diversifying your portfolio with futures and forex larry dyekman director, communications and...
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Diversifying Your Portfolio with Futures and Forex
Larry DyekmanDirector, Communications and EducationNational Futures Association
What We’ll Talk About Today
• Why more individual investors are trading futures and forex
• What risks are involved in trading futures and forex
• How to conduct due diligence• What questions to ask before trading
What We’ll Talk About Today
• How to look for warning signs of possible fraud
• How to resolve disputes• Where to go for additional information
National Futures Association
• Safeguard market integrity• Protect market participants• Help NFA Members meet their regulatory
responsibilities
National Futures Association
• Registration• Compliance• Dispute Resolution• Education
Why More People Want to Diversify Their Portfolios
• Risk Management• Easier Access to Markets
What is a Futures Contract?
A futures contract is a legally binding agreement to buy or sell a commodity or financial instrument at a later date. Futures contracts are standardized according to the quality, quantity and delivery time and location for each commodity. The only variable is price.
What is Forex?
Forex refers to trading foreign currency. Retail customers generally participate in the forex market as speculators who are hoping to profit from changes in currency rates.
Most Commonly Traded Currencies
EUR – Euro
USD – United States dollar
CAD – Canadian dollar
GBP – British pound
JPY – Japanese yen
AUD – Australian dollar
CHF – Swiss franc
Trading Currencies
Forex transactions are quoted in pairs because you are buying one currency while selling another. The first currency is the base currency and the second currency is the quote currency.
The price, or rate, that is quoted is the amount of the second currency required to purchase one unit of the first currency.
Trading Currencies
For example, a EUR/USD spread of 1.2170/1.2178 means that you can sell one Euro for $1.2170 and buy one Euro for $1.2178.
Why Futures Trading is a High-risk Venture
• Zero-sum game• Volatility• Leverage• Margins
Why Forex Trading is a High-risk Venture
• No central clearinghouse• No protection for your money in light of the
firm’s bankruptcy• Leverage• Margins
Margins
• Initial Margin• Maintenance Margin
Deciding Whether to Participate in the Futures or Forex Markets
• Assess your financial situation• Assess your tolerance for risk• Conduct due diligence
Methods of Participating in Futures or Forex Markets
• Trade your own account• Futures Commission Merchants• Retail Foreign Exchange Dealers• Introducing Brokers
• Have someone manage your account• Use a Commodity Trading Advisor• Participate in a commodity pool
Background Affiliation Status Information Center
BASIC
What You’ll Find in BASIC
• Current and historical registration information• Disciplinary actions taken by NFA, the CFTC
and all the US futures exchanges• Financial information for futures commission
merchants (FCMs)• NFA arbitration and CFTC reparations cases
Questions to Ask Before Opening an Account
• What is your NFA ID number?• How long has your company been in
business?• Where exactly will my money be held? And
what type of regular account statements do you provide?
Questions to Ask Before Opening an Account
• How much of my money will go for commissions, management fees, etc.?
• How can I liquidate if and when I decide I want my money?
Warning Signs of Possible Fraud
• Expectation of large profits• Promise of low risk• Seasonal trades
If a Dispute Arises
• Civil Suit• CFTC Reparations• NFA Arbitration/Mediation
NFA Arbitration Program
• No attorney is necessary• Do not need to allege a rule violation • Non-industry arbitrators• Written submission option
Additional Resources
• NFA publications• www.nfa.futures.org • www.cftc.gov• www.finra.com• Futures exchanges
Website:www.nfa.futures.org
Information Center:1-800-621-35701-312-781-1410
8:00 a.m. – 5:00 p.m. CTMonday - Friday
Questions?