Keys To Online Future Trading Money Management Part II - Small Losses & Margin
By Ultimate Trading
The Key To Making A Profit Online Future Trading
Without profits, online future trading is unsuccessful and without
capital, there is no
online future trading. These two keys work together to keep your
capital intact. Its important to maintain the your pool of capital,
not only because you need it to enter a position, but also because
if it is depleted, your ability to make profits is depleted as well.
Yet many involved in online future trading have trouble with an
intrinsic part of protecting their capital. They dont like to take
small losses. They act this way even though its very likely that a
loss that isnt taken small will eventually become a large loss.
Traders like these don't want to lose anything on a trade because it
makes them feel like theyve failed. But really, taking small losses
means you have succeeded. Online future trading should focus on the
fact there is small losses, not that there should be losses.
Taking small losses while online future trading is a way to limit
losses when they occur and to make sure they never turn into big
ones. Taking small losses and making big gains is the way successful
traders trade. In fact, it's the only way to be successful at online
The best way to make sure you only take small losses online future
trading is to use protective stops on every trade. Decide how much
you're willing to lose on a trade before you enter the position, as
part of your online future trading money management plan, and then
set your stop right after you enter the position so you won't have a
chance to second-guess yourself later in the trade.
If you think about how much you're willing to lose online future
trading as part of your plan, it will also help you determine
whether the trade is one you should make in the first place. Taking
a good look at your downside will help to keep you away from
questionable online future trading that could lead to large losses,
though consistently placing protective stops will keep your losses
Another important way to guard against large losses while online
future trading is to use margin carefully. What's the proper way to
use margin? First, don't use all of it. Always leave yourself a
generous cushion. Every change in the price of a stock in your
portfolio changes the value of the collateral you have available for
your margin loan. If the value of your holdings does go down, it
will decrease faster if you are using margin than if you aren't
using margin. This means that the size of your margin cushion will
decrease at the same increased rate.
I recommend that you never use more than two-thirds of your total
margin capacity, leaving the other third as a cushion while online
future trading. If declining values bring your cushion to below
one-third of your capacity, it is time to sell some positions. Also,
when you are deciding how great a loss you can tolerate on any one
trade, remember to take margin into account. If you're using half
your margin capacity, a 2% loss on the value of a stock position
will equal a 3% loss of your actual capital.
Its always a good idea to take the time to learn how your broker
calculates account equity. It can be very confusing, but
understanding the calculation will enable you to anticipate how much
margin capacity you'll be left with after your online future trading
ventures. Always keep track of your margin status. Check it every
morning and at the end of every online future trading day. Loosing
track of your margin use can cause serious problems. But don't worry
about margin interest. Your broker will charge interest on the
borrowed amount, but the interest rate is low and the cost is
extremely small if you're trading profitably.
In general, use margin only in markets with a strong bullish
direction. You can't use margin capacity to increase the sizes of
short positions in a bear market, anyway (though you must have a
margin account to short.) Whenever the
online future trading market seems overbought, unsteady, or
unclear in its direction, get completely out of margin before a
downturn can take place. With careful use margin can greatly
increase your profits. Without it, it can devastate your online
future trading capital.
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