Futures trading is one of the riskiest yet potentially most lucrative forms of investing. Understanding and avoiding common mistakes can help you maximise profits while minimising losses. Here are six common futures trading mistakes to watch out for and tips on how to avoid them:
Not having a plan
Before entering any trade, it is essential to have a clearly-defined plan outlining when and why you are entering the market and what you expect from it. This approach includes the specifics of your position or strategy and an objective assessment of the risks involved, potential opportunities, exit points, and more.
Getting caught up in all the action on the exchange is easy, but over-trading can lead to losses if you lack discipline. Before entering a future trade, ensure you have researched and are comfortable with the risk involved. Additionally, it is essential to set realistic expectations and review them regularly.
Not understanding leverage
Leverage allows traders to control more prominent positions than they could otherwise afford. While this can help increase profits, it also increases potential losses. Be sure you understand how leverage works in futures trading and use it judiciously.
Ignoring taxes and fees
Futures trading involves transaction costs such as commissions, exchange fees, margin interest charges and more that can eat away at profits if left unchecked. It is essential to factor these into your calculations to adequately plan for them in advance. Also, track your trading earnings and losses annually for tax purposes.
Diversifying your portfolio, including futures trading, is always a good idea. By spreading positions across different markets and strategies, you can minimise risk and ensure that you have some cushion should any one investment not pan out.
Not monitoring the market regularly
Finally, staying on top of news and events that may impact the market is essential so you can respond if needed, including setting alerts for specific price points and keeping an eye on market indices and other indicators. Staying informed will help ensure you make informed decisions when trading futures.
The advantages of trading futures in Singapore
The advantages of trading futures in Singapore are plentiful. Foremost amongst them is the fact that Singapore offers a highly developed, transparent and regulated futures market, with stringent rules and regulations protecting investors from manipulation and fraud. This market creates an environment of trust amongst global investors and allows for efficient price discovery. Singapore also boasts low transaction costs, competitive exchange fees, and low margin requirements, making it one of the most cost-effective places to trade futures.
Additionally, its central location in Asia provides easy access to markets across the continent, which can be a great advantage for traders seeking to capitalise on opportunities outside their home country. Finally, Singapore has an impressive pool of experienced brokers who can provide invaluable guidance and support throughout your trading journey.
The risks of trading futures in Singapore
Although Singapore offers a highly secure and transparent futures market, risks are still involved in trading futures in the city-state. The Singaporean regulatory framework is less comprehensive than other countries, meaning certain activities may be less regulated elsewhere. Additionally, the exchange can be relatively illiquid sometimes, resulting in wider spreads, making it difficult to enter or exit positions quickly.
Furthermore, due to its proximity to other Asian markets and high international presence, Singapore’s economic environment is often susceptible to global events such as political upheavals, natural disasters and economic crises that can harm traders. Finally, fraud from rogue brokers or manipulative practices by some traders should always be considered when entering into any futures contract.
The bottom line
By avoiding these six common trading mistakes, you can better position yourself for success in the futures market. Remember that having a plan is essential, as setting expectations and diversifying your portfolio, and always being aware of taxes and fees. Use leverage wisely and regularly monitor the market to capitalise on opportunities. With discipline, knowledge and patience, futures trading can be profitable.