Millionaire TradersQ: We talked a bit about the fact that the futures market is the
most leveraged financial market outside of foreign exchange. [Au-
thors’ note:Leverage in futures can reach 50:1.] That could be very
advantageous, but also it can be very dangerous. Personally, how
much leverage do you think a trader should use trading futures?
A : I tell new traders two things: Number one, they should
have at least$10,000 in their account for every single contract
they trade, even though their broker will allow them to have far
less. I tell them if they want to be here next month, next year,
then they better have that much money to trade. You’re going
to have days you lose money and you’re going to make mistakes.
I also tell traders that if they do not start out with a$100,000,
their chances of making it in this business are very, very slim be-
cause they’re going to run out of money. Their not going to make
money for the first year, and they’re going to pay some tuition to
learn to do this. So, if they come into the market with$20,000
or$30,000 and a mortgage payment, a car payment, and a kid in
college, they might as well just give me their money because they’ll
lose it.
Q: Just to delve into that a little bit deeper, one of things that
most novice traders don’t quite appreciate about futures is the
commission cost that comes with the market. Even though com-
missions on a relative basis are extraordinarily cheap, the amount
of trading you do during the day can really add up. Can you give
us an idea of how many round turns you typically do during a day?
A: Well that’s a tough question, because it depends on your style.
If you’re going to be a momentum trader and trade three or four
contracts, you may only make three trades a day. If you are like
me, where I’m willing to take the money and trade size, it’s not
unusual for me to trade 20 times a day. Or even 25 or 30 times in
the first hour. However, on one move, I may make five or six trades
because I’m making multiple entries and multiple exits.