What are the drawbacks in commodity futures trading?

Answer 1

The main disadvantages are:

1. Leverage. Can be a disadvantage if it encourages trading with too high a risk for a particular strategy. A carefully devised money management plan is essential.

2. Overtrading. The instant nature of electronic futures trading coupled with low commission costs and tight spreads can encourage a trader to take additional trades to those determined by their trading plan.

******ADDITIONAL ANSWER******

Futures are more expensive to start with than Options, but Futures also make you more of a profit. Rich people have been investing in futures and options forever, and most people don't realize that you can do it as well with a relatively small investment.

The best way to increase your possible profit, and limit your losses is to use the "straddle" method. This is where you bet the price will go up as well as down. You will lose one way, but win on the other. Also, it doesn't matter to you if the price goes up or down, because you can make money on either one. To do this effectively, when you place your order with the broker (which should be between 10AM-12PM EST or 2PM-3:30PM EST), make sure you say: *EXAMPLE* "I want to buy the November Crude oil future at 5105 and sell the December Crude Oil future at 5095." "I also want a stop-loss on EACH position 50 points from entry." Once the price moves 60 points+ in either direction, call your broker back IMMEDIATELY and tell them "I want to place a trailing stop loss on my Daily US Light Crude open position activated at 60 points above open and trailing by 10 points."

This now ensures that you can not lose money, but only break even worst case scenario. You gain 50 points one direction, you lose 50 points the other, and the remaining 10 points will cover the broker's fees for the trades. If you are watching the market closely, you should be able to decide when is a good time to unload and make an easy profit. Hopefully this helps. Good luck, and Happy Trading!