Learning Futures

If you are reading this page, you must be wanted to know what is Futures and how you are able to earn some profit from this instrument; or maybe you are planning to be a part time/full time trader? Regardless of whatever reasons you have, you must ensure you are fully understand the risk involved in Futures Trading and also make sure you know the difference between Investing and Trading. As Robert Kiyosaki said "before you invest in something, invest the time to understand it."

Let's get started by understanding what is Futures.

A futures market is an auction market in which participants buy and sell commodity and futures contracts for delivery on a specified future date. Futures are exchange-traded derivatives contracts that lock in future delivery of a commodity or security at a price set today. - investopedia.com. You may also refer to this youtube video to understand more about Futures. As explained in the video, below table are Malaysia most traded Futures product:

Product Contact size Tick size Tick value Delivery Active month Expiry Margin requirement Please refer
FKLI
Futures Kuala Lumpur Index
RM50 X index points 0.5 RM25 Cash Settlement Current Month The last Business Day of the contract month. RM4,200 Bursa Academy
Bursa Malaysia
FCPO
Futures Crude Palm Oil
25tonnes X price 1 RM25 Physical Delivery Third Month At noon on the 15th of the contract month, or the last Business Day preceding the 15th. RM7,000 Bursa Academy
Bursa Malaysia

Basically in layman's term, this can be used as a 2 ways trading product:

  1. Conventional way, Buy first (Buy Low) then Sell off (Sell High) to make a profit or
  2. Sell first (Sell High), and then Buy back later (Buy Low) to make a profit from the difference.

It is IMPORTANT to know and understand the contract specification as shown in the table above, click on the link in the table to get full contract specification. Nonetheless, there are 3 things you must know before you start trading in any futures contract, which are:

  1. Active Month = To know which contract month has the highest traded volume.
  2. Tick Value = To know how much you earn/lose on every point it moves.
  3. Expiry = To know when is the last trading day and when to start to move to a new contract month.

For more information, kindly refer to any of the Licenced Futures Broker. - bursamalaysia.com

Skills needed before you start trading.

3 Recommended Skills

Technical Skill Fundamental Skill Emotion Skill

The concept behind Technical Analysis is to study the past prices movement as a guide to forecast the future prices movement. In another words, history tends to replicate itself, the price movement pattern might have a high probability of repeating again and again.

Free Tutorials/Guides

There are 2 main types of Technical Analysis, which are Chart Pattern and Technical Indicator.

Chart Patterns are a subjective form of analysis, which is by looking at the pattern formed in the chart and predict its next move based on recognisable pattern.

Technical Indicators are a statistical form of tools available in charting platforms. You can use these indicators to predict the price movements.

This analyses the health of the market condition from time to time, which mainly based on data and news to justify the market direction.

Understand each factors which will impact the Futures products you are trading, from there we are able to determine the health of market. This will also enable trader to forecast market direction. As simple as Good Data/Good News, price goes up; Bad Data/ Bad News, price goes down.

Learn to anaylse what are the most relevant data/news which will impact on the products you trade.

In 123Futures.com, we do provide news and data source as followed;-

FKLI

FCPO

Emotions is bad for trading, there are 2 types of common emotions most of the traders have, fear and greed.

Fear will lead you to liquidate your position prematurely.

Greed will have you hanging on to a winning position too long, sooner or later, the trend reverses and the greedy get caught.

Trader needs to create a strategy and obey them, set a condition on when or where to exit a position based on your risk-reward tolerence. ALWAYS set a profit target and put a stop loss in place to take emotion out of the process.

It's wise to set limits on the maximum amount you are willing to win or lose in a trade. If it hits your profit target, take the money and run. If it hits your stop loss, move on and look for another opportunity.

Free readings on Trading Psychology

As Bruce Lee said, "Practice makes perfect. After a long time of practicing, our work will become natural, skillfull, swift, and steady." Practice and learn more types of Technical Analysis, understand the impact of the current news (Fundamental Analysis) related to the products you are trading. Last but not least, learn to control your emotion and avoid letting fear and greed to ruin your strategy.

Conclusion

  • Understand what is Futures and choose for a Futures product that is easy to access to its information.
  • Starts to learn some technical analysis and also watch out for news/data that might impact on the Futures prices. Learn how to intergrate both Technical analysis and Fundamental analysis on helping you to formulate a trading strategy.
  • Do some paper trading to try out your strategy.
  • Find a broker that provides you guidance and also helps you on the process to learn more. Find out their trading platform with the right set of tools you'll need.
  • Becomes a successful trader doesn't happen overnight, it requires time, effort and practice. A lot of PRACTICE and LEARNING.