Futures prop firms are companies that provide traders with the capital to trade and get a share of the profits, while traders' own risk is limited. On the other hand, these firms usually have very stringent risk management rules, so it is very important to be able to control drawdowns when trading. A drawdown illustrates a situation when a trader's account balance decreases significantly, which in most cases, results in the trader emotionally suffering and losing the ability to quickly bounce back. Traders, therefore, should be very careful with their risk. Besides, they have a perfect instrument to reduce their loss with micro gold futures that allow them to stay in the precious metals market without risking too much money.
Micro Gold Futures
Micro gold futures or simply "MGC" are the mini versions of the standard contracts. While regular gold futures may need a lot of money to cover a margin, micro gold futures only represent a tenth of the value of a regular contract. This, therefore, means that traders with lesser amounts of funds can still take advantage of the gold market. In fact, micro gold futures are the perfect instrument for those who wish to deal with only one or two contracts, decrease their leverage and thereby dramatically reduce the probability of heavy losses. Moreover, a trader's decision to choose micro contracts over full-size contracts gives him the opportunity to reduce drawdown because of the ability to make smaller adjustments to the gold exposure levels.
Using Micro Gold Futures to Reduce Drawdown in Prop Firms
When trading with prop firms, micro gold futures can be extremely helpful in keeping drawdowns at bay. Essentially, smaller contract sizes provide the option for traders to take on less risky trades financially, thus the potential for significant losses is limited due to that. Having this kind of freedom allows traders to be on the safer side and take positions while keeping one eye constantly scanning for dangers. A sudden blow in the market can scarcely take big chunks from your portfolio. To illustrate, if a trader suffers a losing trade in another investment vehicle, he/she can "cover" losses with smaller controlled positions in micro gold futures. Hence, the trader not only lowers the risk but also avoids significant account drawdowns. Another point that should not be underestimated is the fact that since gold generally behaves quite differently from other asset classes, micro gold futures can be used by traders as an effective hedging instrument and a great way to further diversify risk in their portfolios.
Conclusion
To sum up, traders working with prop firms and are facing issues with drawdowns can be better off by turning to micro gold futures as their risk management tool of choice. It all boils down to the fact that smaller contract sizes provide more room to manoeuvre with regard to managing the amount of risk that results from different sources. What traders can gain from their decision to include micro gold futures in their trading arsenal is, among other things, protection of accounts from serious losing streaks, risk limits observance, and hence, definitely higher chances of surviving and thriving in the game for the long haul.