As retail traders with a limited capital, we will want to make as many trades as possible while risking a fixed amount of capital in each futures contract trade.
Many beginning traders risked too much money on first few trades and monitored aggressively, causing enormous stress to themselves. When the market moves against their long or short positions, they are unable to get out immediately.
In the end, the small loss snowballed into a big loss. After a few trades, their capital will be used up. Either they give up or they got to find new capital.
Find the Right Futures Contract
We are not gods and we are unable to predict where the futures market will go in the next moment. Our best bet is to go long or short a futures contract, with a pre-determined stop-loss. When we are right, we will move our stop-loss to the break-even and hold on to our positions. When we are wrong, our stop-loss will exit our long or short positions automatically.
With this strategy in mind, we will want to make as many trades as possible, while improving our winning rate as our trading skills improve.
Recommended Amount to Risk Per Trade
Let say we only have $1,000 as capital, a possible strategy might be to divide it up to 10 equal parts and risk 1000/10 = $100 in each trade. With 4 correct trades, and 6 wrong trades, you will be left with $400 only in capital and 4 potential profitable positions, if you are not stopped-out.
Another possible strategy might be to divide it up to 100 equal parts and risk 1000/100 = $10 in each trade. With 40 correct trades, and 60 wrong trades, you will similarly be left with $400 only in capital and 40 potential profitable positions! With more trades on the same amount of capital, you can afford to be less accurate. That is, you can be wrong 60 times versus you can only be wrong 6 times!
Therefore, choosing the right futures contract to trade, according to your initial or current capital size is very important.
Futures Contract Size
Let us look at the contract size for various types of futures contract:
1 Euro futures contract is equal to 125,000 Euros and a change of 0.0001 in euro against usd is equal to $12.50.
1 E-Mini crude oil futures contract is equal to 500 Barrels of crude oil and a change of 0.01 in oil price in usd is equal to $5.00.
1 Mini-Wheat futures contract is equal to 1,000 Bushels of wheat and a change of 0.125 in wheat price in usd is equal to $1.25
If the stop-loss is 100 points in the above 3 futures contracts, for Euro futures, the loss is $12.50 x 100= $1250 for a $0.01 movement.
For E-Mini crude oil futures, the loss is $5.00 x 100 = $500 for a $1 movement.
For Mini-Wheat futures the loss is $1.25 x 100 = $125 for a $12.50 movement.
For beginners, the recommended futures contract size for trading is as small as possible.