One of the questions I hear most often from investors new to futures trading is “How do I actually make money trading futures?”
To be clear, they are not asking how to be guaranteed a profit, rather, they are asking how do they figure out what their profit or loss will be when trading futures or futures options.
Many of our new futures trading clients have invested in stocks and mutual funds. With these investment products, it’s very simple to calculate your returns; if you buy 100 shares of a stock at $20 per share and the stock price goes up to $25, you just made a $500 profit ($5 price increase x 100 shares).
When trading futures and futures options, it’s not that straightforward. As opposed to trading stocks where you are trading individual shares, commodity futures are traded as contracts. Each commodity has it’s own corresponding contract specification and dollar point value. For example, one (1) COMEX Gold futures contract (symbol: GC) is equal to 100 ounces of gold. The WTI Crude Oil futures contract (symbol: CL) is equal to 1,000 barrels of crude oil.
To calculate your profit or loss, you will need to know the dollar point value for each commodity futures contact you are interested in trading – of course, our futures trading platform will calculate your profits and losses for you but an informed investor should always know his or her profit and loss goals prior to placing any trades.
Using the COMEX Gold futures contract as an example – let’s assume the October contact is currently trading at $1,353.00 an ounce. Gold’s minimum price movement (tick value) is $0.10 which equates to $10.00 ($0.10 x 100 ounces). If you were to buy one (1) Gold futures contract at $1353.00 and then sold it when the price went up to $1,358.40, you would have made a 5.40 points profit which equates to $540.00 (5.40 x 100 ounces). Conversely, if Gold prices dropped to $1,345.50 and you then exited the trade, you would have lost 4.50 points or $450.00 (4.50 x 100 ounces).
Again, our InsigniaTrader/Firetip futures trading platform will calculate all profit and losses for any trades you make. You will also be provided with the futures contract specifications that will include the dollar point value for all of the futures contracts you wish to trade.
If you have any questions regarding how profits and losses are calculated when trading futures, please feel free to contact me to further discuss.
To open your own futures trading account, please visit our New Accounts web page…
Principal Futures Broker
Series 3 & Series 30 Registered
Toll Free: 1-866-892-2030 – ext. 101
Insignia Futures & Options, Inc.