Futures Trading Blog

Joe C asked:


I came across a forum or chatroom where traders of stockmarket/futures market were exchanging knowledge. It was discussing backtesting system, softwares at that time. However, I am unable to find that address again. I recall that the address had the words roundtable or knights. Pse help.

MIURA

Joe C asked:


I came across a forum or chatroom where traders of stockmarket/futures market were exchanging knowledge. It was discussing backtesting system, softwares at that time. However, I am unable to find that address again. I recall that the address had the words roundtable or knights. Pse help.

BAEK

KDdid asked:


One of the main reasons the price of gas at the pump is so high is because of futures trading on the commodities market. If enough people banded together with a few dollars a piece that they were willing to lose on the commodities market, they could have a real effect on the price of gas. Would such action be legal?

FARINELLA

Andy West asked:


Futures trading is an incredibly risky venture. With all of the ups and downs in the futures cash market, it is imperative to understand the signals and know what to do when they occur. Of course, signals and the appropriate actions are all theoretical approaches to trade and the cash commodity market. However, traders do have some options to help minimize their risks and losses. Nonetheless, understanding the fundamentals of futures signals, values, and risks can better prepare any trader for the tasks that lie ahead.

It is important to understand the fundamentals of futures signals. Growth and inflation are the cornerstones of the futures markets. With an understanding of growth and inflation, traders are better equipped to make the right decisions. Basically, the prices on the futures market are based on what the market is expected to do. Thus, future predictions of growth and inflation are more important than the historical data on what the market has done in the past. Knowing the growth and inflation predictions enables the trader to make more sensible decisions in this regard.

While predictions are important, so are technical indicators. This deals with knowing trends and spotting indicators before the price becomes less-profitable. These indicators can come from historical data or a careful observation of prices over a period of time. There are also mathematical formulas for these indicators which include movements based on standard deviations from the equilibrium.

Traders should fully understand market values. Over the long term, prices tend to stabilize and equalize around a particular point (the market equilibrium). Price fluctuations are expected in both directions. Traders need to be able to distinguish between price fluctuations and trend reversals. Extreme price deviations are great signals for the trend reversals. The trick is to catch the reversal while the trader is ahead. This is not always simple, but it is something that can be learned and observed.

Additionally, traders should be aware of the trading behavior. Self-awareness is essential to controlling risky behavior. The term “Risk Appetite” refers to the trader’s penchant for risky or safe acquisitions. By being self aware, the trader is at a psychological advantage and is more likely to make rational decisions.

In order to fully understand futures signals, investors must fully grasp the concept of supply and demand. Those that are the most successful at futures trading are those that understand all of the factors that play into supply and demand. Consistent and diligent research of any invested market will result in the best efforts and highest probability, as long as the investor follows through on what the research shows. Since the commodity market is highly fluctuating, a loss is inevitable even with the proper research.

Futures traders can help minimize their losses by pursuing several opportunities. A buyer can take a short futures position and hope the futures prices will go down. Alternatively, investors can place a limit or stop-loss order and only buy or sell if the desired price is reached. The Commodity Exchange Act also places in some protections for traders. This is governed by the Commodity Futures Trading Commission, which is an independent agency of the United States government.

Futures trading can be fun and profitable for investors with the right knowledge and information. A keen eye for signals and indicators is an added bonus. Investors also need to know what futures signals to look for and how to act accordingly. The best trader will act rationally and not out of fear or misunderstanding. A careful analysis of the supply and demand along with continuous research and consistent observations will yield the best results and will maximize profitability.



PAVLICK

Jesse O asked:


Looking for hints and strategies in forex futures trading.

MIRABELLA

KDdid asked:


One of the main reasons the price of gas at the pump is so high is because of futures trading on the commodities market. If enough people banded together with a few dollars a piece that they were willing to lose on the commodities market, they could have a real effect on the price of gas. Would such action be legal?

LADNIER

DK asked:


The futures market doesn’t seem to get any good press. It seems most investors are very much anit-future trading. I am interested in the futures market, but I would prefer to test my skill level, research ability, and just plain guts before I jump in.

Are there any ‘paper trading’ sources one can use? Or any free ‘fake’ accounts one can get started with?

Thanks,
DK

SIEG

David Kamau asked:


If there ever was one business that has made a lot of people a lot of money it is futures trading, also known as commodity futures. This is one business that has made millionaires and multi-millionaires in a very short time while starting up with relatively small capital investments.

Just what is a “futures trading”? Loosely defined, a future is an agreement to buy or sell a given quantity of a particular commodity at specified future date at a pre-arranged price. You “speculate” the direction prices will take and decide to buy or sell based on that. Prices are, to a degree, predictable.

The money-making potential in futures trading is astounding. Examples; John Henry started with $16,000 and amassed a wealth worth more than $1.5 billion. Richard Dennis borrowed $1600 and made $200 million in about ten years. Granted, these examples are atypical. But you can see the potential.

Unlike other forms of business and trading such as real estate, stocks, brick-and-mortar etc., where you have to wait years to see any substantial returns, futures market is immediate.

Better still, you can start from your kitchen table, you never physically handle or deliver the commodities, nor market or advertise, and you can buy or sell large or small quantities.

You also have choice of a wide range of commodities from gold, grains, crude oil, gasoline, currencies, and agricultural products and many more to choose from.

As with any business where you can make lots of money fast, you can also loose lots of money fast. This is one reason why this business is not for everyone. It is certainly not for those who tend to get emotional when things seem not go as intended.

Actually, the more you’re able to keep your emotions in check, the more money you can make as panic and hysteria are commodity traders’ best friend.

When starting out, you might make losses. This is expected and may be a good thing as early success can give you a false impression about your own abilities, and lead to disaster. Loss should be treated as part of business and learning process. The key is to limit your losses by learning to trade like a professional. How?

Professionals approach futures as a business, as opposed to the slot-machine, hit-or-miss approach most people make. And, as with any business you need to understand how the market works.

This means learning as much as you can about the business. And no, you don’t have to pay $2500 to attend some seminar to learn “insider secrets”. You would be better off if you could take a trip to Chicago or New York Board of Trade and observe professionals at it. You’ll learn more this way than in any seminar.

Back to limiting losses. One way of limiting loss (risk management) is placing a stop-loss order on a trade. You pre-determine the amount of risk you are going to take, and stick to it. Successful traders always have a stop-loss order before initiating a trade.

Trading without a stop loss order can have catastrophic effects, especially to the inexperienced trader as they can find themselves unable to pull the plug until it’s too late.

Another key is diversification. As they say “never put all your eggs in the same basket”. A rule of thumb is not to risk more than ten percent of your equity in any one trade, thus preventing losing all your money in one or two bad trades.

Amateurs also make the mistake of re-investing all their earnings, and then loosing it all down the road. Professionals pull their profits and start small again, making small capital increments to facilitate growth.

Good record keeping is also important in that it shows you what is working and what is not, as well as the patterns.

Contrary to what you may have heard you don’t need a lot of money to get started in commodity trading. A good brokerage firm can help you get started without spending a fortune.

Details of running a successful futures trading business are beyond the scope of this article. The best investment you can make is to spend time learning how the business works, starting with the basics.



CADDY

Vicki L asked:


I wish to purchase about $50,000 worth of oil futures for approximately a 6 month hold. How does the futures market allow for a long term/medium term hold. What do I have which shows my original purchase price and amount purchased vs. my final selling price and amount owned. Is online trading and purchasing available and if so how is it done and what brokerage house offers the option. Please school me as best you can on futures purchasing of oil as quickly as possible.

THORESEN

Sue Jan asked:


Buy and sell orders, which originate from all sources and are channeled into the exchange-trading floor for execution, are actually the ones to determine the prices. These buy and sell orders are translated into actual purchases and sales on the trading floor.

The major function of the futures market is the transfer of risk, and increased liquidity between traders with different risk and time preferences, for instance from a hedger to a speculator. Futures trading is a method used to eliminate or minimize risks that occur when the prices in the market fluctuates.

Futures contracts are exchange-traded derivatives. A futures contract is traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a pre-set price. Futures contracts are basically for assumption or hedging.

There are two groups of futures traders: the hedgers, who are interested in the underlying commodity and are seeking to hedge out the risk of changes in price; and the speculators, who are interested in making a profit by predicting market moves and buying a commodity “on paper” for which they have no practical use. For example, commodities in the market can be bought today at today’s price, with the speculation of selling them at a higher price in the future.

On the other hand, hedging protects against fluctuations in market prices. This protection is made by allowing the risks of price changes to be transferred to professional risk takers. For instance, a manufacturer can protect itself from price increases in raw materials they need by hedging in the futures market.

Hedging has two types, hedge sale and hedge purchase. A person can buy a commodity and sell futures at the same quantity as protection against fluctuation in prices when he is still holding the stock.

You might think that this is gambling, but the fact is that speculation refers to the condition of a legitimate enterprise based on the current condition of the market trends. However, it is very risky for inexperienced futures traders who try to predict the market and speculate without having enough resources or experience.

Since the prices are distributed via telecommunications network and the internet, it makes online futures trading very convenient and simple for an individual. Nowadays many brokers offer their services for trading commodity futures online. Because more risk is involved in online futures trading than stock trading, you must judge for yourself whether or not it is worth the added risk of trading commodity futures online.

Keep in mind that an investment in futures can result in losses. Past performance results does not necessarily indicate future performance results.



HOLDSWORTH