Why Ordinary People Should Not Easily Trade Futures: From Leverage, Quant Trading to the Equity-Curve Illusion

This article is based on two older posts by Sheng Jingjian about futures trading risks and has been restructured using publicly available materials from the CFTC, NFA, IOSCO, and CME. It does not constitute investment advice and is only intended to help ordinary readers understand the risk characteristics of the futures market.

1. First, the conclusion: Why ordinary people are not suited to casually trade futures?

If a person does not understand programming, does not do data analysis, and lacks basic training in finance, economics, and risk control, then I do not recommend they enter the futures market lightly.

The reason is simple: futures is not a game of “feeling the market direction” alone. It features high leverage, sharp volatility, margin trading, forced liquidation, and margin calls. Correct directional judgment once does not mean sustained long-term profitability; making money in the short term does not mean the trading system has a positive expectation.

Many people think the core of futures trading is “strict stop losses, rigid execution, and emotional control.” These are certainly important, but they are not sufficient conditions. The real issue is this: if you execute a negative-expectation system rigorously, the losses may become even more stable and more complete.

In other words, discipline only amplifies the nature of the system itself. A positive-expectation system needs discipline to be executed; a negative-expectation system is also disciplined straight into losses.

2. The biggest difference between futures and stocks: leverage amplifies everything

In stock investing, when an ordinary person buys a stock, they usually only risk losing principal close to zero. But futures uses a margin system in which investors pay only a portion of contract value, yet can control much larger positions.

That is the essence of leverage: it amplifies both gains and losses.

The National Futures Association (NFA), in investor education materials, warns that futures trading is highly volatile and very risky, and that investors should only use risk capital they can afford to lose. The CFTC’s Futures Market Basics page also points out that futures and options trading are complex, volatile, and high-risk, and are generally not suitable for individual investors or retail clients.

More serious is that futures risk is not merely “losing principal.” The CFTC’s related risk disclosure documents explicitly state that investors may lose initial margin and additional funds needed to maintain positions; if the market moves against them, or margin levels are increased, investors may also be required to provide more funds in a short time.

IOSCO’s report on high-leverage products for retail customers also stresses that high leverage increases the risk of retail investors suffering high-probability, high-amount losses; in some cases losses may even exceed the money initially invested.

So the true danger in futures is not simply that “money can be lost,” but that loss can happen very quickly. In extreme market conditions, even slight risk-management mistakes can lead to significant account drawdowns or liquidation.

3. Futures has already entered the era of quantization; manual trading is increasingly difficult

Some traders in the past survived through tape feel, experience, trend judgment, and intraday flipping.

But today’s futures market is already deeply institutionalized, programmatic, and quant-based.

Quantitative trading is not a myth, but it at least means a few things:

1. Trading logic needs to be clearly defined; 2. Buy and sell points need to be tested against historical data; 3. Parameters need to be adjusted as market conditions change; 4. Exposure, drawdown, win rate, payoff ratio, slippage, and fees must all be accounted for in the system; 5. A strategy cannot rely on slogans—it must survive out-of-sample testing.

Many ordinary traders’ problem is that they do not even perform basic data review. For example: how many times did a certain entry/exit rule occur in the past? What was the average profit? What was the maximum consecutive loss? How much remains after commissions and slippage? Was it just lucky to catch a stretch of one-way movement?

If these questions have no answers and orders are placed by gut feeling, then what is called a “trading system” is likely just a mix of emotions, narratives, and survivorship bias.

4. Do not idolize “strict stop losses”; first ask whether the system has positive expectancy

Many trading articles like to attribute losses to psychology: lack of execution, greed, fear, inability to hold, indecisiveness on stop losses.

These claims are partly true but not complete.

A deeper issue in trading is mathematical expectation. If a system is negative expectation over time after deducting costs, then even if the trader executes it strictly every time, it will still lose money in a more stable way.

Take a simple example:

• Average profit per trade: 1 yuan;
• Average loss per losing trade: 2 yuan;
• Win rate is only 40%;
• Fees, slippage, and market impact costs not yet included.

Such a system will be hard to be profitable over the long run even with strong execution, because it is structurally at a disadvantage.

So futures trading is not just “correct direction + strict stop losses.” More important is:

• Does your strategy have a statistical edge?
• Does that edge come from real market structure, not just random sample luck?
• Does it remain valid after including fees and slippage?
• Will it fail when market regimes change?
• Is the maximum drawdown tolerable both psychologically and financially?

If these questions cannot be answered, you should not easily use leverage.

5. How is the so-called “miraculous equity curve” packaged?

In futures circles, you often see very exaggerated equity curves: doubling or multiplying multiple times in a short period, with drawdowns seeming very small and returns looking extremely stable.

Such curves are not all fake, but many times they do not truly reflect trading ability. They can be produced by several methods.

1. Adding to profits, adding more and taking profits less

In one-directional trend markets, if you keep adding to a position with unrealized gains, the equity curve can indeed look extremely dramatic in the short term.

But the fatal flaw is this method is the huge drawdown and highly concentrated risk. Once the trend reverses, profits can quickly evaporate and even trigger direct liquidation.

This method most attracts beginners because it looks beautiful in favorable conditions; it also most often destroys beginners because it leaves almost no room for error when conditions turn against them.

2. Multiple accounts with hedging, showing only the best-performing account

Another common packaging method is using multiple accounts, even having different accounts bet on different directions.

Only the best-performing account is shown at the end, while losing accounts are hidden. Readers think this demonstrates stable profitability, but in reality it may just be survivorship bias created by selecting among accounts.

If one account out of many doubles and the rest suffer heavy losses, showing only the doubling account is fundamentally misleading.

3. Exploiting ranking rules or NAV calculation loopholes

Some live-trading ranking or showcase platforms can make returns look inflated if deposits, margin usage, and true equity changes are not handled rigorously.

For example, suppose a trader has 1 million in funding but deposits only 400,000, using 300,000 of that as margin. If they earn 50,000 one day, that is 5% based on the true 1 million risk capital, but if the platform calculates only on the 400,000 deposit, it will show 12.5%. If this is compounded over multiple days, the curve becomes significantly beautified.

This does not mean the trader did not make money; it means the presentation basis may distort the risk-return relationship.

4. Hiding maximum drawdown, showing only the highlight phase

The most deceptive thing about many curves is not that the returns are fake, but that they only show the most flattering period.

What should be examined is not “how much was maximally earned,” but:

• What is the maximum drawdown?
• How long did the drawdown last?
• Did it experience different market cycles?
• Is there a complete trading record?
• Are fees, slippage, and capital usage included?
• Is there survivorship bias after selecting among multiple accounts?

Focusing only on returns while ignoring drawdown is the main reason ordinary people are enticed by equity curves.

6. Margin calls and increased margins: many underestimate liquidity risk

In futures trading, margin is not fixed. When market volatility intensifies, exchanges may raise margin requirements to cover higher default and volatility risk.

For example, in February 2026, Reuters reported that CME Group again raised gold and silver futures margin requirements amid sharp precious metals volatility. Such events show that futures traders face not only directional judgment but also changing margins, liquidity pressure, and additional capital requirements.

This is especially dangerous for ordinary people. You may eventually be right on direction, but be forced out early due to insufficient margin, excessive short-term volatility, or mandatory liquidation.

The market does not run according to your personal risk tolerance.

7. What investors should truly build as proper investment understanding

This article is not saying you should never trade futures, nor that all futures traders are unreliable. Futures themselves are important risk-management tools; many industrial companies and institutional investors use futures for hedging and asset allocation.

The issue is that ordinary people usually enter futures not as risk managers, but with a mindset of “quick turnaround,” “short-term riches,” and “turning little money into a lot.”

That is very dangerous.

If you really want to study futures, you should at least have the following capabilities:

1. Understand contract rules, margin rules, limit-up/limit-down, and delivery mechanisms; 2. Be able to do basic post-trade reviews with Excel or Python; 3. Be able to calculate win rate, profit/loss ratio, expectancy, maximum drawdown, and Sharpe ratio; 4. Understand how commissions, slippage, and liquidity erode a strategy; 5. Be able to identify survivorship bias and equity curve packaging; 6. Be able to accept that you may go for a long period without trading, rather than compulsively placing frequent orders for excitement.

If these capabilities have not yet been established, the best choice is not to rush into the market, but to learn, simulate, review, and stay away from high leverage.

8. Conclusion: Do not use family assets to validate your fantasies

The harshest part of the futures market is that it can amplify human fantasies very quickly and also settle mistakes very quickly.

Many people are not defeated by the market, but by their own misunderstanding of the market:

• Taking short-term profits as ability;
• Treating a high-return curve as a stable system;
• Treating luck as method;
• Treating leverage as a shortcut;
• Treating execution discipline as a sufficient condition for profitability.

A mature investment view is not believing you can always win; it is first admitting you may be wrong and pre-designing how you will survive when you are wrong.

For most ordinary people, staying away from high-leverage markets they do not understand is not humiliating. Preserving principal, preserving your life stability, and preserving household cash flow are themselves long-term advantages.

Related topics can be found at 《钻石的经济学》.

FAQ

Does the article’s view constitute investment advice?

No. Articles in this site’s finance section are for observation and discussion only and do not represent investment advice. Financial markets are risky; investment decisions should be made with professional input and your own risk tolerance.

Does the article’s judgment have a time shelf life?

Yes. Market analysis and macro observations are usually tied to specific points in time, and should be understood in light of the publication date. Do not treat historical judgments as current predictions.

How can I research the topics in the article further?

You can refer to the sources listed at the end and start with primary data, academic research, and mainstream financial media, rather than relying on a single article.

Are there other finance or economic articles on this site?

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References

• CFTC: Futures Market Basics
• CFTC: Risk Disclosure Statement for Futures and Options
• CFTC: Understand Risks and Markets before Reacting to Internet Hype
• CFTC: Understand Your Contractual Obligations
• NFA: Investor Best Practices
• NFA: Investor Education & Resources
• IOSCO: Report on Retail OTC Leveraged Products
• Reuters: CME Group hikes gold, silver margins again as volatility grips markets
• CME Group: Futures & Options Trading for Risk Management