Why Invest in a Futures Trading System?

When the subject of how to invest your money comes up, employing a futures trading system can make a world of difference.

What is a futures trading system? We can begin with the term “trading system”. A trading system is a set of rules that quantify how to place trades for a basket of or a single security or commodity . It is very typical for these rules to be computer-based and to have the ability to run truly in a hands-free manner.

What are futures? Futures are contracts that are traded only on futures exchanges across the globe. While these contracts are technically agreements to buy or sell a given amount of the underlying asset at a date in the future, its easiest to think of them like stocks that expire on a certain date. Treasury bonds, stock indices (like the Russell), currencies, oil, and gold are some of the most popular contracts.

Why trade futures? Trading futures gives that extra something special that is badly needed in a stock-heavy portfolio: diversification. It is quite common in the past that as stocks rise, futures tend to go down. And as stocks go down, futures tend to rise. This pattern holds up a decent portion of the time. At other times they move completely independently of each other. This means that the futures market is not correlated to the stock market. This helps an investor’s portfolio to prosper in the storm of stock market ups and downs.

Secondly, most futures are based on commodities: things like gold, oil, coffee, and wheat. These commodities are in global demand and aren’t subject to the “fads” that can really take stocks for a ride. As prices around the globe for these commodities rise, we can gain from these price shifts by entering trades on commodities through futures.

Most importantly, why use a trading system? Trading systems are superior in a number of ways to a discretionary approach. Discretionary trading means that the investor makes non-systematic choices about in what and when to invest. By using a trading system, rather than making decisions on what “feels right”, you can make informed trade decisions that are founded on profitable patterns with a high historical likelihood to win.

Secondly, and just as important, systems trading offers a way to control your emotions when making investment choices. Like most investors, you’ve probably sold after a long losing streak and then you see your stock rocket back into the green and make up for all the losses, leaving you reeling? How many times have you bought when the security looked like it was a sure-fire bet that it would continue to rise, and then see your investment lose value in the coming weeks? We are all subjects to “herd mentality”, and being swayed by the herd often leads to bad investment decisions. Thankfully by using systems, we can avoid this faulty thought process and make sound and objective investment decisions.

Lastly, and possibly most important, using trading systems give you more free time. Who wouldn’t want to enjoy your time, have extra time to spend with your family, or be enjoying your hobbies, rather than endlessly debating your next portfolio decision. With most trading systems now being computerized, they can be set to function automatically, and this frees up your time to spend how you please. For those of you that aren’t computer savvy, there are many futures brokers will now faithfully trade your chosen system day in and day out for you and that means you don’t have to be involved in the day-to-day actions at all.

For all these reasons and more, using futures trading systems is a smart choice. When it comes to your financial future, don’t guess. Trade smart, use futures trading systems!


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