News Futures market
10 tips for trading the futures market
In times of tension around the harvest and extreme weather conditions, entrepreneurs want certainty. The futures market can be a means for this. What do you do wisely when trading the futures market?
Every day many people look at the prices of the futures market. Many arable farmers are also active on the futures market, in order to hedge their price risks or perhaps to take a gamble. Trading on a futures market can be very intense in times of extremes, where experience, discipline and the control of emotions are important factors.
Boerenbusiness has asked various participants and brokers what the most important rules of thumb and tips are for trading on the futures market. This does not only concern the potato futures market (EEX), because the tips are equally useful for, for example, the wheat futures market (Euronext) and the recently presented raw milk futures market.
1. Start small
When you decide to become active in the futures market, do not immediately start with many and large positions. Start carefully with a few contracts and as you gain experience, you can slowly build up to bigger and more positions.
2. Make sure you have enough money available to trade
The various futures markets can move violently and that can mean that participants have to meet financial obligations. Make sure you always have enough money to absorb any (negative) price movements.
3. If you hedge your products, make sure you actually have them.
Hedging commodities reduces your price risk. However, you do have to cover what you actually benefit from the product. It is important to monitor the growth of your product, but it is also important to include a certain harvest risk in your hedging strategy.
4. Wait to trade until the stock market opens
The opening of futures trading is also referred to as 'the Wild West'. It is therefore wise to wait until the dust has settled and the market has calmed down a bit. In this way any bad buys are prevented.
5. Don't rely on the small ups and downs, but follow the trend.
The major trends can be observed at some point. It is important not to chase price explosions under any circumstances. Also, don't do things that you don't understand.
6. Provide sound information
Do not rely on a 'tip' that you have received from someone else, but rely on good research and sound systems. However, research the situation yourself thoroughly, making sure that you do not want to be smarter than the market. Following the trend is always more profitable than trying to come up with one yourself. If you trade on an exchange with foreign providers and traders, make sure you get information that extends beyond your own farm.
7. Don't try to time
It is important that you do not try to time. It won't be possible to buy exactly at the bottom, just like it's almost impossible to sell exactly at the top. So don't be greedy and don't try to get the most out of it.
8. Act consistently and 'emotionless'
Another point is that you do not bet on 1 horse, but spread your selling moment (and therefore the risk). Place any 'limit orders', but don't forget to check them. A limit order is an order to be executed at the price specified by the client or a better price.
This means the maximum purchase price when buying and the minimum selling price when selling. The limit orders that cannot be executed (due to the current price) are entered in the order book. These orders are listed according to the price level. Once the price cap in the market is attainable, the contract is executed.
9. Consultation with others
Do not rely solely on your own judgment, but discuss your considerations with others. It is important to share information and thus also to check whether this information is true. When you share information, you often receive new information yourself.
10. Follow a course or training
It is advisable to follow a course or training in which trading on the futures market is explained. In this you learn how to calculate various scenarios regarding holding a position. In addition, these training courses or courses discuss how to read a futures market.
These tips seem simple, but are not easy in practice. It is difficult to properly inform yourself about the situation in the market, but it is also difficult to let go of emotions. If you want to know more about trading the futures market, you can read the handbook here successful trading in the futures market .
Anne-Jan Doorn
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