Myths of Futures Trading

"I'm going to get a load of Corn delivered to my house!"
	You can take delivery of a physical commodity contract if you want, but you have to really want to. In order to take delivery of a contract you would need to hold the contract past its "First Notice Day," then begin a process that includes putting up, or financing the entire underlying value of the particular contract. In other words, it's going to be very difficult for you to "accidentally" take delivery of a corn, or a cattle, or a sugar contract. Also, besides being clearly designated on the "Commodity Calendar" that all traders should posses, a good brokerage firm will contact a client and notify him if he is holding a contract that is approaching a First Notice Day. In fact, unless the client has specifically made arrangements with his brokerage firm ahead of time, most brokerages will liquidate the contract at First Notice Day even if they cannot get in touch with the client. (Check with your brokerage ahead of time to familiarize yourself with their First Notice Day policies.)
"The floor traders know where my 'stops' are!"
	When you place an order, whether it be a limit, stop-loss, day, open or whatever, your brokerage likely hands the order off to their representative floor trader to fill the order. Unless it is a market order, which is "filled" instantly, the order gets placed in the floor trader's "deck." When and if the market moves to an effective level that meets your order's specific requirement, your order will then surface from the "deck" to be filled. The orders that a particular floor trader is holding in his deck cannot be seen by other floor traders. Having explained how your order is effectively "hidden" until it is elected, you should be aware that even though other traders can't literally see your order, it is not difficult to assume at what price speculators' orders may have been placed. For example, within a thin market, influential floor traders may try and push a market through a close support or resistance level knowing that there are probably a high number of stop-loss orders waiting to be elected.
"Trading 'options' is always better than the futures!"
	A lot of new traders enter the commodities market with this misconception because they learn early that the most you can lose on an option purchase is the amount you pay. Don't get me wrong, options are great and definitely have there place in certain investment strategies, but to say they are always the better vehicle would be incorrect. Educating oneself to the basic uses and strategies of both options and futures will provide the opportunity to evaluate the advantages and disadvantages of each strategy before making a decision.
"I don't have a chance to compete against the large commercial traders!"
	Don't be intimidated by this perception. The fact is, you shouldn't be trying to compete against the commercial traders. Commercial positions are attempting to hedge a cash or physical position. They are not trying to forecast the market direction, just eliminate their exposure to its volatility.

"You can lose your house before you know what hit you!"

While it is possible to lose more money than you have in your account, it is a unique situation when it occurs. When the amount of capital in your account draws down due to adverse market movement, your brokerage firm will issue a "margin call" for you to add funds into your account or liquidate your positions. Most firms have a margin call period of five days before they choose the later option for you. So, even if you did nothing to combat a position moving against you, your firm will eventually take action to liquidate the position before it can deplete your entire account capital. (The lone exception to this practice occurs when a market "locks limit" against you. In which case it is possible that the position cannot be liquidated right away. Consult your brokerage directly for more information about "limit moves" and other margin call procedures.)

"You can't make money trading in the futures markets with less than $100,000!"

Different commodity contracts have different margin requirements. Obviously, the more money you have in your account, the more and bigger contracts you can trade. What is more important than the amount of money in your account, is how you manage it.

If your account size is limited to the $5,000-$10,000 range, then you have to be more discriminating in choosing your positions. The higher margin contracts are usually that way due to higher volatility and thus risk. Formulating a plan that includes calculating your potential loss, before ever entering into a trade, is an essential part of evaluating which trades are within the limits of your account size.

"Options are too complicated to use!"
	Options, while more complex than the futures contract, are actually quite simple to utilize. As with any successful investing, the key to profitable implementation is in education. Study and learn about how options can help to maximize your commodity experience.