As with all things, there are some elements that need more cautious attention than others. This applies to the futures trading guide. Caution should be exercised in order to ensure the losses, if any, are limited at worst.
The following are some of the areas where caution should be exercised:
• The danger of leverage – as futures contracts typically can be bought or sold with a margin deposit, which would mean that some leverage ratio is evident from a calculation of 10 to 1 and 20 to 1 on the price movements of the underlying g commodity. Therefore this margin provision should not be taken lightly as the losses can be considerable should the movements be on a downward trend.
• Caution should be exercised when viewing the futures contracts, as these products can be quite complicated. With the different size and price movement amount, the tracking of the transactions movements can be a challenge. Being aware of the final trading dates and the possible delivery options is considered very important.
• The price limits in place should also be observed closely as too much rapid movements will create a situation where the limit is reached quicker than anticipated, thus not giving the investor a chance to continue trading for the day. Caution should be exercised to ensure the investor in not caught on the wrong side of the trade making limit.
• In connection to the margin deposits the new trader may have to exercise more caution than normal as the margin requirement can
be quite substantial. For a start up, this may prove to be a little more than anticipated. If this is found to be overwhelming for the investor then exercising some level of caution would enable the investor to limit any possible losses, including that of the margin.