The Truth About Losing Money in Futures | From Beginner to Risk Control, Master the Key to Success or Failure in Futures Trading

Why Do So Many People Lose Money in Futures? Understanding What Futures Are

Futures seem simple—buy expecting prices to rise, sell expecting prices to fall—but actual trading is another matter. Many beginners enter the futures market and incur losses, often not because of incorrect market direction judgment, but due to insufficient awareness of leverage risks.

Futures are a type of contract trading, where both parties quote prices on an exchange, with one buying and one selling to complete the transaction. The key feature is: contracts have a fixed expiration date, and at expiration, positions are forcibly closed and settled. Unlike spot trading, futures use a margin system, meaning you only need to deposit a small portion of the contract value to participate, which is the so-called leverage effect.

In the Taiwan market, the most active futures are Taiwan Stock Index Futures, which are contracts based on the Taiwan Weighted Index. Internationally, there are a variety of trading products such as crude oil, gold, and US stock index futures.

What Secrets Are Hidden in Futures Contracts?

Each futures contract is clearly regulated by the exchange, including the following elements:

• Underlying Asset Code — Determines what you are trading
• Contract Specifications — How many units of the underlying asset one contract represents
• Price Tick Size — The minimum fluctuation unit
• Trading Hours — When you can enter and exit
• Expiration Date — When the position must be settled
• Settlement Method — Physical delivery or cash settlement

For example, the initial margin for Taiwan’s large-cap index futures is about NT$300,000, while the mini index futures require about NT$76,000. These figures directly relate to your entry cost and risk tolerance.

The Culprit Behind Losing Money in Futures: Leverage as a Double-Edged Sword

Many people underestimate the power of leverage before entering the futures market. Leverage can amplify profits but also proportionally increase losses. When the market moves against your prediction, not only does your principal shrink rapidly, but you may also face margin calls or liquidation.

Stock investments can lose all principal, but futures are different. Because you only pay the margin, and the contract value is multiplied by leverage, in extreme volatility, your losses can even exceed your initial investment, leading to owing money to the broker. That’s why futures carry a much higher risk level than stocks.

Common reasons for losing money in futures include:

1. Lack of a trading system — Entering blindly, reacting to market noise
2. Excessively high leverage — Betting with more leverage than you can handle
3. Lack of stop-loss discipline — Expecting losses to reverse automatically, but losing more
4. Overtrading — Frequent trades eroding profits through fees and slippage
5. Ignoring market volatility — Being unprepared for sudden extreme moves

How to Avoid Losing Money in Futures? Build a Complete Trading System

Step 1: Recognize Your Risk Tolerance

Futures are attractive because of leverage, expiration dates, and the ability to go long or short. But before opening an account, ask yourself: Am I a long-term investor or a short-term trader? How much volatility can I tolerate?

Long-term investors generally should not use futures as their main tool, only as a hedging instrument. Short-term traders need quick reaction skills and disciplined execution.

Step 2: Choose Suitable Trading Instruments

Futures products are divided into six categories: indices, currencies, interest rates, metals, energy, and agricultural products.

Popular ones include:

• Index Futures — S&P 500, NASDAQ 100, Taiwan Weighted Index
• Interest Rate Futures — Government bond futures of various countries
• Energy Futures — Crude oil, natural gas, gasoline
• Precious Metals Futures — Gold, silver, copper
• Agricultural Futures — Wheat, corn, soybeans, cotton

The selection criterion is simple: Prioritize contracts with high liquidity. Forward contracts have poor liquidity and large bid-ask spreads, which directly increase trading costs and make price realization difficult.

Step 3: Test Strategies via Simulation Trading

Before risking real money, practice thoroughly on a demo platform. Use virtual funds to test whether your trading logic can generate profits in the market, and familiarize yourself with the trading interface and order procedures. This step is crucial because it helps you identify weaknesses in a risk-free environment.

Step 4: Confirm Margin and Position Size Before Depositing Funds

Understand the margin requirements for your chosen contracts. Then decide: How much to deposit, and how much to invest per trade?

Beginners are advised to start with mini contracts, getting used to volatility with small positions. For example, mini index futures have lower margins and smaller price movements, suitable for gaining experience.

Step 5: Master Market Monitoring and Recognize Trading Signals

Futures traders often rely on fundamental analysis, economic trends, or technical analysis to predict price movements. If trading stock futures, the logic is similar to stock investing, but remember: Futures have expiration dates, so it’s better to enter before technical signals fully develop, making market direction easier to grasp.

Going Long and Going Short: The Dual Operations of Futures

Going Long (Buying to Rise)

Expect the asset price to increase, so buy contracts. For example, if bullish on oil prices, buy crude oil futures. If oil prices indeed rise, the contract value increases, and selling later yields profit. Similarly, if optimistic about a rebound in US stocks, buy S&P 500 futures.

Going Short (Selling to Fall)

Expect the asset price to decrease, so sell contracts. For example, if predicting a sharp drop in oil prices, sell crude oil futures. If oil prices fall as expected, your short position gains value, and you profit when closing the position.

This is the advantage of futures over stocks — short selling stocks requires borrowing shares and paying borrowing fees, whereas futures shorting and longing are equally simple. But the caveat is: contracts expire, so you must close or roll over before expiration.

Stop-Loss and Take-Profit: The Key Often Overlooked by Losers in Futures

Whether going long or short, setting stop-loss and take-profit levels is essential to survive and exit the futures market.

New traders should set relatively tight stop-losses and small positions. As experience grows, adjust according to market conditions. The key point: Strictly enforce these rules. Many traders lose from “waiting too long,” turning small losses into big ones, eventually leading to liquidation.

It’s recommended to set stop-loss and take-profit orders at the same time as placing the trade, rather than passively waiting. This helps prevent emotional decision-making.

The Reality of Futures Trading: Pros and Cons

Advantages of Futures

✓ Leverage amplifies capital efficiency — control large contracts with relatively little capital

✓ Flexible long and short positions — no need to borrow shares to short, just grasp the market direction to profit

✓ Hedging risk — use futures to hedge stock long positions, protecting capital during market volatility

✓ High liquidity — international futures markets are highly traded, making entry and exit easier

✓ Lower transaction costs — futures trading fees are cheaper compared to stocks

Risks and Limitations of Futures

✗ Leverage is a double-edged sword — profits and losses are magnified; losses can exceed initial margin

✗ Unlimited liability risk — in extreme volatility, you may owe money to the broker, not just lose your margin

✗ Requires high professionalism — compared to stock investing, futures demand more knowledge and discipline

✗ Contract expiration constraints — must close or roll over positions before delivery date, limiting flexibility

✗ High-frequency trading risks — margin system can lead to overtrading, increasing loss potential

How to Turn Around After Losing Money in Futures

The most effective way: Develop a comprehensive, executable trading system and strictly follow it.

The system should include:

• Specific entry and exit signals
• Fixed leverage and position size
• Clear stop-loss and take-profit points
• Risk management rules (e.g., risk per trade not exceeding a certain percentage of the account)

Without rules, there’s no profit. Many losing futures traders share the trait of trading impulsively without a system. Once discipline is established, combined with sufficient market experience, long-term survival in futures becomes possible.

Contracts for Difference (CFD): A Popular Alternative to Futures

If the margin requirements and specifications of futures deter you, consider Contracts for Difference (CFD).

CFD is an agreement between buyer and seller to track the spot price, settling profit and loss through the difference between buy and sell prices. Compared to futures, CFDs have three main advantages:

◆ Broader variety — Futures are limited; CFDs often offer over 400 underlying assets, including stocks, forex, cryptocurrencies, commodities

◆ Greater flexibility — No expiration or delivery date pressure, leverage can be freely adjusted (usually 1-200x), and contract sizes are flexible (e.g., 0.01 to 30 lots), without fixed specifications

◆ Lower entry costs — More flexible leverage, lower initial margin requirements, reducing participation barriers

How to operate CFDs to avoid the pitfalls of losing money in futures?

Control leverage — Different assets have different volatility. Lower volatility currencies can use higher leverage, while high-volatility stocks or commodities should use lower leverage.

Create a trading plan — Design entry/exit logic, stop-loss, and take-profit mechanisms before trading, to generate profits under controlled risk. Although CFDs have no expiration date, leverage risk remains, so disciplined execution is equally important.

The Final Truth About Losing Money in Futures

Futures trading is a zero-sum game. Your gains come from others’ losses, and vice versa. The key to survival is not predicting the market correctly but managing risk and maintaining discipline.

Those who lose in futures often share common traits: overestimating their market judgment, underestimating leverage’s power, and lacking the courage to cut losses. Conversely, long-term winners focus most on risk control rather than chasing excess returns.

To make money in futures, first learn not to lose money. Start small, follow a complete trading system to regulate yourself, and this is the essential path to steady profits.