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Isn't this good enough? (Beginner futures trading)
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Isn't this good enough? (Beginner futures trading)

  #1 (permalink)
Trading Apprentice
San Francisco
 
Futures Experience: Beginner
Platform: X_Trader
Favorite Futures: Futures, stocks
 
Posts: 5 since Jul 2011
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Isn't this good enough? (Beginner futures trading)

I'm doing the demo with Velocity Futures (X_Trader FREE) right now. I am very familiar with stocks and have been obsessively studying them for about 2 months now. Now I'm moving into futures to get more bang for my buck.

Exposition aside, I have about $5,000 to start with and am going to only put that into a real account when I feel confident enough in the X_Trader/Velocity Futures demo. I've only been trading 1 contract at a time in the ES mini for about 2 hours each day, making, on average, about $60-$150 in profit (after subtracting the $4.40 round-trip commissions fee) taking small, surefire trades as my primary strategy.

I'm wondering, by how much fear of the futures market you guys and everyone else pumps out, is that profit going to vanish or something? Are Velocity Futures or the IRS going to deduct a bunch of it to taxes?... Or, minus the comissions as a necessary cost, will I get to keep that $60-$150 of profit for myself? I feel that if I could make that kind of money for keeps every day, I'd be happy with my abilities for the time being - and that's all I could ask for.

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  #2 (permalink)
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  #3 (permalink)
Banned: Previously banned account re-banned
Coloado
 
Futures Experience: Beginner
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Yes, it will vanish......if you send the profits to me You will need to pay taxes on your profits, Uncle Meathead/Sam will always get his piece of the action. And as far as futures go, the only thing I fear is myself. Best of luck! As far as I know, you are taxed on your profits after commision. I have a killer trading accountant that set up my LLC and he does my taxes, he's not the cheapest, but then again not the most expensive. Don't let H&R Block mess with futures related tax stuff; I know a guy (complete moran) that did that and he was very sorry.


Last edited by Rayzor; July 20th, 2011 at 09:15 PM. Reason: I really need to learn to read better
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  #4 (permalink)
Elite Member
Williamsburg, VA
 
Futures Experience: Intermediate
Platform: ThinkorSwim
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worldwary's Avatar
 
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The profits won't disappear due to taxes. They'll disappear due to losing trades.

This isn't to say that you're guaranteed to lose. You might continue to do well. But most traders run into losing streaks that are bigger and more brutal than seems possible when you're in the middle of a winning streak. There is a natural instinct to take stupid chances when that happens in an attempt to get back to even.

Avoid those instincts at all costs. That in my view is the most important lesson new traders need to learn.

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  #5 (permalink)
Trading Apprentice
San Francisco
 
Futures Experience: Beginner
Platform: X_Trader
Favorite Futures: Futures, stocks
 
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worldwary View Post
The profits won't disappear due to taxes. They'll disappear due to losing trades.

This isn't to say that you're guaranteed to lose. You might continue to do well. But most traders run into losing streaks that are bigger and more brutal than seems possible when you're in the middle of a winning streak. There is a natural instinct to take stupid chances when that happens in an attempt to get back to even.

Avoid those instincts at all costs. That in my view is the most important lesson new traders need to learn.

Sent from my Droid using Tapatalk

Thanks. I thought that might be why so many people fail in the stock market: beginner's luck setting up newbies to fail later with false confidence or get-back-to-even revenge plots when they start losing. I think my background as an online cash poker player might have already gotten me past that mentality.

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  #6 (permalink)
Site Administrator
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Futures Experience: Advanced
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Velocity is a great brokerage. I use and recommend them. That said, for a beginner trader, and only a $5,000 account, I really would rather see you trade micro or mini Forex currencies than Futures.

With most futures, you will be risking $10 to $12.50 per tick. Many of them can move 10 ticks in 60 seconds, representing $125 plus the cost of commissions and slippage to just enter the trade. Let's call commission and slippage another 1 tick on average, so $137.50 in total is more or less the absolute minimum you could ever risk in a futures trade -- and quite often, you would need to risk far, far more.

$137.50 of $5000 is nearly 3% of your account size. If you have five losing trades you are down $687.50 which is well over 10% of your total account size.

To survive in trading, especially as a beginner, you need time on your side. $5,000 and Futures does not put time on your side.

Consider opening a forex account with a very reputable firm (important in Forex) such as MB Trading (just the one I use personally). You can then control the risk to whatever you want, such as $1/pip instead of $10 or $12.50/tick. There is still money on the line so it is still valuable learning lessons to control your emotions, follow your plan, etc.

In general, futures should only be traded by those who have already proven successful at trading in general - whether it be with equities or forex.

Mike

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  #7 (permalink)
Fortitudo et Honor
Austin, TX
 
Futures Experience: Advanced
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Posts: 882 since Mar 2011
Thanks: 128 given, 703 received

You need to ask yourself the right question, or frame it properly.

IF I were to offer to trade your money for you (for a cut of the profits), how much history and track record would you require of me before you were comfortable enough to give me your cash?

A week? A month? 6 months? A year? 3 years?

Obviously, your knowledge of yourself is more intimate than your knowledge of me (and your own skills, capabilities, experience, etc) so you're going to require a little less of someone you know thoroughly (such as yourself).

But if you wouldn't trust a total stranger with real money after a week's worth of validation....why would you trust yourself?

Secondly, there's almost ALWAYS a significant difference between sim trading and putting the green glasses on with real money.

This is ESPECIALLY true if you're trading with an account as "small" as what you're starting with (when I say small, it's with respect to the risks you're taking on ES for the size of moves you're making).

To a guy with a $100k account.....the moves you're making are almost trivial, and so his emotions will reflect that. If that guy goes on a cold run....he gets up the next day and goes...man, I lost $1200 yesterday....(or 1.2%). For a guy with a $5k account, a $1200 down day is nearly a quarter of his cheddar.

"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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  #8 (permalink)
Elite Member
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Tax treatment of futures.

DISCLAIMER: I AM NOT AN ACCOUNTANT AND SOME OF THIS INFORMATION IS PROBABLY OUTDATED OR JUST PLAIN WRONG. THE MAIN POINT IS THAT FUTURES ARE IN SOME WAYS TAXED PREFERENTIALLY TO OTHER TYPES OF INVESTMENTS. DO YOUR HOMEWORK ON THIS, DON'T RELY ON THIS POST!

A note on taxes: (This is just my understanding, I am not an accountant, but this is the way I remember it): Profits on futures are taxed differently than profits on equities in the US. Even though you may only hold a position for a few minutes, your tax rate on profits is 60% long term capital gains, 40% ordinary income. If you lose money, only a relatively small, fixed amount is deductible against ordinary income (the number used to be $3000, I don't know what it is today). Losses may be carried forward into later years. However, you can use the long term capital loss portion against long term gains you may have elsewhere, and the same for short term (ordinary) losses: they can be netted against ordinary gains you have elsewhere. So if you make $50,000, 60% of that profit is taxed at the long term cap gains rate and 40% of the profit is taxed as ordinary income.

You figure income from futures on Form 6781, and Schedule D is also involved somehow.

"You don't need a weatherman to know which way the wind blows..."
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  #9 (permalink)
Site Administrator
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Big Mike's Avatar
 
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Yes I agree futures are preferred for tax reasons, more here:

https://futures.io/traders-hideout/4832-tax-thread.html

But my concern here is not how to lower his taxable gains, but to make sure he actually has gains to begin with

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

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  #10 (permalink)
Trading Apprentice
San Francisco
 
Futures Experience: Beginner
Platform: X_Trader
Favorite Futures: Futures, stocks
 
Posts: 5 since Jul 2011
Thanks: 0 given, 0 received



Big Mike View Post
Yes I agree futures are preferred for tax reasons, more here:

But my concern here is not how to lower his taxable gains, but to make sure he actually has gains to begin with

Mike

Thanks, Big Mike and the rest of you for your advice. I wouldn't have guessed a forum of ruthless day-traders would be so generous :P

I'm a big fan of back testing for practice... Going to the beginning, far in the past, and slowly moving the chart forward, marking when you'd buy and being able to quickly see the result. My trades end up being pretty simple and are based oftenly on 3 indications only: Trends (market direction, trendlines, divergence), Stochastics, and MACD for a second opinion. I have back tested many intraday charts of the e-mini just to find when the best, least likely to fail trades occur and have found several patterns that repeat daily: patterns that yield great returns. The main thing I feel like I need to change about myself at this beginning stage is my neediness for results causing me to take a 1-3 tick profit, which is easy to do in sim trading, but harder to consistently do in live.

If I were to describe my trading style in two words they'd probably be: patient and technical.

If you have any suggestions for me on where to direct myself based on the above, I am very interested to hear your experienced advice!

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