Trading futures can be the best high yield investment you’ll ever find, but trading futures with very little experience on your own or without a good strategy or an untested strategy is like an unprepared soldier running into battle with a rifle and thinking “hey I have a rifle, I’ll be ok as long as no one shoots me”. This sounds like a ridiculous analogy and you’d think it to be obvious but this is what new traders do on a routine basis, and it’s setting them up for inevitable disaster. Futures have been regarded as one of the highest risk investments in existence for a long time, and understandably so with nearly 95% of newbie traders taking there first trades and then losing almost all of their original investment within the first 6 months of trading. So with that said let me ask you this: If investing in futures only caused people to lose then why would there be anybody investing in them at all? This is obviously because the other 5% makes money and lots of it! So now you might be thinking aren’t those 5% making money at the expense of the losing 95%? This is true in partial. But it mostly has nothing to do with the other 95%; they just bring more buyers and sellers into the market while adding more liquidity allowing for every investor to get out of the market without moving it too much. This is similar to a situation where a house would have numerous offers on it then having a market with plenty of buyers and sellers simultaneously. Most of the movement in the Futures market consists of hedgers and fundamentals that cause most of the hedgers or speculators to buy or sell; new speculators are a small part of the big picture.

So now we’re left with this question: how is the other 5% making money? The answer is simple they use software and back test their trading systems for spot on execution when entering and exiting the market. The popularity of automated trading systems has grown over the last 8 years with the bulk of orders no longer being phoned in but executed on a server. But this is a small part of the big picture. You still need to find a trading system that can withstand changing market trends not just designed to trade the current market. One of the key points that decide whether a system lasts or completely flops is the fact that a computer system isn’t a person and won’t change its pattern unless you tell it to. Once the trend dries up the system runs in direct defiance of the market patterns. For this reason my personal choice is to use a trading strategy that doesn’t run contrary to the market. When the system sees the market moving hard in one direction or the other it gets in short or long accordingly. Trading futures has major advantages over traditional investments because your success isn’t affected by a recession, you can trade both directions of the market and profit when it’s losing as well as gaining.

Another widely misunderstood fact about futures is that you’re not actually investing in anything. What a futures trading strategy really is “like the one I use” is actually just an equity machine. There is no waiting period to get your capital back, your money isn’t tied up for more than a day, and you are leveraging a large volume tangible commodity or cash to your advantage. Allow me to explain: When you trade futures or forex you are trading a contract for a bulk order of currency or a commodity. The money that you have in your trading account is used as a good faith deposit just like earnest money on a house. When you initiate a buy or a sell in any of the futures markets you are using your earnest money to control that commodity or currency for a short period of time just as in the same way you have the right to buy or transfer the rights to a house you have a deposit on. When entering the market you are then hoping to take advantage of a price difference just like equity in a home and then sell back your contract for a profit. What’s nice is that unlike home equity you can take advantage of the loss of value on a futures contract, the value will also change much much faster than a home even in one day, and the market is always liquid with plenty of buyers and sellers.

This is the reason why good futures traders and Commodity trading advisers tend to make high returns because your not holding onto something that takes for ever to rise in value over time, you’re simply taking advantage of prices up or down multiple times per day or per month. A good trading strategy will lose once in a while there’s no way to combat that, but if it is a good strategy it should return you 2 or 3 times what it loses on average. When viewing the long term performance of a system don’t pay so much attention to how much it gains but how consistently it gains. I would rather have a system that earns small amounts steadily than one making insane profits only to keep you up at night because it yo yo’s back and forth so much. So you can see how you’re not really investing in anything just a way of quickly extracting money from the market and pulling out again.

This leads me to my last recommendation to those beginning in futures. If your going to begin investing in futures, the best thing to do is start by finding a good CTA (Commodity Trading Adviser) using what is called a Managed Futures Account. There are numerous CTA’s with excellent track records. Most CTA’s use an automated trading strategy that they monitor and make adjustments to on an ongoing basis. A good CTA understands the trends in the market and makes adjustments to the loss parameters according to current market conditions. He will also know how to adjust trading for your risk tolerance. A CTA has POA or “power of attorney” to Manage your futures account for you, meaning he decides which trades you make. He does not have access to the funds, they are held by a third party clearing firm for you to access anytime you want.

So are Futures Risky or extremely profitable? I’ll let you be the judge. Many financial advisers will steer you away from futures and for very good reasons as I explained above. But if you find a good trading strategy using the common sense parameters I gave you above you’ll have the best high yield investment with a golden addition to your portfolio that will most likely outshine any of your traditional investments. And best part of all its performance won’t have anything to do with the economy only its methodology.

Want to find out more about the best high yield investments, then visit Eric Christensen’s site for information on High Yield Investment Accounts with a registered CTA.