I had the pleasure of interviewing Matt Zimberg of Optimus Trading Group in a effort to help answer some questions that many new and would-be commodity traders have with online futures trading and managed futures.
Matt is the President of Optimus Trading Group, which is a futures brokerage firm that specializes in online futures trading and managed futures accounts. Matt has been involved in the futures industry for more than a decade and he understands the needs and struggles of the commodity trader in this ever expanding and changing environment.
Q. Many readers at this site are new to the commodities markets and are wondering the best way to get involved in commodities. Can you give them some guidance from your experience?
A. Yes; choose a market that does not carry a lot of leverage, relative to your account size, place a trade on one contract and see how you react emotionally to the fluctuations. If you are comfortable with the ups and downs it means that you have the right temperament for these markets.
Here is what I would do prior to placing the first trade to become even more comfortable: track 10 commodities and familiarize yourself with their leverage, their daily fluctuations and then choose a future contract that you feel comfortable with.
Of course, this is only the beginning. The key is in developing a long-term methodology, ie: a reason to buy and/or sell contracts. Money management (risk) is an essential component in developing a successful methodology.
Q. Do you recommend the use of a full service commodity broker or an online discount commodity broker?
A. I believe that in the long run, trading online should be the trader’s ultimate goal. That is why we have developed a division that is dedicated towards independent online futures and commodities traders (www.tradersplatform.com).
Beginning traders should seek the assistance of a professional to minimize errors and to develop confidence in order placement, margin requirements and even the trading platforms available. We offer three online platforms to our clients; each platform has its benefits and drawbacks depending on each individual trader’s specific needs.
In my opinion brokers should be able to provide technology along with advice to beginner traders. In the long run, we believe that our clients should learn to become independent and self-reliant to trade according to their own risk tolerance, time constraints or availability and to develop discipline.
Q. What mistakes do you commonly see traders make in the commodities markets?
A. If I had to put it in general terms, I would say it’s the lack of planning and preparation. The mistakes could range from misunderstanding the volatility, to lack of money management or just not having a methodology. However, part of trading is making mistakes, and hopefully learning from these mistakes.
Learning the contract sizes, the various exchange orders and developing some technical analysis skills could help tremendously.
Q. Do traders receive any type of help if they trade online or are they left to completely fend for themselves?
A. Part of any good brokerage is giving customers technical support for the platform they’ve chosen. Guidance is given as to the functionality of the trading platform, order status and/or other issues that might arise for self-direct traders.
Customers should always shop for brokers that give them timely and extensive support.
We provide daily and weekly research update, blog updates and daily and weekly trade recommendations. Our true goal is to provide all this and leave it up to the trader to make his own decision based on risk tolerance and risk.
Q. Is there a minimum balance that that you recommend for opening an account to trade commodities?
A. Yes. I believe that $25,000 is something that customers should consider. The ability to withstand fluctuations, having sufficient margins is the key to survival in this market. Smaller accounts can be successful, but the leverage could cause higher fluctuations in their accounts.
Having said all that I still believe that regardless of account size, traders should use common sense. Never over trade and don’t over leverage your account.
Q. Some investors feel they don’t have the time or knowledge to trade commodities. Can you talk a little about how managed futures might work for them?
A. Lack of time is a big consideration and can prevent a trader from taking profits (or cutting losses) in a timely fashion. Some traders can be very knowledgeable about commodities but applying their methodology and developing the emotional make up necessary to trade is another matter.
If the above conditions apply to someone who wants to participate in the commodities markets, managed futures could be a very good solution.
Q. What should investors examine about a managed futures fund to decide if they should invest in it?
A. Here are the factors to consider:
- Track record
- Monthly and intraday drawdown ( measures of volatility)
- Money Under management
- Type of contracts traded and the risk associated with them
- Liquidity of the contracts traded
- The qualifications of the trader
Q. What financial requirements does someone have to meet in order to trade commodities or open a managed futures account?
A. Typically, managed futures accounts require higher levels of capital. They can start from $25K and higher. However, regardless of the amount required, funds invested in this type of investment should be risk capital. Keep in mind that managed accounts can and do go through drawdowns and volatility.
We recommend having a minimum net worth of $250K, and risk capital of $50K also as a minimum requirement.
Past performance is not indicative of future results. There is a substantial risk of loss in futures trading.