Recently, someone asked me about how to trade futures, and I realized that many beginners are actually quite unfamiliar with this market. So today, I’ll share my understanding.

Speaking of which, futures are actually a type of standardized contract, where both parties post their bids on an exchange, and a trade is executed when one buys and the other sells. The contract specifies the underlying asset, price, and expiration date. The most important feature is— it has leverage, which makes futures both very attractive and very risky.

In Taiwan, the most commonly traded are index futures, especially the Taiwan Stock Index futures, followed by commodity futures like gold and crude oil. If you want to trade more types, the international futures market offers many more options. Futures trading may seem simple, but to truly make money, the underlying logic is quite complex.

I’ve observed that many beginners are initially attracted by leverage—controlling larger contract values with less capital, which is indeed tempting. But it’s a double-edged sword. If your judgment is wrong, losses can be amplified very quickly. Some even end up owing money to their brokers during extreme volatility. That’s why I always emphasize the importance of stop-loss and take-profit.

The core steps of futures trading are actually: first, understand the market rules; second, decide whether to do short-term day trading or medium-term holding; third, choose a legitimate futures broker to open an account. Don’t rush into real trading with real money; first practice with a demo account. I’ve seen too many people skip this step and end up losing badly.

Take demo trading seriously—test whether your trading strategies can actually be profitable. Then, learn the specific contract details—expiration date, margin requirements, minimum price fluctuations—these details determine whether you can operate smoothly. After depositing margin, the next step is to learn how to read the charts and catch trading signals.

Going long is straightforward—buy when you expect prices to rise. For example, if you anticipate oil prices will go up, buy crude oil futures contracts, and sell for a profit when the price increases. Going short is the opposite—sell first when you expect prices to fall, then close the position at a lower price. This is the flexibility of futures trading—both long and short positions are possible, unlike stock short selling which requires borrowing shares.

But I must say, high-frequency intraday trading with high leverage is the biggest risk in futures. Without a complete trading system and discipline, it’s very easy to add margin or even get a margin call and be liquidated. So I recommend beginners start with mini futures, control their position sizes smaller, and set tighter stop-loss levels.

Compared to that, Contracts for Difference (CFD) are more friendly for retail traders. They don’t have an expiration date, so no rollover worries, and the trading instruments are more diverse. The leverage ratios are also more flexible. If you’re still exploring futures trading, CFDs might be a good transitional option.

In summary, to succeed in futures or CFD trading, the key is to establish a complete and executable trading system, then strictly follow it. Without rules, there’s no profit—this is the most profound lesson I’ve learned in the market.