What would you consider the minimum Account Balance to trade Commodity Futures?

[Cabin111]

You would be better off trading ETF options till you get a true grasp of what you're doing. I am an investor...No sin in it. If I have spare cash, many times I will invest in SLV, JO, or RING (gold miners). For oil and drilling you could look at something like PEO (closed end ETF that has options). If you are thinking about grains, you may want to look at ADM or BG rather than rolling the dice on commodities. Eyes wide open...

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwjhhcS3lI32AhVKIUQIHds2DA4QFnoECBsQAQ&url=https://www.cnbc.com/2020/06/16/how-negative-oil-prices-revealed-the-dangers-of-futures-trading.html&usg=AOvVaw28xgkCo1GsTFO3dWUoI4IY

Also, you may want to stay away from USO. It really is not for a layman new to the oil industry (you are entering into a partnership). I won't get into details (besides losing more than you invest...IRA). Many people on this board freaked out when oil went negative and owned USO at the time.


USO is an Exchange Traded Fund (ETF) which is organized as a partnership. When you own shares in USO, you are considered as a partner and receive a form K-1 representing your distributive share of the income of the partnership. You have to enter this form K-1 on your tax return.

 

[Q.E.D.]

Looking more for education than personal advice. I have always had an interest in commodities...but this market is intimidating lol. They do seem more simple and appealing than options: no theta, ruled primarily by supply & demand, taxed slightly better, etc...

so just for the sake of conversation, how much money would one need to comfortably get started trading commodity futures?

I didn't read all responses, but IMO the size of account is not impt. Start with just trading a micro futures in 1 -3 markets, & focus on defining how you want to trade. After 40 years of trading, I don't think I've met, nor heard of any trader whom has been around for say 5-10 years, that was not wiped out early. The lesson, start very small.

 

[Laissez Faire]

I didn't read all responses, but IMO the size of account is not impt. Start with just trading a micro futures in 1 -3 markets, & focus on defining how you want to trade. After 40 years of trading, I don't think I've met, nor heard of any trader whom has been around for say 5-10 years, that was not wiped out early. The lesson, start very small.

Great point. I've blown a few accounts myself. Fortunately, they've been smaller sized ones.

Having a large account is by no means a protection against losses or stupidity. The largest trader in Norway and one that did incredibly well many years in a row amassing huge wealth from his trading operations blew his entire fortune and even got in debt just by one bad trade.

I won't mention any names, but there was one guy on this forum who blew a 100K account. Another have on two occasions recently had > 50 % unrealized drawdown on a 300K account.

 

[Laissez Faire]

The beautiful thing about trading the markets is that if you have an edge or some kind of consistency in your trading, you can actually trade a small account into a larger account if you're compounding your returns.

Simple example:

1K account. 0.5K margin per MES. 3 points net per day. You start out trading 2 contracts. Add 1 contract per 0.5K increase in your account.

On day 18 you can start trading 3 micros. On day 29 you can trade 5 micros. Progress is slow initially, but eventually it snowballs until you own the world...

 

[Q.E.D.]

The beautiful thing about trading the markets is that if you have an edge or some kind of consistency in your trading, you can actually trade a small account into a larger account if you're compounding your returns.

Simple example:

1K account. 0.5K margin per MES. 3 points net per day. You start out trading 2 contracts. Add 1 contract per 0.5K increase in your account.

On day 18 you can start trading 3 micros. On day 29 you can trade 5 micros. Progress is slow initially, but eventually it snowballs until you own the world...

Agree with the theory, but in real world, equity curves NEVER look like above. Good rule of thumb, whether discretionary or system, is that your greatest draw down is always ahead.

 

[Laissez Faire]

Agree with the theory, but in real world, equity curves NEVER look like above. Good rule of thumb, whether discretionary or system, is that your greatest draw down is always ahead.

In the real world you can turn it upside down.

 

[zghorner]

I didn't read all responses, but IMO the size of account is not impt. Start with just trading a micro futures in 1 -3 markets, & focus on defining how you want to trade. After 40 years of trading, I don't think I've met, nor heard of any trader whom has been around for say 5-10 years, that was not wiped out early. The lesson, start very small.

great advice, thanks.

 

[FabienFischer]

Looking more for education than personal advice. I have always had an interest in commodities...but this market is intimidating lol. They do seem more simple and appealing than options: no theta, ruled primarily by supply & demand, taxed slightly better, etc...

so just for the sake of conversation, how much money would one need to comfortably get started trading commodity futures?

A lot of factors come into play here. Suggesting you have a system that works, it depends on margin, max. drawdown and volatility of the commodity. The higher the vola, the higher the margin, the more money you need. For Soybean meal you need less than for gasoline. 10k could be ok for ZM, but way too less for RB.

 

[murray t turtle]

Agree with the theory, but in real world, equity curves NEVER look like above. Good rule of thumb, whether discretionary or system, is that your greatest draw down is always ahead.

%%
Good points/LOL;
even the toptraders[audited ] do NOT have a curve that smooth.
But '' if '' so\ like he noted, could ''own the world''
A good rule of thumb in derivatiVe market$\any market\ don trade with money you can not afford to lose ..........................................
HIGH % trader won the option trading contest by NOT adding to his trading size[source jack Schwager to trading books]

 

[Overnight]

A lot of factors come into play here. Suggesting you have a system that works, it depends on margin, max. drawdown and volatility of the commodity. The higher the vola, the higher the margin, the more money you need. For Soybean meal you need less than for gasoline. 10k could be ok for ZM, but way too less for RB.

Soybean meal? *smacks* OMG how can you possibly steer someone to that low volume crap! Game penalty, -10 to Slytherin.