Many friends have a superficial understanding of futures trading, and without adequate preparation, they rush into the market, which can easily lead to losses.
After suffering losses, they think of learning but don't know where to start or how to proceed, and eventually they find themselves stuck in a cycle of losses, which is very uncomfortable.
There is a classic saying: It is difficult for people to earn money beyond their cognition.
Therefore, the purpose of today's article is very simple, which is to help everyone clarify their thinking and understand the 6 aspects that must be known for futures trading, which can help everyone take fewer detours and achieve profits as soon as possible.
The 6 points that today's article will discuss are as follows:
1: Understanding the trading rules of futures
2: Methods of obtaining futures information
3: Knowledge of futures commodities
4: Futures account opening and trading costs
5: The use of futures software6: Other Soft Conditions for Achieving Profits
1. Understanding the Trading Rules of Futures
A: Futures are for both long and short positions, and also for T+0 trading
Unlike the domestic stock market, which can only go long and not short, the futures market allows for both long and short positions, making it more flexible and relatively more challenging to trade.
Domestic stocks and funds are T+1, meaning stocks purchased on a given day can only be sold on the next trading day. Futures, however, are T+0, allowing for buying and selling on the same day, making the trading rules more flexible and more suitable for technical analysis.
There are limits to the price fluctuations in futures trading, and the limits for the upper and lower price limits vary among different futures contracts.
B: Futures trading has three trading sessions each day, which are the morning session, the afternoon session, and the night session.
From Monday to Friday (excluding holidays), the morning session is from 9:00 to 11:30 (with a break from 10:15 to 10:30), the afternoon session is from 13:30 to 15:00, and the night session starts at 21:00 and goes until the early morning of the next day.
All contracts have the same trading times for the morning and afternoon sessions, but the trading times for the night session vary among different contracts. Specific times can be checked on the official website of the futures exchange.
Additionally, please note that a complete trading day in the futures market starts at 21:00 and ends at 15:00 the next afternoon, which is considered a full trading day, not the conventional understanding of starting at 9:00 in the morning and ending at midnight.C: There are six major futures exchanges.
Currently, there are six major futures exchanges in our country, which are the Shanghai Futures Exchange, Dalian Commodity Exchange, Zhengzhou Commodity Exchange, China Financial Futures Exchange, Shanghai International Energy Exchange, and Guangzhou Futures Exchange. Among them, the Zhengzhou Commodity Exchange is the earliest futures exchange in our country.
Different exchanges trade different futures commodities. I have made a table for everyone, simply organizing and listing the varieties of futures traded on each exchange.
D: Margin system.
Futures trading is a leveraged transaction. Simply put, through the leverage of futures companies, traders can use a relatively small amount of capital to buy contracts with a larger capital ratio.
Let's take rebar as an example to give a simple explanation.
The margin ratio for rebar is 13% of the contract value. How to understand this? Let's do a calculation to make it clear.
Assuming the price of rebar is 3,000 yuan/ton, the contract unit of rebar is 10 tons, and the value of 1 hand of the contract is 30,000 yuan, with a margin ratio of 13%. The formula is: 3,000 x 10 x 13% = 3,900 yuan.
It can be simply understood that as long as there are 3,900 yuan in the account, one can trade 1 hand, which is a rebar contract worth 30,000 yuan.
Regarding the margin, there are two points to note that I would like to share with everyone.1: Futures companies typically add 3 to 4 percentage points on top of the margin requirements set by the exchange when opening futures accounts for traders. For instance, the exchange margin requirement for rebar may be 13% of the contract value, but after opening an account with a futures company, the required margin ratio could be 17%.
2: The margin requirements for different futures contracts vary. For example, the margin requirement for rebar is 13%, while for gold futures it is 10%. The margin ratio for futures commodities usually ranges from 5% to 15%. The lower the margin ratio, the higher the leverage, and consequently, the greater the risk.
Understanding futures information and methods of obtaining it:
A: Main sources of futures information.
1: International economic news, such as Federal Reserve interest rate hikes, U.S. CPI data, etc.
2: Changes in the trends and fundamentals of foreign futures commodities that are correlated with domestic futures commodities, such as U.S. crude oil inventory data.
3: Domestic commodity information. For example, the production and inventory levels of rebar, as well as analysis reports on product trends from professional institutions.
This information can serve as a reference for trading, but actual trading decisions should still be based on our trading system.
B: Channels for obtaining this information.I will translate the given text into English:
I will discuss two of the main channels that I use. The first one, which is quite user-friendly, is the futures section on the official website of Eastmoney. It includes a summary of information as well as individual commodity information pages.
The second is the Jint10 Data APP, which features a futures section. In addition to futures information, it also has pages that announce important data and events that affect the futures market on a given day.
3. Knowledge of futures commodities and contracts
A: Types of futures traded.
As of August this year, there are a total of 101 futures and options varieties in our country, with 64 being commodity futures, 7 financial futures, 25 commodity options, and 5 financial options.
Each futures variety has its own contract information, which can be found through the official websites of the futures exchanges. For instance, the contract information for rebar, which is traded on the Shanghai Futures Exchange, can be looked up on the exchange's official website.
For the commodity rebar, the trading unit for one contract is 10 tons. This means that buying or selling one contract of rebar on the trading software is equivalent to buying or selling 10 tons of rebar. The smallest price movement for rebar is 1 yuan per ton, which means that prices are in whole numbers and there are no decimal quotations like 3000.5.
Each futures commodity has its own trading code. The code for rebar is RB. The contract name generally consists of the code followed by the delivery month and year, such as the current main contract for rebar, RB2301, which represents the futures contract for rebar with delivery in January 2023.
The code for gold on the Shanghai Futures Exchange is AU, and the current main contract for gold is AU2212. Detailed contract information for each commodity can be found on the official website of the corresponding exchange, and you can choose the variety you want to trade and look it up.B: Futures contracts are mainly divided into commodity futures and financial futures.
The rebar, gold, and soybeans mentioned above are all commodity futures, while financial futures are primarily traded on the China Financial Futures Exchange, such as the CSI 300 Index futures, Treasury futures, and so on.
C: Futures contracts.
Each type of futures commodity has several contracts running simultaneously, divided into forward contracts and spot contracts. Taking rebar as an example, there are currently more than a dozen contracts such as 2210, 2211, 2212, 2301, 2302, 2303, 2304, etc.
D: Futures delivery system.
Each futures contract has a delivery date, and after the delivery date, the contract will cease trading. For us as natural person traders, futures companies will require us to close positions and roll over to the next month in the middle of the month before the delivery month.
For example, for a contract with a delivery date in January 2023, futures companies will require natural person traders to close positions and switch contracts in mid-December 2022.
Experienced traders will generally roll over to the next month two months before the delivery month and will not even enter the month before the delivery month, as it is prone to squeezes in both long and short positions, posing significant risks.
After the old contracts expire, new contracts will be added to replace them, in a continuous cycle.
E: The most active contract.
(The translation of "主力合约" is not provided in the original text, but it typically refers to the most actively traded contract for a particular commodity in the futures market.)Although several contracts for different delivery periods are running simultaneously for each futures commodity, not all contracts have high trading volumes. The one with the largest trading volume is called the main contract. The main contract has a large trading volume and active transactions, making it the first choice for traders.
As the delivery period approaches, the trading volume of the main contract gradually decreases, while the trading volume of another contract increases, forming a new main contract, thus the main contracts alternate.
4. How to open a futures account and the cost of trading
A: The relationship between futures companies and futures exchanges.
Futures companies act as a bridge between exchanges and traders. All our futures accounts are opened through futures companies, and we trade on futures exchanges through trading software. Orders from different futures companies are all pooled and executed on the futures exchange.
Therefore, the essence of a futures company is that it is an intermediary company that connects the top and bottom.
B: The safety and rating of futures companies.
There are more than 140 futures companies nationwide, and there is a certain threshold to obtain a license, just like securities companies, there is no issue with safety.
The Futures Association classifies futures companies into 5 categories and 11 levels according to their scores, which are Class A (AAA, AA, A), Class B (BBB, BB, B), Class C (CCC, CC, C), and Class D, E, which are assessed once a year.
When I personally choose a futures company, I will choose the mid-to-low-end of Class A and the top of Class B, because these futures companies face great competitive pressure, which will lead to better trading costs and good service attitudes.C: Account Opening Process.
The account opening process is similar across all futures companies, and it doesn't really matter which account manager you choose. The main thing to consider is the fee structure they offer. Generally, it's difficult for small retail investors to get the lowest fees.
Newcomers need to pay special attention at this step to avoid being charged hidden fees. Many friends have reported to me that they can't make a profit because their trading costs are too high.
D: Futures Trading Fee Standards.
Futures exchanges have set fee standards for the products they offer, which are known as "exchange fees." This is the starting point for futures trading fees. When opening an account, futures companies typically add a multiple of the exchange fee standard as their own fees.
For example, the exchange fee for rebar is 0.01%. The calculation formula is as follows: 3000 yuan * 10 tons * 0.01% = 3 yuan.
If a futures company opens an account for a trader at double the exchange fee standard, the trader's rebar fee would be 0.02%. The calculation formula would be: 3000 yuan * 10 tons * 0.02% = 6 yuan.
For the same transaction of one lot of rebar, the trader would have to pay an additional cost of 3 yuan.
1: Don't underestimate this 3 yuan; when you trade in large volumes, you'll find it adds up to a significant expense.
2: Many traders are charged fees that are five or ten times the exchange standard without even realizing it. In such cases, no matter how skilled your trading techniques are, it's difficult to make a profit, and sometimes you might even start doubting yourself.3: The transaction fees for contracts of a commodity in different months may vary. There are mainly two forms of transaction fees. One is a fixed percentage of the contract value, for example, the fee for rebar is 1% of the contract value. The other is a fixed amount per lot, for example, the transaction fee for opening and closing positions in the main gold contract is 10 yuan per lot (free for closing positions on the same day).
4: The transaction fees at futures exchanges are not fixed and unchanging; futures exchanges often adjust the standards for transaction fees based on the situation.
5: Use of Futures Trading Software
A: What are the trading software options?
Trading software serves as the vehicle for executing trades, and traders can buy and sell futures through trading software, which is very convenient.
The most mainstream futures trading software includes Wenhua Financial, Boyi Master, Fast Futures, and Tonghuashun, among others. These software options are available in both computer and mobile versions. Additionally, each futures company usually has its own developed APP for trading, but I believe that independently developed trading software tends to be more user-friendly.
B: How to download these software?
On the official websites of various futures companies, you can download the trading software supported by your futures company, including both computer and mobile versions.
Large futures companies typically have access to all mainstream trading software for trading, while smaller companies may not, which is one reason to choose a larger futures company.
C: Learning how to use the software.
(The original text ends here, so the translation is incomplete.)1: You can download these software programs onto your mobile phone or computer to conduct simulated trading and become proficient in using the software first.
2: It is crucial to become very familiar with the software functions before starting actual trading. Otherwise, if you make mistakes due to unfamiliarity with the software operations during real trading, resulting in losses of money that should not have been lost, it would be very regrettable.
3: The functionalities of trading software are generally similar, with only minor differences in details. There is no absolute distinction between good and bad; as long as you learn to use one type of trading software proficiently, that will suffice.
Today's space is limited, so I won't elaborate on the details of software usage. In summary, the main principle is to become familiar with it first, then engage in actual trading. If you are dedicated and spend some time experimenting, you can become proficient in using it.
6: Other soft conditions for achieving profitability
A: Have a risk expectation.
Futures trading involves high leverage, and the commodities involved are subject to frequent fluctuations with significant price ranges, making the risk associated with trading relatively high.
Therefore, before engaging in futures trading, investors must be prepared for the worst-case scenario. Consider whether losing all investable funds would impact your life. Only after understanding this should you enter the market.
So, when it comes to futures trading, always invest with your disposable funds and avoid borrowing money for investment. Don't rush into it just because you see many people making money from futures. Always consider the risks before thinking about profits.
B: How much capital is appropriate to invest?There is no absolute standard for the amount of money; it is determined based on each individual's financial situation. Moreover, the value of different commodity contracts varies, and so do the margin requirements. With too little capital, many types of trades cannot be conducted. For beginners starting to trade, it is necessary to prepare at least 30,000 to 50,000 yuan; any less would make it difficult to achieve profits.
C: Expectations of Profits.
If you believe that futures can bring you stable windfall profits, change your life, and lead you to financial freedom, then futures trading is not suitable for you, or rather, all speculative markets are not suitable for you.
The trading rules of the futures market are relatively free, making it very suitable for technical analysis. After so many years of trading, those who can consistently achieve an annualized return of over 30% are few and far between, which can also serve as a rough standard for profits.
Additionally, from the beginning of learning to eventually making profits, a certain period of time is required. Do not expect to make profits right away; we must allow ourselves enough time to learn and understand the market in order to profit more steadily.
D: Technical Preparation.
1: In futures trading, we also need to have our own trading system, and strictly follow it after verifying its effectiveness in order to achieve profitability.
2: We need to learn the logic of establishing a trading system, various technical indicators, and build the trading system according to the framework, followed by testing and optimization. After backtesting and verifying its effectiveness, then proceed to actual trading.
3: Simulated trading is an essential step before entering actual trading. The existence of simulated trading can be said to be the most cost-effective and effective tool for verifying trading methods. Through simulated trading, one can refine the details of the trading system, feel the rhythm of the market, and test one's own limits, thereby establishing trading confidence.
