futures for stock traders - daniels trading · · 2014-06-09futures for stock traders. ... crude...

by Scott HoffmanFUTURES FOR STOCK TRADERS

2 100 South Wacker Drive, Suite 1225 • Chicago, IL 60606 • +1.877.311.2862 •[email protected] • www.danielstrading.com

With a variety of non-correlated markets, high liquidity, low margin requirements and around the clock trading opportunities, it’s easy to see why many savvy investors have already diversified into the futures markets. If you’re considering futures trading yourself, this guide is for you.

The good news is, if you’re already investing in other sectors, you may know more about futures than you think. For instance, you have likely seen the discussion of price and future outlook for commodities like gold, crude oil and the grains in the Financial Press. You are also likely aware of the proliferation of Exchange Traded Funds (ETFs), many of which are designed to track prices for commodities and indices.

This guide is designed for those with knowledge of equities trading. It will walk you through the infor-mation you need to help you transition from equities to futures.

After reading this guide, I encourage you to go through the links in the Additional Education section at the end of this document, for further information about the futures markets. Feel free to also contact Daniels Trading for a free consultation to discuss whether futures are right for you, and how to get started.

Sincerely,

Scott Hoffman

3100 South Wacker Drive, Suite 1225 • Chicago, IL 60606 • +1.877.311.2862 •[email protected] • www.danielstrading.com

WHat are FutureS?

According to the National Futures Association, a futures contract is a legally binding agreement to buy or sell a commodity or financial instrument at a later date.

In a futures contract, price is the only variable. They are standardized for quantity, quality, and delivery specifications. Because of this, futures contracts can be traded on an exchange. This open auction market, often consisting of hundreds or thousands of participants, brings a large amount of liquidity to futures trading. In essence, the open auction process means that you can buy from any market participant, or sell to anyone looking to buy.

Whereas the price of a stock may be driven by estimation of future earnings, the talent of corporate management, or the quality of products produced, futures prices are driven strictly by supply and demand. The aggregate belief of the market participants determines the supply/demand balance for each commodity. This has an advantage over stocks in that there can be no manipulation of earnings or cover ups of the material facts.

The value of a gold contract, for example, depends on what market participants believe the price of gold will be when the contract expires. If you believe the price of gold will be higher, you would buy the contract. If you believe it will be lower, you would sell it short. Being able to short sell allows you to make money when a market declines, and sometimes markets fall faster than they rise!

So what about the stories of novice traders taking delivery and getting a load of soybeans dumped on their lawn? This is easily avoided by offsetting positions, which you can do with any market participant. To close your trade out, simply sell if you bought, or buy back if you sold. This action offsets your trade and removes your obligation to make or take delivery. The uniformity of futures contracts also means that you don’t have to go back to the person with whom you initiated your trade/contract.


WHat are tHe advantageS oF FutureS over StockS?

diverSiFication

Futures allow investors to diversify the holdings in their investment portfolios, which can reduce port-folio risk and improve long-term returns. This is substantiated by academic research, beginning with a landmark study by John Lintner of Harvard University. According to Lintner, “the combined portfolios of stocks (or stocks and bonds)…..after including judicious investments…. in leveraged managed futures accounts show substantially less risk at every possible level of expected return than portfolios of stocks (or stocks and bonds) alone.” Additionally, a study published by the Chicago Mercantile Exchange revealed that “portfolios with as much as 20% of assets in managed futures yielded up to 50% more than a portfolio of stocks and bonds alone.”

opportunitieS

Futures give investors the opportunity to participate in a wide variety of markets, many of which have low correlation to equities and each other. With stocks, the predominant way to trade is to buy stocks, or to sell stocks you have already purchased. It is relatively difficult to short a stock. You have to borrow stock for sale in the market, but not all stocks are available to borrow. Borrowing stocks for short selling also incurs costs. You have to pay a stock loan fee to borrow, and have to keep margin money in your account for the position. You can only short sell a stock on an uptick, and the SEC has banned short selling in many stocks.

On the other hand, to short a futures contract, you need only find someone to sell to. You don’t need to own it to sell it. In fact, to avoid having to deliver on futures contract, you would buy back your contract before expiration, thus eliminating your obligation to deliver. In futures, you can also short sell on a down tick, there are no restrictions on which markets can be sold short, and the margin treatment is the same for both long and short positions.

The futures markets are also electronic and global in nature. In many cases, this allows for trading opportunities nearly 24 hours a day.


Leverage

Futures have lower margin requirements than stocks. A regular, non-margined stock account requires the trader to deposit 100% of the value of the security he trades. A stock margin account requires an initial deposit of at least 50% of the current value of the security. The remaining value is considered a loan, and the trader incurs interest charges for the borrowed funds.

Futures generally require margin of between 5% to 15% of the full contract value. Futures margin requirements are set by the exchange they are traded on and are based on the volatility of the market. Profit and loss, however, is calculated on the full contract value.

Futures Leverage exampLes:

A Comex Gold futures contract (the most widely traded gold future) is for 100 ounces of gold; it trades in dollars and cents per ounce of gold. The current margin requirement for gold is $5,399.00. Let’s assume a trader buys a futures contract at $900 per ounce, then the market rallies to $945 per ounce, where the contract is sold (liquidated). This move represents a 5% rally in the price of gold. Let’s compute the trader’s profit and return on investment:

1. At purchase, contract value is $900/oz. x 100 oz. per contract = $90,000

2. When sold, contract value is $945/oz. x 100 oz. per contract = $94,500

3. The trader’s profit is $94,500 - $90,000 = $4,500.

(This could also be figured as $945-$900=$45/ounce profit. $45/ounce multiplied by the con-tract size of 100 ounces gives a profit of $4,500).

4. The return on investment is $5,399 margin divided by the profit of $4,500 equals an 83.3% return on the $5,399 margin.


A wheat futures contract is for 5,000 bushels of wheat, and trades in prices of dollars and cents per bushel of wheat. The current margin requirement for wheat is $2,700.00. Let’s assume a trader buys a futures contract at $6.00 per bushel, and then the market declines to $5.70 per bushel, where the contract is sold (liquidated). This move represents a 5% decline in the price of wheat. The loss and return on investment:

1. At purchase, contract value is $6.00 x 5,000 bushels = $30,000

2. When sold, contract value is $5.70 x 5,000 bu. = $28,500

3. The trader’s loss is $30,000 - $28,500 = $1,500.

(This could also be figured as $6.00-$5.70= 30cents/bushel loss. 30 cents per bushel multiplied by the contract size of 5,000 bushel gives a loss of $1,500).

4. The return on investment is $2,700 margin divided by the loss of $1,500 equals a 55.5% negative return on the $2,700 margin.

Profit and loss on a short sale is computed in essentially the same way; subtract the sale price from the buy price, then multiply that number times the contract side. Let’s go through some examples:

An eMini S&P 500 futures contract size is $50 times the index. The current margin requirement for the eMini S&P is $5,625.00. Let’s assume a trader sells a futures contract at 900.00, and then the market declines to 870.00, where the contract is bought back (liquidated). This move represents a 3.33% decline in the S&P 500 index. Let’s compute the trader’s profit and return on investment:

1. At sale, contract value is 900.00 x $50 = $45,000

2. When repurchased, contract value is 870.00 x $50 = $43,500

3. The trader’s profit is $45,000 - $43,500 = $1,500.

(This could also be figured as 900.00-870.00=30 point profit. (30 multiplied by the contract size of $50 per point gives a profit of $1,500).

4. The return on investment is $5,625 margin divided by the profit of $1,500 equals a 26.6% return on the $5,399 margin.


A Canadian Dollar futures contract size is C$100,000.00, and is priced in US dollars. The current margin requirement for the Canadian Dollar futures is $2,430.00. Let’s assume a trader sells a futures contract at 0.8800, and then the market rallies to 0.8900, where the contract is bought back (liquidated). This move represents a 1.1% increase in the Canadian Dollar. Let’s compute the trader’s loss and return on investment:

5. At sale, contract value is 0.8800 x C$100,000 = $88,000

6. When repurchased, contract value is 0.8900 x C$100,000 = $89,000

7. The trader’s loss is $89,000 - $88,000 = $1,000.

(This could also be figured as 0.8800-0.8900-=.0100 point profit. .0100 multiplied by the contract size of C$100,000 equals a loss of $1,000).

8. The return on investment is $2,430 margin divided by the loss of $1,000 equals a 41% negative return on the $2,430 margin.

WHat about FutureS verSuS etFS?

Many stock traders who are interested in investing in commodities first look at Exchange Traded Funds (ETF). For example, an investor interested in owning gold may look at buying a gold ETF to participate in fluctuations in the price of gold. A share in a gold ETF represents a set amount of gold, held in trust by the issuer.

Although ETFs have the advantage of being tradable in a stock account, several factors suggest that futures are preferable to ETFs for investors seeking commodity or index trading opportunities. In addition to the ability to trade in a variety of commodities, financial futures and index futures, a futures account also maintains the advantages outlined below.

Leverage - This is one of the main characteristics of futures contracts. Leverage can be both a benefit and a risk. For instance, whereas with ETFs you would have to deposit $50,000 for a contract worth $100,000 of gold (50% of the transaction value), futures would only require approximately 5% of the transaction value or $5,399 (the margin requirement at the time of writing).

trading timeS - Since shares of ETFs are traded on stock exchanges, their trading hours are very similar to those of regular share trades. On the other hand, futures can be traded almost 24 hours a day, providing more opportunities.

Liquidity – The table below compares the relative liquidity to futures and the popular ETFs. The last column gives an estimation of the degree of higher liquidity in the futures market compared to the equiva-lent ETF. For example, crude oil futures have nearly 34 times more liquidity than the crude oil ETF, USO.


Futures vs. etF Liquidity Comparison

product Future voLume Factor etF* voLumeFutureSLiquiditymuLtipLe

S&P 500 ES 1,935,877 500 SPY 242,217,296 4.0

NASDAQ 100

NQ 272,012 800 QQQQ 114,333,400 1.9

Russell 2000

TF 129,189 1,000 IWM 55,515,800 2.3

Gold GC 109,248 1,000 GLD 17,353,800 6.3

Silver SI 16,003 10,000 SLV 7,047,800 22.7

Crude Oil CL 410,604 1,000 USO 12, 129,600 33.9

*Factor - the number of ETF shares that are approximately equivalent in notional value to the notional value of one futures contract. (Figures are from May 18, 2009.)

management and otHer FeeS - A gold ETF is organized as a trust, holding a set amount of gold. The manager sells shares in the trust, which each represent a fractional ownership of the gold held in trust. While managing the ETF, the manager incurs expenses. Because the gold produces no income, the manager must sell a portion of the gold in the trust to cover the expenses. These sales diminish the overall underlying assets per share, which, in turn, can leave investors with a representative share value of less than their initial investment over time. Generally, the only costs involved in futures trading are the commissions and fees paid when you buy or sell futures contracts.

rebaLancing oF Leveraged etFS - Leveraged ETFs are designed to maintain a constant leverage ratio to their underlying instrument. Fluctuations in the price of the underlying instrument change the value of the fund’s assets; this requires the fund to change the total amount of exposure to the underly-ing asset. In a declining market, a leveraged ETF is forced to reduce its exposure but doing so also reduces the fund’s exposure when the market rallies back up. This means the leveraged ETF may end up with a smaller gain than the underlying instrument. Over time, this amount can be a substantial.


unLock tHe baSicS oF FutureS

HoW doeS FutureS margining Work?

If you’re a stock trader, you understand the term “margin” in stock terms. Margin in stocks has to do with the cash down payment and money borrowed from a broker to purchase stocks. Stock margin is viewed as a loan. It is intended to be paid back, and those who buy stocks on margin are charged interest on the borrowed funds.

In futures trading, margin has a different meaning, and futures margin serves a different purpose. Rather than being a down payment, the margin required to buy or sell a futures contract is a deposit of good faith money that can be drawn on by your brokerage firm to cover any day to day losses you may incur in the course of trading. Margin requirements ensure you can pay up for your losses and make sure you get your profits when you are correct.

Margin requirements are set by the futures exchanges on which they are traded. Margin is typically 5 to 10 percent of the value of a futures contract. It is based on the market’s volatility and range of daily price movements. These factors are constantly monitored by the exchanges, which may raise or lower margin requirements as volatility rises and falls (margin changes affect open contracts as well as new positions).

What is mark to market aCCounting?

Open futures positions are marked to market on a daily basis. If you buy a futures contract today and by the close of business it moves $100 in your favor, your account is credited $100 after the market close. Conversely, if a futures contract moves $100 against you today, then your account is debited $100 after the close. On each succeeding day, your account is credited or debited your profit or loss between the day’s close and the previous day’s close. This means that when you have open futures contracts, your account balance is dynamic; the value of your account rises and falls as your trades move for you or against you.

Because of daily marking to market, there is no difference between profit from an open trade and a closed out trade, except profit for an open trade can continue to change. This means that you can use the profit from an open trade to pyramid a position, trade another position, or withdraw it from your account. Keep in mind, however, that as the markets continually move, an adverse market move can take away open trade profit.

Options trades are treated differently than futures trades. Profits from option trades are considered as unrealized until the position is liquidated. This means you cannot use long option value to margin other positions. You have to liquidate an option position to free up funds for another use or withdrawal.


hoW do you Figure proFit and Loss For Futures?

This is done in the same manner as is done with any other financial market transaction; take the difference between where you bought and sold (or vice versa), then multiply that difference by the quantity traded. That’s where it can get trickier. For equities, that would be the profit or loss per share multiplied by the number of shares. With futures trading, there is no one constant “dollars per unit” value for all futures markets; it’s different for soybeans than it is for crude oil. Regardless, the basic principle is still the same. The examples below will walk you through how to figure out profit and loss in futures trading.

exampLe 1: Let’s say you think the price of gold is going to increase. After making sure you have sufficient funds in your account to trade gold, you buy one gold futures contract at $900 per ounce. (A futures contract for gold is for 100 ounces of gold.) After you buy, gold rallies to $910 per ounce, and you sell your contract. Your profit would be $10 per ounce times 100 ounces, or $1,000 (before commissions and fees). As soon as you liquidate your position, the margin money pledged for the gold trade is freed up for another trade or available for withdrawal.

exampLe 2: You believe the price of crude oil is going to fall, so you sell short a crude oil futures contract at $60.00 per barrel (A futures contract for crude oil is for 1,000 barrels of crude). The price falls to $59.50 per barrel, where you buy back your contract. Your profit would be $.50 per barrel times 1,000 barrels, or $500 (before commissions and fees).


FutureS StockS

RepresentsA commitment to buy or sell

something in the future at an agreed upon price

Ownership of a corporation

Trading Traded on a regulated exchange Traded on a regulated exchange or through a dealer association

Issued byA futures exchange writes the

terms of each contract and makes it available for trading

A corporation

Maximum number that can be outstanding

No limit on the futures contracts that can be traded

Set by the company’s charter, Issuance regulated by the SEC

Margin Requires deposit of about 6-18% of the value of the futures contract

If purchases in a margin account, requires minimum initial deposit of

50% of the value of the security; the reamaining 50% is considered a loan from the broker who charges interest

Selling Short As easy as buying and going long Requires borrowing stock, if availble and selling when price is rising

Timing Fixed expiration date, usually less than one year

Stocks are perpertual instruments so long as the underlying company

remains solvent

Fundamental Analysis

For commodites, research analysis provide views of supply/demand

ratios and other economic factors or physical conditions (e.g. weather)

that could affect values

For financial futures, the same stock research applies

Research analysts provide views of micro and macro economic factors

that could affect values

Technical AnalysisTraders chart price movements to analyze patterns and support/

resistance levels; this generates buy/sell signals

Traders chart price movements to analyze patterns and support/

resistance levels; this generates buy/sell signals

Risk of Loss

Because the purchase or sale of a futures contract requires only a small

% deposit of the total value of the contract, a client can lose money on

their initial deposit

In terms of potential loss, a stock bought at margin works the same as

a futures contract.

A non-margined stock purchase requires a 100% deposit and therefore represents the total

potential loss

Chart Courtesy of Chicago Mercantile Exchange


common queStionS

q: are futures too risky for the average investor?

A: Only you can decide whether you have the risk tolerance for futures, and whether they are a financially suitable investment for you. A disciplined approach to the market can reduce risk and increase the potential for profit. For a self-directed futures trader, this means doing your homework upfront to create a plan for your trading, and a plan for each trade, then executing your plan.

Futures are a highly leveraged investment; leverage is where both the potential for risk and the potential for gain lie with futures. Having an awareness of and respect for leverage is the basis for controlling risk in futures trading.

q: How are options and futures different?

A: Options give the buyer the right, but not the obligation, to buy or sell a specific product for a preset price during a specified time period. Futures are obligations to buy or sell a specific product on a specific day for a preset price.

q: How do you sell something you don’t own?

A: A futures contract represents the commitment to either sell or buy an asset at a future date. You don’t need to own the underlying commodity or financial instrument in the intervening period; you are merely contracting to deliver it at a specified future date. As long as you offset your position before expiration, you needn’t worry about having to own the commodity to deliver it.

q: do all futures contracts end with a delivery of something?

A: No, futures are rarely used to complete an actual delivery transaction. In fact, fewer than two percent of all futures contracts traded end in delivery. This is because offsetting a trade frees the trader from any contractual obligation for delivery.

q: What is the average holding period for a futures trade?

A: There’s no one answer to that question. Different traders have different trading strategies. Day traders may be in and out of the market many times per day, longer term traders may hold a position for weeks or months.


q: What is margin and how does a margin call work?

A: The margin required to buy or sell a futures contract is solely a deposit of good faith money that can be drawn on by your brokerage firm to satisfy your obligation if you lose and ensure that you receive your profits when you win.

(Note: the Chicago Mercantile Exchange has taken to referring to this deposit as a performance bond, rather than margin, to differentiate them from stock margins.)

There are two margin-related terms you should know: Initial margin and maintenance margin.

Initial margin (sometimes called original margin) is the sum of money that the customer must deposit with the brokerage firm for each futures contract to be bought or sold. On any day that profits accrue on your open positions, the profits will be added to the balance in your margin account. On any day losses accrue, the losses will be deducted from the balance in your margin account.

If and when the funds remaining available in your margin account are reduced by losses to below a certain level—known as the maintenance margin requirement—your broker will require that you deposit additional funds to bring the account back to the level of the initial margin. Or, you may also be asked for additional margin if the exchange or your brokerage firm raises its margin requirements. Requests for additional margin are known as margin calls.

Assume, for example, that the initial margin needed to buy or sell a particular futures contract is $2,000 and that the maintenance margin requirement is $1,500. Should losses on open positions reduce the funds remaining in your trading account to, say, $1,400 (an amount less than the maintenance requirement), you will receive a margin call for the $600 needed to restore your account to $2,000.

A margin call is a serious issue. Because of the leverage involved, margin calls in futures trading require immediate attention. A margin call may be met either by adding funds to your account to bring your account balance back up to the margin requirement, or by liquidating positions to reduce your margin requirement.

q: Who regulates the futures industry?

A: The U.S. futures industry is primarily self-regulated, with the role of the federal Commodity Futures Trading Commission being principally an oversight role (to determine that self-regulation is continuous and effective). Of the total expenditures on futures regulation, more than three-fifths of the cost is presently being paid by the exchanges where futures contracts are traded and by National Futures Association (NFA), the


industry wide self-regulatory organization authorized by Congress and established in 1982. The purpose of self-regulation is to assure that those who conduct futures trading business with the public do so in a professional, ethical and honest manner.

q: Stock firms have Sipc to insure customer funds; is there a Sipc for futures?

A: There is no insurance fund for the futures industry; however, there are many financial safeguards for the futures industry. The futures industry has seen explosive growth over the past three decades. A requisite for this growth has been the financial integrity of futures markets. While trading in futures contracts obviously involves risks related to price changes, market participants have historically had little reason to be concerned about the security of their funds. Customer losses due to the insolvency of a futures brokerage firm have been virtually non-existent. Indeed, such losses have totaled less over 50 years than the Securities Investor Protec-tion Corporation has paid, on the average, to reimburse customers of the securities industry for member firm insolvency losses each year.

q: Who holds my funds in a futures account?

A: Funds for commodity trading can only be held by a Futures Clearing Merchant; a firm authorized to conduct futures business with the public. Every firm that conducts business with the public as a Futures Com-mission Merchant must have and maintain sufficient capital to meet its financial obligations to its customers. These requirements are subject to continuous audit and stringent enforcement. Regulatory agencies have the authority to determine compliance on a daily basis.

Firms and principals of firms in the futures industry are required to maintain their customers’ funds and margin deposits in bank accounts which are totally separate from their own. Rules further stipulate that such funds can be used only for the purposes the customers intended and can at no time be commingled with the firm’s funds or the funds of the firm’s principals. This means that in the event of the bankruptcy of an FCM, the FCM’s creditors cannot claim customer funds to satisfy demands of creditors.

q: What’s the difference between a clearing firm (Fcm) and an introducing broker (ib)?

A: An FCM is a firm that accepts monies from customers to maintain accounts and accepts or solicits orders for futures and futures options trading. They must be members of a futures exchange to transact business there. Clearing firms are also responsible for reconciling all trades with the futures exchange clearing houses.

An introducing broker is a futures broker who has a direct relationship with a client and delegates trade execution and clearing to another futures merchant. An IB serves as the interface between customers and an FCM; the FCM is the interface between an IB and the futures exchanges.


Does it make sense to bypass the middleman (IB) and go to the FCM directly? In most businesses, going direct saves you money; in futures there’s no additional cost to go through an introducing broker. Additionally, an IB may have benefits you might not get with a clearing firm.

An FCM, unlike an IB, may not be as concerned with long term relationships. Many new futures traders do not make it past the first few months. FCMs are aware of this, and for the most part unconcerned. As long as they can replace the old with the new their profits move forward. FCMs rely on a steady flow of new clients. Understanding the above should bring clarity to what may otherwise be a rather confusing relation-ship. IBs act as a liaison between you and the FCM. The cost of this relationship is negotiated between the IB and the FCM and has absolutely nothing to do with you. You will always have the option of going direct. The advantage of using an IB can be found in many aspects of the brokerage relationship. Most importantly, introducing brokers are dependent upon your long term success.

q: How do i open a futures account?

A: To open an account, you first need to complete an account application with an FCM. You must supply some basic biographic and financial information about yourself, so the clearing firm knows who you are and if futures is a financially suitable investment for you. The application form will also describe the future relationship between you and the FCM, and ask if you understand the risks involved in futures trading. After you submit your application, the FCM will conduct a basic check of the facts you supplied. If everything is in order, your account will be approved for trading. You generally must fund your account before you can initiate any trades.

q: How much do i need to deposit to fund a futures account?

A: This is an individual decision, based on your financial situation and risk tolerance. Many reputable studies consider 10% to 20% of your total investment portfolio to be a reasonable guideline for how much you may want to put toward futures. Whatever amount you decide to start with, it should be risk capital.

q: What is risk capital?

A: Risk capital is the amount of money that an individual can afford to invest, which, if lost would not affect their lifestyle. Only risk capital should be used to fund a futures account; not your mortgage payment or your children’s college tuition.

In the context of opening with risk capital, futures trading generally isn’t an endeavor to begin on a shoestring. It “takes money to make money” in futures. If you don’t feel you have sufficient capital to begin, you might consider waiting and saving up money to be able to start when adequately funded. The markets will always be there and a properly funded account will improve your odds of success.


q: are funds in my futures account available to me? How can i withdraw funds from my account?

A: As long as your funds are not needed to margin a position, or are in long option value, they are always available to the account holder. Generally, you can have funds sent to you no later than the following business day.

q: i want to get started and do it myself. How do i get started?

A: A self-directed trader, you can use one an online trading platforms to execute orders. Some platforms provide real-time streaming quotes and charts. New traders might consider calling a broker to place their orders.

If you’re planning to do your own trading, you should understand how to execute your trades. (At Daniels Trading, if you want to do it yourself, we don’t just give you a platform and forget about you. We are still available if you have questions or need help. During business hours we are just a phone call away, and our clearing partners’ staff trading desks around the clock if you need assistance after hours. In addition, we provide research, newsletters, and market information for my clients. We are here to provide the tools you need to reach your trading goals.)

q: How am i able to track performance in my account?

A: If you’re trading on a trading platform, your profit and loss is generally available in real time through the platform. Even if you’re not trading on a platform, clearing firms generally allow you to access your account information online. In addition, any time you make a trade, a statement is sent you with an exact accounting of your profit and loss, and any commissions and fees incurred.

q: i’d like to participate in the futures markets, but i don’t feel i have the time or expertise to do it myself. How can i do so?

A: The financial press speaks about the futures markets all the time: gold prices, crude oil and gasoline prices, the grain markets. Futures have attracted the interest of sophisticated institutional investors seeking to diversify their investments. However, actually trading a futures account, making decisions to buy and sell, can be a daunting task for many new investors. Studies have shown that the allocation of a percentage of one’s investment holdings to futures can increase return and reduce risk across the entire portfolio.

Those interested in a “hands off” approach to futures may consider automated trading systems or managed futures products. These allow an investor to potentially benefit from futures while removing the emotion of trading and expertise required. (If you’re interested in a managed approach to futures, we can help you choose an automated trading system or managed futures product that’s right for you.)


are FutureS rigHt For me?

In the end, only you can answer that question. Your answer depends on your financial situation and risk tolerance. If you’re new to futures, you should make sure you know enough to make sure you can make informed decisions, understand the risks, and avoid mistakes. If you’re doing it yourself, you need to have the time and information necessary to make your trading decisions. Novice traders might consider working with an experienced futures broker when they start, so they have someone to “look over their shoulder.” As you gain experience, you can consider trading on a self-directed basis.

If futures are suitable, but you don’t have the time or expertise to make your own trading decisions, you might also consider an automated futures system or managed futures account. These allow you to participate in the futures markets on a more passive basis.

WayS to participate in tHe FutureS marketS

broker execution - Trust an experienced broker to execute your futures and options trades for you. You may come up with your own trade ideas, use your broker’s guidance and advise, or have your broker execute the recommendations of a 3rd party newsletter or advisory.

Self-directed online execution - Maintain total control over your trading selection and execution directly through an online electronic trading platform.

managed Futures - Defer your trading decisions to an experienced, registered Commodity Trading Advisor with a verifiable track record.

automated System execution - Defer all commodity futures trading decisions and execution to a tested third party mechanical trading system.


about tHe autHor

Scott Hoffman has been in the futures business for 23 years. After graduating from The University of Chicago with a degree in economics, he went to work on the floor of the Chicago Mercantile Exchange. Following his stint at the CME Scott took a job as an upstairs futures broker, and served as the personal broker to a former Chairman of the Chicago Board of Trade.

Scott has worked with hundreds of traders of all experience levels. He works with novice traders to help them learn how to trade, and has the experience to work with demanding experienced traders. He has written numerous market analysis and education articles and is a sought after speaker, having given futures seminars for the CBOT and the CME.

contacting danieLS trading

If you’d like to continue learning about futures trading, Daniels Trading has a wide variety of additional information about the futures markets available. We’d be happy to answer any questions you may have.

If you’re ready to open an account, contact us to discuss what arrangement might suit you best, and we’ll be happy to help you get set up to trade futures.

daniels trading

toll Free: 1.800.800.3840Local: 1.312.706.7600Fax: 1.312.706.7605email: [email protected]


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Click the links below for your selected option(s).

Learn from a Futures exchange – Get more in depth education on futures from the Chicago Mercantile Exchange, the world’s largest futures exchange.

Written by the Chicago Mercantile Exchange, the 132-page guide below discusses the history of futures, the mechanics of futures trading, fundamental and technical analysis. It explains the basics of futures and options pricing, and how to follow futures and option prices. Get this free guide by clicking here:

An Introduction to Futures and Options

Learn from daniels trading - We’re here to help and have a structured program designed to advance your futures education.

Daniels Trading has a wide variety of educational materials. Whether you are just looking into futures trading or are an experienced trader, Daniels Trading has the resources to give you the knowledge and skills to become a successful futures trader.

Daniels Trading Futures Education Center

Learn how to diversify your portfolio with managed Futures – No time to trade on your own but want mainstream investment opportunities?

The globalization of financial markets has made portfolio diversification and managing risk more impor-tant than ever. Investors seeking a sophisticated method of portfolio diversification now commonly defer their trading decisions to an experienced commodity trading advisor. Daniels Trading gives you world class access to managed futures investing. Visit Daniels Trading’s managed future education center by clicking the link below:

Daniels Trading Managed Futures Center

http://www.cmegroup.com/files/intro_fut_opt.pdf

http://www.danielstrading.com/education/

http://www.danielstrading.com/services/managed/


diScLaimer

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures

contracts or commodity options can be substantial, and therefore investors should understand the risks

involved in taking leveraged positions and must assume responsibility for the risks associated with

such investments and for their results.

futures for stock traders - daniels trading · · 2014-06-09futures for stock traders. ... crude...

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