I am sure you have heard this a million times but it bears repeating. Futures trading is not for everyone. Before you decide to invest in the futures market, evaluate your risk level.
To be a successful futures trader you must have a solid understanding of the market and how it works. In order to do that you must invest time, research and attention. Are you willing to do that? Before opening a futures account be sure to speak with your broker and ask as many questions as you need to.
Once you have decided you want to invest in the futures market, the next decision you must make is how you will do it. There are three different approaches you can take when investing in the futures market. I will briefly discuss each one below.
Open a Managed Account
A managed account is very similar to an equity account. With this type of account you will have a broker who legally has the power to trade on your behalf. Before opening the account you will agree upon conditions that must be followed. The broker will then make trades based on the conditions you agreed upon.
If you aren’t big on taking risks this may be the best option for you. A professional broker will likely have more knowledge and experience than you do. Because of this they will be able to make better trading decisions on your behalf. Please know any losses that occur will still be your responsibility. Since a professional broker will be making trades on your behalf, expect to pay an extra management fee.
Do It Yourself
As an investor you are free to make all of your trades on your own. However, this option is extremely risky. When you make your own trades you are responsible for everything. This includes analyzing the market, doing research, managing funds, maintaining margins and ordering trades just to name a few. It takes a great deal of time and attention to detail to successfully make trades on your own.
Join a Commodity Pool
The third option you have is to join a commodity pool. This option involves the smallest amount of risk. A commodity pool is similar to a mutual fund. It is basically a group of commodities you are able to invest in. There are no individual accounts. Your funds will be combined with other investors funds and traded as one.
The amount of money invested will directly affect the profits and losses. When you join a commodity pool you will also be able to invest in various types of commodities. There are also no margin calls which is a bonus.
However, make sure you do plenty of research before joining a commodities pool. It absolutely must be managed by a skilled broker. Even though your risks are lower in a commodities pool, there are still risks that must be properly managed. A skilled broker will know how to do that.