3. What to trade?
With futures contracts on almost everything under the sun - from stock indices to commodities to interest rates, just how do one choose which contract to trade? Stock index futures alone, we have SiMSCI (Singapore), Taiwan, HangSeng, Dow Jones and S&P among many others, which can indeed be confusing for new traders.
Firstly, you should start off with a product of your interest that you are familiar with. Like shares investors can start with stock index futures, importers/ exporters can start with FX futures and producers with commodities futures. This is the reason why many new traders start with trading SiMSCI - it is a Singapore share index and trades in close correlation with the STI index which many Singaporeans are farmilar with.
Secondly, the contract must suit your risk appetite. Monitor the daily movement of the contract you want to trade, and work out if the fluctuations are suitable relative to the amount risk you are willing to take. Say, the average movement of the E-mini S&P is 10-15pts, which is usd500 to usd750, you have to decide if you can take a daily fluctuation of this amount. If you have a risk appetite of Usd 500, you should avoid contracts like the big S&P which 1 pt is Usd500 or the Dow Jones which can move 100pts a session (100pts x 10usd = Usd 1000).
Thirdly, the contract must be liquid so it will be easy for you to exit your positions. A liquid contract is one which has a narrow bid/offer price and is actively traded with high volume. If market moves against you, you will want to be able to get out of your positions with minimum loss.
Whatever contract you choose to trade, do make sure you do your homework. Know the contract specifications like expiry dates, per tick value, trading hours etc, and this will help you make an informed choice. Check out Popular Contracts.
