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Are You Aware of the High Risk of Futures Trading?
2010-11-24

 

One may make profits or suffer losses in futures trading, with the possibility of heavy losses sometimes. You may say it is common sense and wonder why it is emphasized. That’s because the new investors, without the real operation experience or the money-losing experience, always have high expectation of making a profit, but they are not so clear about the risks. A new investor might think that the futures trading is risky but losing money is not possible as long as he or she is cautious, and that huge losses are not possible and he or she may have the chance to gain a profit. The idea, reasonable to a certain extent, though, reveals the insufficient awareness of the risks. The reasons are as follows: firstly, the risk and return are proportional in futures trading. Caution lowers the risk but also reduces the potential return rate. Secondly, in case of emergency, heavy losses are unavoidable even if an investor is very cautious. For example, a minimal position can still lead to huge losses in case of consecutive trading limit in the opposite direction. Thirdly, to recognize an opportunity is a subjective decision. If the actual situation is opposite to the recognition, a large profit may turn into a huge loss. In the final analysis, if a new investor, who continuously makes small money by keeping cautious, may change the mind set and think that more money could be made if the amount of orders in previous transactions is huge. There will be less risk awareness with such a mentality. Every successful futures investor has experienced the process of being cautious, careless and cautious again after huge losses.