Why Use A Futures Trading System?

When it comes to investing your hard-earned cash, employing a futures trading system can give you the returns you've been looking for.

So what is a futures trading system? First, let's start with the term "trading system". A trading system is a set of rules that quantify when to buy or sell a basket of or a single security or commodity . These are usually computer-based and to have the ability to run truly in a hands-free manner.

So what in the world are futures? Futures are contracts that are traded only on futures exchanges across the globe. Although these contracts are essentially agreements to buy or sell a given amount of the underlying asset at some point in time in the future, the simplest way to think of them like stocks that expire on a certain date. Some of the most heavily traded contracts include: treasury bonds, stock indices (like the Russell), currencies, oil, and gold.

Why would you want to trade futures? Trading futures gives that extra something special that is badly needed in a stock-heavy portfolio: diversification. Historically, when stocks rise, futures tend to dip. And when stocks dip, futures tend to rise. This pattern holds up a decent portion of the time. At other times they move completely independently of each other. This means that the futures market is only weakly correlated to the stock market. This is is a big advantage and it help an investor's portfolio to survive the storm of stock market bull and bear markets.

And don't forget that most futures are based on commodities: things like gold, oil, coffee, and wheat. These commodities have a global demand and aren't subject to the "fads" that cause so many fluctuations in stock prices. As prices around the globe for these commodities rise, we can gain from these price shifts by entering trades on commodities through futures.

Why use a trading system? Trading systems offer several advantages over a discretionary approach. Discretionary trading means that the investor makes non-systematic choices about how to invest and in what to invest. By using a trading system, rather than making decisions on what "feels right", the astute investor can can make informed trade decisions that are founded on profitable patterns that have a high historical likelihood of success.

In addition, and just as important, systems trading provides a means to keep your emotions under control when making trading decisions. How many times have you sold after a long losing streak and then you see your stock rocket back into the green and make up for all the losses, leaving you reeling? On the other hand, have you bought when the security looked like it was a sure-fire bet that it would continue to rise, only to see your investment go down in the coming weeks? We are all subjects to "herd mentality", and being swayed by the herd often leads to bad investment decisions. Luckily by using systems, we can get around this faulty thought pattern and make sound and objective investment decisions.

Lastly, and possibly most important, using trading systems frees up your time. Who wouldn't want to enjoy your time, have extra time to spend with your family, or keep up with your hobbies, rather than endlessly debating your next portfolio decision. With most trading systems now being computerized, they can be set to function automatically, and this means you can spend your time doing what you love, rather than placing your trades. For those of you that aren't computer savvy, there are legion of futures brokers that will faithfully execute trades for your chosen system each and every market day for you so you don't have to be involved in the daily operations at all.

For all these reasons and more, using futures trading systems is the smart way to reach your financial objectives. Don't guess at your financial future. Invest wisely, use futures trading systems!