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20 Thoughts to “How To Make Your First Futures Trade”

  1. Shuky Persky

    very strange … i suspect you never traded yourself. how what u r lecturing is relevant for trading ? it is amazing what is being presented here to people … simply amazing. in order to trade you need to understand the market forces … what contract value has to w/ it ?

  2. Daniels Trading

    Dear Shusky,

    I have traded Futures, Options on Futures, Spot FX, Equities and Equity Options. I like to swing trade and position trade. I looked at your website and it seems that you are more of a day trader. (cont.)

  3. Daniels Trading

    From your post about our How To Make Your First Futures Trade video, it seems that you do not think it is important for traders to understand the Total Contract Value of the markets they are trading. For day traders, it might not be as an important issue because day traders use day margins, and they do not hold overnight. However, for traders who are swing trading or position trading, they could really benefit from understanding total contract value. (cont.)

  4. Daniels Trading

    Many brokers offer $500 day margins for the Emini S&P and other products. A $5000 account could trade 10 Emini S&P 500 contracts at a time and still be properly day margined. However, I doubt that strategy would be successful for long. The margin of error in trading with that kind of leverage is razor thin as time marches on. (cont.)

  5. Daniels Trading

    Total Contract Value is an integral part of understanding how much an account is leveraged. If a trader is overleveraged, it is usually a matter of time until he blows out his account. For example, if you are always trading at 100:1 leverage, all it takes is a quick 1% move to lose your entire account. The only way to know how much Leverage an account is using is to understand Total Contract Value. (cont.)

  6. Daniels Trading

    Some traders will mistake Margin for Leverage, which is a very unfortunate and costly error. Margin is used by exchanges, clearing firms and brokers as a way of setting red flags for when an account is a debit risk. In other words, exchanges, clearing firms and brokers use margin as an alert for when traders are so overleveraged they run the risk of not only blowing out their accounts, but could also end up as a liability on their balance sheets. (cont.)

  7. Daniels Trading

    Therefore, Margin is not a guideline, it is warning. Unfortunately, too many traders use Margin as a guide for position size. (cont.)

  8. Daniels Trading

    By now, you and others reading this post should be asking themselves the following questions:

    1) What is an appropriate Leverage to use for an account?
    2) If Margin is not the best way to gauge position size relative to a trading account, how do I determine the Leverage I am using?
    3) What are some examples of Leverage Ratios for known trading blow-ups so I have a frame of reference?

  9. Daniels Trading

    In order to determine the Leverage used in any trading the account, the absolute first thing you have to do is be able to determine the TOTAL CONTRACT VALUE of your positions. Let’s say you are trading the Euro (6E) contract, which is the EUR/USD cross. The Euro is trading around 1.3000. The Contract Size is 125,000 Euro (see CME Group website).

    125,000 Euro X 1.3000 EUR/USD = $162,500 USD Contract Size for the Account

  10. Daniels Trading

    The Total Contract Value of the Euro (6E) contract when it is trading at 1.3000 is $162,500. The overnight margin is $4725. So if you only had $4725 and got into a Euro (6E) contract, you would be leveraged 34:1 ($162,500/$4,725).

    Two of the worst trades in the past 5 years happened at Lehman Brothers and MF Global. Both were Leveraged at about 40:1.

  11. Daniels Trading

    Now, in order to know how leveraged your account is, you need to know the Leverage Ratio. The only way to know the Leverage Ratio is to know the Total Contract Value of your positions. Your Account Leverage Ratio = Total Contract Value/Net Liquidity of the Account. (cont.)

  12. Daniels Trading

    Let’s say you had a $5000 account and were long 1 Euro at 1.3000. Here is the Account Leverage Ratio:

    Account Leverage Ratio = Total Contract Value/Net Liquidity of the Account
    Account Leverage Ratio = $162,500 (Euro) / $5000 (Account Value)
    Account Leverage Ratio = 32.5/1

  13. Daniels Trading

    Lehman and MF Global were properly margined for the majority of their trading, but they were Leveraged 40:1. Ultimately the choice is up to the trader. What I do as a broker is educate our clients to not only understand Margin, but also Leverage. If you do not completely understand Total Contract Value, you will not have a full understanding of Leverage.

    – Craig Turner

  14. Maria Angela Gonzales

    I am planning to invest gold but I am not sure how to begin. Until a friend told me that Gold Trading Academy is offering a gold course video so I watched it and now I am starting to earn $500 a day.

  15. eddyvideostar

    Is it not possible for one to trade without margin or leverage? Is it mandatory for a trader to use margin and leverage?

  16. FuturesTradingAlerts

    Nice explanation!


    do the nasdaq 100 emini’s futures move exactly like the nasdaq 100 index on minute charts? or are they calculated based on supply and demand? the march contract seems to move nearly identical to the stock index.

  18. vanscoyoc

    Loser traders, most, just buy and hold and get wiped out.

  19. Strat Cat

    I would like the free guide on “How to make my first futures trade”. Thanks.

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