbitrage. Each strategy has its strengths and weaknesses, so you need to find one that matches your personality and risk tolerance.

What do you want to achieve?

It would help to also have a clear goal in mind. Are you looking to make a quick profit, or are you looking to build long-term wealth? To achieve your goals, you need to identify and trade with the right market trends. Click here to have a look at the futures market.

Do your research

One of the most critical aspects of futures trading is doing your research. Make sure you understand the asset you are trading and the market conditions, including studying price charts and understanding indicators such as moving averages and Bollinger bands.

Determine your risk management strategy

Before starting trading, you need to determine your risk management strategy, including setting stop losses and limits on your trades. Remember, it is important never to exceed your risk tolerance, no matter how tempting a trade may seem. Your risk management strategy should include rules for both buying and selling.

Choose the assets you want to trade

Not all assets are available for futures trading. To trade futures, you need to choose an asset listed on a futures exchange. The most popular assets for futures trading include commodities, stocks, and currencies.

Learn about the products you want to trade

Before you start trading, it is crucial to learn about the products you want to trade. It includes understanding the contract specifications and how the market works. You can learn about products by reading broker guides, watching educational videos, and consulting several available online resources, including Investopedia and the Chicago Board of Trade.

Draft a trading plan

Once you understand the basics of the products you want to trade, it is time to draft a trading plan. Your plan should outline your goals, strategies, and risk management procedures. It is essential to stick to your trading plan once it is in place.

Open an account

You need to open an account with a broker or exchange to trade futures. When choosing a platform, it is essential to compare the features of different platforms. Some factors you should consider include commissions, margin requirements, and minimum trade sizes.

Demo trade

Before trading with actual money, it is important to demo trade. It will allow you to test your strategies without risking any money. Most brokers offer demo accounts, so be sure to take advantage of this feature. You can also test your trading plan's success with a demo account. If needed, you can make changes before using it when trading live.