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Trading Tip #11 : Healthy respect for the markets
Markets are powerful things. When you first start trading, you are likely to hear a lot about the risk that comes with the potential opportunities in trading. Don't just pay it a lip-service. It is important that before you risk one dollar, you understand and respect how the markets work and what your responsibilities are.
Understanding the mechanics of risk and reward will help you plan trades
One key thing to remember about futures trading is that you are leveraged in your positions. What is leverage? Well, you are basically able to control (buy or sell) an exponentially greater value of contract with a fraction of the overall price. You use a smaller deposit (margin) as a performance bond to trade a much larger total value.
Leverage can bring big dreams or big nightmares
If each trade is leveraged, then the risks as well as the potential rewards are multiplied accordingly and that means you are on the hook big time. Consider this scenario:
The S&P 500
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