Trading Terms Education
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Trading Terms Education:

Using Stops
Stops are pending orders placed to protect against losses. In our opinion using stops is essential to proper trading. Stops are like parachutes on your positions, if the Internet goes down or your computer crashes or freezes or both your Internet and Phone line goes down and you cannot call your broker your Stop will also be your parachute which will save you on every trade. We at Code Trading System recommend using "bracket orders" so that an automatic Stop is placed as soon as the trade is opened, along with an automatic exit to make everything easier and more robotical.

Shorting
If you believe something is going to move down in price you can easily "short" in the futures markets simply by "selling". If you're able to "exit" your short position at a lower price then where you entered you will make the same profit as you would have had you opened a "buy" position. However if you have to exit your short position at a higher price than you entered then you would lose the same amount of money had you opened a "buy" position and it went down. There is no shorting rule trading the futures markets, unlike the Nasdaq shorting rule for stocks.

Margin
The margin for futures works different than stocks. With stocks you have a certain amount of money in your account and you can borrow money by a factor of your account from 2-4 times the value of your account. So a 25K account can buy/short 100K worth of stock for day trading. Futures margin doesn't work like this. With futures margins every broker that you come across is going to have a certain "margin" requirement to open each "contract" you want to open. This can range from $500 to $8,000 for Oil Futures (CL). When you open a position using one contract the broker will automatically take out the margin requirement from your account while the position remains open. Once you close the position that margin money is returned to your account instantly. Thus many traders look for brokers which offer low margin requirements, and this can easily be found.

Bracket Orders
Bracket orders are "pending" orders which are automatically generated once a position is opened. Typically you will have a "Stop" and "Limit" order pending, the Stop is your loss and the Limit is your profit order. Once you open your initial position you can easily modify either your Stop or Limit order anytime you wish, and or you can cancel them. The benefit to using "Bracket Orders" is that they free you from making mistakes on where to get out for a loss or where to get out for a profit. Bracket orders are highly recommended by us at Code Trading System.



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