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10 Things You Need to Know to Trade Futures

Photo: Jeffrey Coolidge | Digital Vision | Getty Images

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Understanding Leverage

When it comes to trading futures, an understanding of leverage is very important, Ilczyszyn said.

"Leverage allows traders to make a large investment in a commodity using a comparatively small amount of capital," Ilczyszyn explained. "This is one of the great things about the futures market. You often have to commit no more than 10 percent of a futures contract's value in order to take a long or short position."

As an example, Ilczyszyn noted that to purchase a futures contract for 100 ounces of gold for $177,000 at an example market price of around $1,770.00 per ounce, a trader only needs to put down about $17,000.

Traders should be cautious when using leverage, though, Ilczyszyn warned.

"If an asset price increases, it can magnify your return," Ilczyszyn explained. "But if the asset goes the opposite direction and price decreases, you can lose more that you originally put up in margin."

Photo: Jeffrey Coolidge | Digital Vision | Getty Images