RISK MANAGEMENT IN FUTURES
Plain English
Because futures use leverage, risk management is not optional — it's survival. A 1% adverse move can wipe 20% of your margin. The golden rules: never risk more than 1-2% of your account on any single trade, use hard stop-losses, and size positions relative to volatility.
Going deeper
Futures risk management principles: (1) 1% Rule: Never risk more than 1-2% of total account equity per trade. If account = $50,000, max risk per trade = $500-1,000. (2) Position Sizing: Calculate size based on stop distance and dollar risk, not number of contracts. (3) Stop-Loss Discipline: Always enter your stop immediately after entering a position — never hold without one. (4) Volatility Adjustment: Widen stops during high-volatility periods (earnings, FOMC) or reduce position size. (5) Correlation Awareness: Long ES + long NQ + long YM = concentrated equity risk, not three trades. (6) Drawdown Limits: Define maximum daily loss ($X) and weekly loss ($Y) limits; stop trading when hit. (7) Average True Range (ATR) — size stops relative to ATR to avoid being stopped by noise.
Examples
Position Sizing by ATR
ES ATR (Average True Range) is 40 points/day. You want a 1-ATR stop = 40 points × $50/point = $2,000 risk per contract. Your account is $100,000 and max risk per trade is 1% = $1,000. Solution: trade only 0.5 contracts (use MES: 5 Micro contracts) to fit risk parameters.
Daily Loss Limit
You set a $1,000 daily loss limit. At 10:30 AM, you've lost $1,000 on two bad trades. Rule: stop trading for the day. Many professional traders use this discipline — bad trading days often compound when you 'revenge trade' after losses.