The Futures Game: Who Wins, Who Loses,

How to Play The Futures Game: Who Wins, Who Loses, and Why

The futures market is a dynamic and exciting arena where traders can speculate on the price movements of various commodities, currencies, and stock indexes. But it is also a risky and complex game that requires a lot of skill, knowledge, and discipline to succeed. In this article, we will explore the basics of the futures market, the strategies and techniques of successful traders, and the common pitfalls and challenges that beginners should avoid.

What are futures contracts

A futures contract is a legal agreement between two parties to buy or sell a specific quantity and quality of an underlying asset at a predetermined price and date in the future. For example, a corn futures contract obligates the buyer to take delivery of 5,000 bushels of corn at a specified price on a specified date, while the seller agrees to deliver the corn at that price and date. Futures contracts are standardized and traded on organized exchanges such as the Chicago Board of Trade (CBOT) or the New York Mercantile Exchange (NYMEX).

Why trade futures

There are two main reasons why people trade futures: hedging and speculation. Hedging is the practice of reducing or eliminating the risk of adverse price changes in an existing or anticipated position in the cash market. For example, a farmer who grows corn may sell corn futures contracts to lock in a favorable price for his crop and protect himself from falling prices. A cereal manufacturer who uses corn as an ingredient may buy corn futures contracts to secure a stable supply of corn at a predictable cost and hedge against rising prices.

Speculation is the practice of taking a position in the futures market with the expectation of profiting from favorable price changes. For example, a trader who anticipates that the price of gold will rise may buy gold futures contracts and sell them later at a higher price. A trader who expects that the US dollar will weaken against the euro may sell US dollar futures contracts and buy them back later at a lower price.

How to win in the futures game

Winning in the futures game is not easy. It requires a lot of research, analysis, planning, discipline, and risk management. According to Richard Teweles and Frank Jones, authors of The Futures Game: Who Wins, Who Loses, & Why, some of the elements of successful trading are:

Understanding the market fundamentals: Traders need to have a solid grasp of the supply and demand factors that drive the prices of the underlying assets they trade. They also need to be aware of the macroeconomic and geopolitical events that may affect the market sentiment and volatility.

Applying technical analysis: Traders need to use charts, indicators, patterns, trends, and other tools to identify entry and exit points, support and resistance levels, trend direction and strength, momentum and divergence, and other signals that may indicate future price movements.

Developing a trading system: Traders need to have a clear set of rules and criteria that guide their trading decisions. A trading system should define what markets to trade, what time frames to use, what indicators to follow, what signals to act on, how much capital to allocate, how much risk to take, how to set stop-losses and profit targets, how to manage trades, how to evaluate performance, and how to adjust and improve over time.

Following a trading plan: Traders need to stick to their trading system and execute their trades according to their plan. They need to avoid emotional impulses, distractions, overconfidence, fear, greed, hope, regret, revenge, boredom, fatigue, stress, and other psychological factors that may interfere with their rational judgment.

Learning from experience: Traders need to constantly monitor their trades and review their results. They need to keep track of their wins and losses, aa16f39245