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Why so many Options and Futures Traders Lose Money?

Why so many Options and Futures Traders Lose Money?


In trading, winning and losing is all part of the game. However, the aim is to win as much as you can in order to make the most profits out of whatever opportunities you have. And to make the most out of some opportunities, it is necessary to take risks. Risks are generally proportional to rewards so it is not uncommon for many to make high-risk gambles as lured by the promise of a hefty reward.

Unfortunately, just because you’re a risk-taker doesn’t guarantee that you will be a winner. A lot of the times you will just end up losing money. But why do so many options and futures traders lose money? Some of the following reasons may enlighten you:

  • Trading without planning. They do not usually take into consideration profit objectives and define specific risks and whenever they do they don’t stick to it. Consequently, this leads to overtrading and using equities to their limits, forcing them to eventually liquidate positions.
  • Becoming overconfident. It’s easy to feel good when you’re on a roll. A number of profitable trades in a row can do that to you. However, this leads many traders to abandon the conservative route so rashly, basing trades on long shots and hunches instead of sound strategies.
  • Becoming greedy. It’s always a good thing to always want to make a killing with a trade but you must always keep a level head. You can never tell where a trade is going but you can always speculate and head for a position that will give you the most advantage. Know when you’ve made a wrong move and cut your losses. There will always be another day.
  • Having biases. When traders are biased for or against a position, they will always want to stick with what they want. This is dangerous because this blinds them to many opportunities they could be profiting from.
  • Getting emotional. The main reason why a lot of people are turning to trading software is because it lets them do away with emotions that get in the way of trading. Trading is all about the numbers and using your heart instead of your head sets you up not only to miss profitable opportunities but to make high-loss mistakes as well.
  • Not recognizing trends. Markets behave dynamically but there are times when certain trends manifest, showing what works and what doesn’t at the moment. Trends are not always reliable but it would’ve helped if a trader is able to exploit what happens to be working very well at the moment. If you don’t even realize that there is a trend, you won’t be able to use it to your advantage.
  • Taking too much risk. Some traders recognize trends but trade against those just the same, highlighting their failure at using money management approaches and resulting into potential overtrading, undercapitalization, and numerous day trades.
  • Having no discipline. They trade too soon because they don’t have the patience to wait for the right opportunity. They turn to intuition more instead of being rational, making them compelled to trade at the slightest hint of profit.

Trading options and futures requires that you think on your feet and that you have a clear understanding of what options and futures are. After all, the two involve different things but at the same time follow similarities. You can, however, increase your chances at being successful in trading by avoiding the pitfalls that so many traders have succumbed to. By learning from their mistakes, other traders pave the way for enjoying high profits and minimal losses as much as possible and making the most out of their trading resources.