1. 1. The Basics of Trading Understanding how trading decisions are made and how the mechanics of the pit works
2. 2. Futures vs. Stocks
   • Held for short term
   • • Pit traders often hold positions for seconds or minutes
   • Can easily go short or long
   • • Most go long stocks.In commodities you can sell before you ever own.
   • Margin provides leverage
   • • Margin is typically a small percentage of value 2-3% this gives incredible profit or loss potential
   • Price Swings are Volatile
   • • Commodity prices swing violently or can stagnate as well.
3. 3. Understanding Minimum Tick
   • Minimum fluctuation or minimum tick
   • • Contracts trade with the minimum tick.For example soybeans are quoted as price per bushel or say $10.40
   • • The minimum tick is cent on 5,000 contracts or $12.50.
   • • If I buy a contract of beans at $10.40 and then sell it ten minutes later at $10.41Ive made of a cent or 3 X 12.50 or $37.50 in profits.
4. 4. Margin:the power of leverage
   • Nominal value of contract
   • • With corn at $5.56a bushel a contracts nominal value is (5.56 * 5,000 contract size or = $28,000)
   • Margin required to trade
   • • Margin is 3% of this or $840
   • • One need only post the margin amount to control the contract
   • Margin calls and forced liquidation
   • • To maintain the position you must always have enough money or you face a margin call.
5. 5. Futures vs. Stocks
   • $10,000 in futures
   • $10,000 in stock
   • With $1,000 margin per contract I can buy or sell 10 contracts
   • With a 10% increase in the price of corn $5.00 to $5.50
   • Profit = .50 * 5000 *10 or a net gain of $25,000
   • That is a 250% return on my investment.
   • I can buy 1,000 shares of a stock valued at $10.
   • With a 10% increase in the value of the stock $10 a share to $11 a share.
   • Profit = 1,000 * $1 or a net gain of $1,000
   • That is a 10% return on my investment.
6. 6. Trading Styles
   • Scalping
   • • Seek to make the minimum tick and hold as short as possible.A large percentage of floor traders.
   • Position trading
   • • Make bets on the way the market will go
   • Spread Trading
   • • Trade the difference between one month and the other
   • Option Markets
   • • Using puts and calls and trading the right but not the obligation to buy or sell
   • Arbitrage
   • • Exploit differences between two markets of like products.
7. 7. Market Forecasting
   • Fundamental Analysis
   • Technical Analysis
   • Quantitative
8. 8. Fundamental Analysis
   • Looks at supply and demand information
   • Market fundamentals constantly shift
   • Weather for many crops
   • Political situations as well
9. 9. Technical Analysis
   • Looks at trying to recognize patterns on price charts.
   • Example on next slide.
10. 10. March Coffee
11. 11. Quantitative Analysis
    • Complex mathematical formulas to identify trends and to profit from them.
    • For those talented in math firms are demanding quantitative analysts and paying huge sums to those who have the background.
    • Many different systems to trade.
    • Reality is that market conditions are always changing.
    • Example
    • • Volcanic eruptions lead to an 11% increase in the price of wheat.
12. 12. Mechanics of pit trading
    • Every exchange a little different but most agree on generals of buy and sell.
    • Hands out = selling
    • Hands in = buying
13. 13. Voice formula
    • To sell the quantity is offered first then the price
    • • 100 at 3
    • To buy the price is first and then quantity
    • • 3 bid for 100
14. 14. Hand signals for Quantity
15. 15. Recording Trades
    • Badges, Jackets, andCard
16. 16. Jobs on the Floor
    • With Brokerage Company
    • • Service Representative
    • • Broker
    • Independent
    • • Local trader
    • • Local broker
    • With exchange
    • • Pit reporter
    • • Educational
    • • PR and financial
17. 17. Jobs off the floor
    • Independent
    • • speculator
    • Commodity Fund
    • • Manage or trade for a fund
    • Analyst
    • • Share thoughts on the market
    • Programmer
    • • Design programs and trading systems and do research
    • CTAs
    • • Commodity Trading Advisor manage customer money
    • Jobs in Actual industry
    • • Numerous