The following article is from the SFO Magazine, October 2011 issue.
Many retail customers open online futures trading accounts after successfully trading equities online. This seems like a no-brainer. Right? The transition from equities to futures may not be as easy as it seems.
One share of a stock or exchange- trade fund (ETF) offers much less market exposure than one futures contract. Many novice traders pay their dues by investing a lot of time trying to fully grasp the leverage involved of trading futures through an online account.
ORDER TYPES — stop orders work as stop limit orders in many electronic markets. Electronic stop orders usually are filled within a few ticks. As volatility increases, a market may gap through the predefined stop limit price, leaving your order unfilled. For example, the predefined stop in the E-mini Dow is 30 ticks. If you work an order to sell the mini Dow at 11,200 stop, the order is working to sell a mini Dow at 11,200 stop with a 11,170 limit. You should contact your broker for specific details on how stops work for specific markets.
CONNECTIVITY ISSUES — if you have connectivity issues and do not receive a confirmation of a trade, do not replace an order. When surfing the Web, it is human nature to resubmit a request if it doesn’t connect immediately. This mentality in online trading can be very costly. Each time you hit the submit button, you run the risk of exposing yourself to additional orders. Call your brokerage firm to report connectivity problems, and confirm your positions prior to re-entering trades.
OVERTRADING — discipline is a key to trading successfully over the long term. Studies have shown that many traders tend to over-leverage their account due to the ease of order entry when trading online. Additionally, the risks increase exponentially in illiquid markets.
EXTRA SET OF EYES — investors should review their trading statements and account information regularly. Customers who phone in orders have the added benefit of a broker working with them to check their statements and good-til-canceled (GTC) orders to minimize the risk of an error, forgotten order or incorrect contract month. Brokers also work with clients to inform them about market moving reports.
TRY FULL SERVICE
If you are suitable for trading futures and interested, don’t automatically discount the idea of trading through a broker. The commission rates are higher than trading online. However, the cost of full service could save you money in the long run, especially in volatile markets when your emotions tend to run high. A mistake could be extremely costly.
Donna Heidkamp was appointed President of RJO Futures (RJOF) in October 2010. She leads the private client division of R.J. O'Brien & Associates (RJO), the largest independent futures brokerage firm in the United States.
After completing the Chicago Mercantile Exchange Agricultural Broker Training Program in 1995, Heidkamp joined RJOF as Trading Desk Clerk and Account Executive. She was promoted in 1997 to Trading Desk Manager and Senior Account Executi.... Read More