As a beginning trader, you want to start off your futures and options trading experience on the right foot. As is true with most endeavors in life, your best first step is to learn as much as you can before making a commitment. Futures and options are especially challenging to understand because they have risk and reward characteristics different from those of traditional investment vehicles such as mutual funds and savings bonds and can be used in many different ways. For instance, one investment concept that is difficult to teach beginners is that a trader can sell a futures contract without previously owning it. In this case, the trader will buy it back at a later date, hopefully at a lower and hence, profitable price.
Every trader needs to understand how margin works and how to manage the risk of a position.
Then, there are the types of orders - market, stop, limit to name just a few. Even reading the price of a futures or options contract in the newspaper or on the Internet can be confusing at first. All of these topics will be discussed in upcoming articles. Once you have a clear understanding of these concepts you can move on to the most challenging exercise of all - predicting whether the price of your chosen commodity will go higher or lower. If this sounds overwhelming, keep in mind that every trader, including the most successful ones, had to start somewhere and take the time to learn the basics.