An annual trading summary by Wright on the Market’s Eugene
I began trading futures two years ago with $10,000 of a joint investment to enhance my market education and to build a capital if possible. A year ago on this date, I posted my first year futures trading summary. You can read it here in our blog.
At the beginning of 2024 the account size was $30,382. In January 2024 it topped at ~$34,000 and during the year the low was just above $20,000. I’m closing the year around $28,000 with 63 trades completed in 2024.
From that you might assume it was challenging. But to be honest, it was much more controllable than last year even though it was unprofitable in the end. Not even once I was close to a margin call as I had been in such situations during the first year. The reason for that is better risk and money management.
I had some general ideas of money management from the experience in other markets or activities, but for my first year of trading there were almost no trading rules. To open a speculative position a trader has to figure out not only an entry price but also a stop-loss price and a profit-taking level. By the end of 2023 and later I knew that I cannot risk more than 4-5% of the account balance on a single trade (where the initial stop loss order is placed) if I want to keep trading and I tried my best to stick to that rule. It would be even better to reduce that risk to 2%, however I decided to raise it to be able to build capital faster. The other side of that decision is deeper money drawdowns when multiple losing trades occur in a row.
So, why is it crucial to limit the risk? Because one never knows which trade is going to be a winning or a loser when a futures position is established. One loss could follow another and so on. If you don’t risk too much each time, then even after 10 losses in a row there will be some capital left to keep trading. Capital in trading is like land and seeds – without it you’re done – make a deposit or leave the market.
I’m using a strategy which historically had a 60% winning rate in the last 10+ years with a profit factor of 1.56, meaning 60% of all the trades were profitable and the average gain was 1.56 times more than the average loss. It does not guarantee that 6 out of 10 trades will be profitable, or 60 out of 100, but it tends to be so on average though the exact order could be anything.
This year's winning rate was 32% which is odd, but risk management allowed me to continue trading with almost the same capital. Everyone has his own comfort zone. I’m quite okay with drawdowns and it’s a part of a deal, but a 30+% loss of capital, it becomes irritating.
A valuable lesson was learned: I do not plan to increase the risk exposure and probably will reduce it to 3-4%.
Also, we decided to change the broker to lower the commissions. Our current plan offers a manager and some consultancy. While it’s good for a farmer or a beginner trader, I wasn’t using it at all because of communication logistics and there was no actual need for me. In two years, total commission for trades and the service fee were over $12,500. With most of the discount futures brokers, total commissions and fees would have been probably $2,000 or less. No doubt I could really use that 10 grand! But hey, I was not sure I would be trading for the third year when I started, it’s better to start with anything. The purpose of trading the first year was to learn the business. The second year’s purpose was to continue to learn about trading, but more about developing a business model that was comfortable (less risk) and successful.
Keep in mind this trading account is for pure speculation, no hedging, and there is a huge difference.
A hedge seeks to reduce market risk in the cash market with an offsetting futures position.
A speculation account accepts risk of price change in exchange for the opportunity to make money from the change in prices.
There is nothing scary about futures trading when you know basic principles and had some practice, so I encourage you to give it a try, even with a small investment to practice with mini-contracts and a conservative risk-exposure. Your hedging operations could benefit from it.
Well, I guess that’s it for the 2024 summary. Thank you for your business, especially when markets are hard to navigate. I wish you all Merry Christmas and Happy New Year with profitable trading and higher prices for corn, beans and wheat!
I expect to report to you next year!
Market Data
Corn futures in China is ¥2,227 per mt, it's $7.73 per bu., -2¢ for the week.
Soybean futures in China is ¥3,928 per mt, it's $14.61 per bu., -1¢ for the week.
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