Discount Futures Trading - All You Need to Know in 3 Minutes

Before Discount Futures Trading there was Futures Trading. Before the late 1990s, without the internet you had to use a telephone and a broker. Finding a good broker was usually a matter of luck. A bad broker could cost you a lot of money. Hence it was an activity usually reserved for the wealthy.

Futures Trading originated from farmers and traders requiring certainty as to the price of the commodity they were buying or selling at some point in the future. So the farmer could sell his field of wheat a couple of months before harvesting, and receive a guaranteed price, based on an average yield. He risked losing out if there was a bumper harvest, but then if the price went down for any reason he was protected by the guaranteed price.

This kind of trading is known as hedging. It's a standard business practice of safeguarding yourself from a disastrous harvest, if you're a farmer, or an increase in the price of a commodity that you don't need for 3 months, if you're a merchant.

Discount Futures Trading came into being around 1998 when the internet came to be used more and more for financial trading. Brokers used their increased profits to invest in software that enabled clients to trade using an interface on their computer screens, so the active participation of the broker was not normally required. This reduced costs considerably and led to a drastic reduction in brokers' fees, hence Discount Futures Trading.

Another benefit of internet technology was that whereas brokers had only been able to offer the Mini S&P 500 for online trading, from the late 1990s the whole range - stocks, indices, currencies, commodities, and so on - became available for online trading.

This situation was compounded in 2003, when a minimum equity of $25,000 was imposed on day traders, diverting them in droves to Discount Futures Trading.

Great story so far, isn't it? Not only a low cost of trading, but leverage too. Leverage means you can trade with, say, $100,000 of stock or currency when you only have $10,000 in your account. That's because very often only a 10 per cent deposit is required. So if your stock or currency increases in value by 5 per cent in a couple of days, which is quite commonplace, you actually gain a 50 per cent profit on your $10,000.

But there's also a downside, and it is this. You can just as easily lose all your money if you're not careful. And the tragic thing is that most of the new traders turning to discount futures trading are new to financial trading in general and don't take this fact seriously. They are sitting ducks, waiting to be fleeced by the shrewder, more experienced traders who accept the rules of the game - that trading is not a license to print money and that they are inevitably going to have some losing trades.

Once you realise that, you have probably increased your chances of success in futures trading by at least 50 per cent. What else can you do to ensure your long term success at this business?

First, be wary of the advice and information made available to you by brokers. Their interests are not necessarily the same as yours. Secondly, find yourself a mentor - someone who trades successfully in the futures markets. They are there if you look for them, and some are willing to teach you how to do discount futures trading  successfully.