Please find information on futures trading risks in the guide below.


Risks for Futures Traders

Taking part in the worldwide futures marketplace can be a highly rewarding and exciting experience one that carries the possibility of good capital returns. However, before you get started, it is important to understand the risks involved.

While a wide range of people now partake in the futures market not just insider professionals that does not mean that trading futures is necessarily suitable for everyone.

Before you sign up with a futures broker, consider what type of investor you are. Are there other more suitable ways of making your money grow? Perhaps you are better off putting your money into a savings plan or fund to allow it to grow slowly over time? Discuss this with an independent financial advisor if necessary.

Are all Traders at Risk?

Yes; all traders, no matter how experienced they are, have put their capital at a high level of risk. That is mainly due to the large amount of volatility of the commodities market and the changing prices of products.

The less you understand the products, trends and market, the higher the risk to your money. That is because you could be acting blindly and without due knowledge and care. Never rely on guesswork or rumours to buy or sell contracts!

What are the Risks?

There is a grave reality that all traders will lose money at one point or another on the futures market. While that doesn't always mean that overall they will come out with profiting positions, in many cases people lose a significant amount of money which they will never be able to recover. Remember:

You could lose all of your invested money plus you may incur additional charges to cover a loss.

Financial markets are notoriously volatile which means they can change rapidly and without warning. In other words, a position that may have seemed winning one moment could be losing the next. It can be difficult to predict the way a market will move.

For that reason, many traders arm themselves with as much research, technical tools, charting software and trend recognition as possible to help make the right decision. Trader training academies are now popular places for newcomers and experienced traders to practise and learn trading strategies and tactics. However none of these activities can guarantee a successful futures trade.

Leverage A Two-Sided Matter

Leverage is an appealing feature to many people interested in this type of investment trade. And why not it offers the chance to invest in a large asset without needing to produce a large amount of money on the spot.

However, while leverage allows for the potential of big returns, by the same ticket it carries the risk of big losses.

If your position loses and the market moves against you, you can lose the initial deposit (typically around 10% of the full value of the contract), plus all the funds in your account. In addition you might be required to pay more funds to help cover the loss to the broker.

What are the Legal Implications of a Loss?

All traders are liable in the event of a loss. Futures exchanges are regulated by the ASIC in Australia and in the rest of the world by the financial regulator of each country.

You may be liable to make up the deficit to your broker if your contract loses money. Make sure you therefore find out what exactly the implications of your contract are and in which way you could be liable before you get going. Don't be afraid to ask your broker directly they should be happy to explain the rules clearly for you.

What Can I Do to Limit Loss?

One thing to bear in mind with this type of investment trading is that you can never eliminate capital loss entirely. In the same way, there is no guarantee that the measures you take to try and manage risks will reduce risk significantly.

However, it is often recommended to take steps to try and manage your risk exposure. Here are some ways you can go about this:


Training yourself is a good way to become a knowledgeable trader. Knowing the background, workings and trends of the futures market can really improve your performance. By knowing what could happen to your investment, you can hedge the risks if needs be.

You can go straight to the ASIC to find research material, or you can sign up with an online trader training academy. They offer many services for free including seminars and webinars (online seminars). Have a look around to find one that offers worthy research and training material.

Take a Stop Order

The majority of brokers offer stop orders in various shapes and forms. A stop order (sometimes known as a stop-loss order or stop-market order) means that the broker will sell the contract when it reaches a certain price. This allows the trader to decide their loss limit in advance meaning last-minute decisions are removed.

Stop losses are especially useful for times when you are unable to keep an eye on your investments (for example when you go away on vacation).

Independent Financial Advice

Before entering any form of investment it is a good idea to get some independent (unbiased) financial advice. That way, you can discuss your options like how much you can afford to invest, what types of investment are suitable for you and so on.

They may highlight risks to your personal situation or suggest alternatives discuss this with them.

Browse the Broker Market

Before you go with a broker, have a good look around to see what's on offer. There are lots of good brokerage firms available today but they might offer varying degrees of service. Some might offer better fees or more additional management services.

Try them out and compare which one suits you the most before signing up.

Important Note:

Which Way To Pay Australia is an independent online comparison website. Please note that while part of the site content centers on the review and comparison of financial products, we do not at any time encourage or recommended site visitors to begin a futures contract or to trade on any index, commodity, currency, stock or share. Please make sure that you are fully aware of the product before you begin any transactions with futures trading.

Which Way To Pay Australia takes reasonable measures to ensure that data on the website is accurate. However, we are not aware of your personal investment goals or needs. The website content is designed for information and interest only.

We would recommend that if you are unclear about your suitability for futures trading that you seek independent financial advice.

Which Way To Pay Australia has outlined some of the risks involved in futures trading. If you are considering a broker or platform, make sure that you gain a full risk document from the company with which you intend to trade. There are many positive aspects to this type of trading, but it is wise to realise what the risks are when dealing with a financial product or tool which offers such a fast-paced, challenging and potentially rewarding investment. Once you are fully prepared, it is up to you alone to decide how to use futures.


Please Note: www.whichwaytopay.com.au is not authorised to give advice under the ASIC (Australian Securities & Investments Commission).

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