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You should not become a futures trader just under the impression of the successful ones. Do enough research before you finally decide to put your money in a particular trade. It is important that you know the profit point of your option. Before you become a futures trader, you must know just what you are getting into and what you stand to get out of the potential risks you take while trading in the S&P futures market. Let’s take a look at some of the key questions that will help you in determining if futures trading is the thing for you. First ask yourself if you are trading in the US or dealing with a foreign option and whether or not it’s a dealer traded or exchange traded option. US options are controlled by a commission and they are easily followed since everyone is involved in the contracts. Exchanged traded options are standardized and this means they are even more liquid and thus can be hedged way better against any risks. This may not always be the case with some dealer-traded options. Look into just who will be guaranteeing the transactions. All the firms floating eminis in the market in the US are always monitored for their solvency and liquidity but this is not always the case for foreign institutions. This is why you need to check each one of them individually. Look into how much premium you are going to pay is the actual value of all the options you deal. In some instances, the fee you pay when dealing with an independent options dealer is too steep and can hurt the transaction itself. The cost of the transactions shouldn’t be too high since you are looking to make a profit from the transaction. The higher the costs the lower the profits will be. Find out what the profit point for your option will be. In other words this is just much the price has to increase by before you do make some money. Determine how much you will pay as commissions and the kind of services you will get for what you are paying. A big part of the solution to this is checking where you are in regards to the trade. Before the expiration of the contract, your break-even is only the cost of the option. This gets a little bit more complicated at expiration. For puts, the break-even will be the strike price less the premium paid and for calls it’s the strike price added to the premium that was paid or by a writer. Discover if your broker will do thorough research to determine what the expectations are of the futures prices of all the underlying assets. If the price is expected to change only by a small amount in the coming months then the premium you pay should also be very low. At this point you should also find out how the broker will exercise the option and just what you will receive when they do. Always have a clear line of communication with the broker and this means you also have to go through and understand the management contract you signed. Find out how you will be informed when the broker executes your options contract. Online S&P future brokers inform you right after the trade electronically. The traditional brokers may call you after trade execution but it depends on what you are most comfortable with. Author of this article enjoys listening to the CFRN Emini Futures Live Market Commentary each day and also watching the CFRN Professional Emini Traders place live trades in their Live Emini Trading Room.
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