3. Limited Risk and Guaranteed Stops
When you are trading futures, your risk can be unlimited. For example, if you
thought that the prices for Live Cattle were going to continue their upward
trend in December 2003, just before the discovery of Mad Cow Disease found in US
cattle. The price for it after that fell dramatically, which moved the limit
down several days in a row. You would not have been able to leave your position
and this could have wiped out the entire equity in your account as a result. As
the price just kept on falling, you would have been obligated to find even more
money to make up the deficit in your account.
