Futures Trading for Beginners

We all have to take that initial first small step, when we start a new journey. This is true of futures trading for beginners as well. Even if you have investment experience, you might not know the difference between stock trading and futures. In this blog and the following ones on futures trading we’ll look at futures trading for beginners and I’ll offer you some of the basics to get you going. If you have never tried futures trading, this is ok; the journey may be long  and together we’ll take the first step now.

What Are Futures?
Futures trading is different from investing in the stock market or bonds since you don’t actually own anything. In futures trading, you are speculating on the future direction of the price in the commodity you are trading. This is different for beginners in futures trading; it is like a bet on the future price direction. The terms “buy” and “sell” merely indicate the direction you expect future prices will take. He or she must only deposit sufficient capital with a brokerage firm to insure that he will be able to pay the losses if his trades lose money.
 
Futures trading is a sort of insurance plan for those who are trading and investing. A farmer may sell futures on his coffee crop if he thinks the price will go down before the next crop; conversely, a grain manufacturer may buy futures if they think the price of soy beans is going to rise before the harvest. Regardless of the price movement, both are guaranteed their price. The final component of the equation is the investor in futures trading who looks for changes in the futures markets and seeks to gain advantages by buying or selling at a profit.

What Is The Potential of Futures Trading?
Trading futures has the potential to be an incredible profit maker, however it can also be an incredible loss maker. Our No1 Rule as traders must be “Protect the integrity of our capital, first and foremost”  It is said that Richard Dennis, a famed commodities trader, transformed $1,600 of borrowed money into $200 million over ten years. His results are rare and unusual and not everyone can expect this level of successful trading that he achieved, however the good news is; you can make money in futures trading. Even if you’re a beginner to trading futures, you can start to make small profits.

Futures Markets?
Novice traders in futures trading should  understand that futures are different to trading on the stock market. Some of the locations are well known like the, the New York Mercantile, the New York Cotton Exchange, Chicago Mercantile Exchange  and the Chicago Board of Trade. Some of the main futures markets are:

• Currency Trading – Currency trading, also known as FOREX (foreign exchange) trading, involves buying and selling currency from many different countries such as the British pound, the US dollar, and the Swiss franc.
• Energy Futures – This market centres its attention on natural gas and crude oil futures.
• Metals – This is one of the more popular and best known sectors. The typical commodities in metals are silver and gold futures
• Agriculture – This is a broad, commonly traded futures which includes such things as wheat, corn and soy beans futures.
• Interest Rate Futures – This market focuses on financial transactions, interest rates and bonds, such as ten year notes futures
• Foods – This sector includes items such as orange juice, sugar and coffee futures

What Action Can You Take To Get Started?
There are several things the novice trader can do as a beginner in futures trading:

1. Start Learning – There is no substitute for education. Read books about futures trading, talk with others that trade futures and search the Internet for information about futures trading. Once you start investing your own money, you will be glad to understand futures trading.
2. Create a Commodities Trading Plan – This is vital. It is important to outline your goals and objectives as well as your trading strategies. This way, if greed and fear interferes with your decision making process, you will have a well defined plan of action to refer to.
3. Select a Broker –You can implement your own trades, however we all need someone to place the orders. Some full-service brokers offer more services and most Internet brokers offer lower commissions. Even though you’re a beginner in futures trading, define what you want from your broker and find someone who meets your needs.

To Conclude
Futures trading for beginners starts with that first step into the unknown, learning, growing, defining your trading parameters, implementing your trading plan and having fun. This journey is shorter now for you because you’ve just taken the first step, so if this feels right for you, keep moving towards you goals.  If you would like to see how we trade Futures in our members area register here for a 14 day guest pass to the GT members area.

Index Exchange Traded Funds

Index funds are a type of mutual fund that tracks the elements of a market index such as the S&P 500. Index fund investing is considered to be a passive form of investing and many believe that these types of funds provide wide market exposure along with a lower portfolio turnover and lower operating expenses than other types of funds. Also referred to as ‘indexing’ this type of investing has historically outperformed most actively managed mutual funds and the lower turnover leads to lower taxes on this fund.

Some index funds use derivatives such as futures or options, in order to achieve their investment objectives. These funds often invest in a representative sample of the companies included in an index, while some of these funds invest in all of the companies included in an index.

Enhanced index funds (EIF) are mutual funds that track on a stock market index but they have specific revisions in place to allow for the use of leverage, the exclusion of certain securities, and more equal position sizes. These funds differ because they are actively managed and result in higher fees and turnover than the more traditional funds. The goal of these funds is to beat the return of the tracking index.

Exchange traded funds track on an index like index funds but they trade like stock on major stock exchanges. ETF funds such as the bond ETF , the silver ETF , and the gold ETF , are not considered to be mutual funds since mutual funds are actively managed.  Their performance tracks an underlying index, which the ETF is designed to replicate and as a result is considered to be passively managed.

Active Index funds require higher fees since they are managed by a fund manager. This fund manager attempts to actively manage the fund by basing the fund’s initial investment proportions according to the benchmark index in which he or she is attempting to track. The fund manager then adds stocks that he or she believes will be strong and that are unrelated to the underlying index to increase the value of the portfolio. The fund manager is responsible as well for managing these non-benchmark stocks so that they earn yields that exceed the benchmark index.

If you would like to see how we trade ETF’s in our members area register here for a 14 day guest pass to the GT members area.

Agriculture ETF

Exchanged traded funds are (ETFs) are securities that track on an index, a commodity, or a basket of assets like an index fund, but ETFs trade like stock on the major stock exchanges. The agriculture ETF is typically considered an agricultural commodity exchanged traded fund and it generally tracks the performance of commodity stocks. In particular this ETF tracks those commodity stocks that are related to food or the growing of food and other agricultural commodities.

Due to stock analysis of the ETF market, there seems to be a trend in which agriculture exchange traded funds increase as the stock market declines. As you can imagine with the current stock market, analysts were taking a look at the commodity ETFs and they were looking at the agriculture ETF in particular. Many say that future trading of commodity ETFs looks pretty good, and as a result, many individuals are looking to invest in agricultural exchange traded funds in particular.

There are two ETF funds that are considered agricultural commodity ETFs that individuals can invest in. These include the Market Vectors Global Agribusiness ETF (AMEX: MOO) and the PowerShares DB Agriculture ETF (AMEX: DBA). The MOO ETF is invests directly in agriculture stocks and agriculture related stocks and the DBA ETF invests in futures contracts on numerous agriculture commodities such as wheat, soy beans, sugar, and corn. The DBA if more actively traded than the MOO and it has also outperformed the MOO by quit a margin. It has also been around longer than the MOO. What is neat about exchange traded funds is that they are often duplicated or investors see very similar ETF launches.

The agriculture ETF is an emerging market that many expect will only continue to grow and to prosper along with income levels in those countries whose quality of life improves. With this better quality of life comes a demand for meat and dairy products, animal feed, etc.

If you would like to continue your trading education, by viewing how we trade the agricultural markets on a daily basis and receive a 30 day guest pass to GT members area,  register here

Understanding Stochastics Technical Indicator

Stochastics is used in technical analysis as an indicator that helps to determine when a market is overbought or oversold. This method of technical analysis was developed by a technical analyst named George Lane. This indicator is used to evaluate a market’s momentum by determining the relative position of its closing prices within the high-low range of a specified number of days. The principle behind this technical analysis indicator is that a stock’s closing price tends to trade at the high end of the day’s price action. The price action is the prices at which a stock is traded throughout a daily session. In other words, the assumption is that when a stock is rising it tends to close near the high and conversely when a stock is falling it tends to close near its lows. This indicator is a momentum oscillator that can warn of strength or weakness in the market.

Without getting into the calculation too much, stochastics is measured with the %K line (fast line) and the %D line (slow line). The %D line is the line followed very closely and it indicates major signals in a chart. This is similar to plotting moving averages as well. The %K line is more sensitive than the %D line, and the %K line is a fast moving average. The %D line is a slow moving average of %K. The %D line, as stated above, is what triggers the trading signals. These trigger lines are typically drawn on stock charts at the 80% and 20% levels, whereas the %K and %D lines are plotted on a 1 to 100 scale. When these lines are crossed on a chart the signal is generated.

What does this technical indicator signify is occurring in the markets?
The purpose of the stochastics indicator is to alert traders that the bulls have failed to close prices near the highs of an uptrend. In can also indicate the failure of the bears to close prices near the lows of a downtrend. This is because prices will typically close near the top of the recent range in a strong uptrend. Then when an uptrend is approaching a turning point, the prices begin to close further away from the high of the range.  In a strong downtrend, the prices tend to close near the bottom of the range. As the downtrend is weakening the prices will typically close farther away from the low of the range.

Additionally, it is important to note that the 80% value mentioned above is an overbought warning signal whereas the 20% value is an oversold warning signal. These signals are the most reliable when traders wait until the %K and %D lines turn upward below 5% before buying, and also when the lines turn downward above 95% before selling.

Stochastics is a technical analysis indicatorthat is quite complex, but once understood can be a very valuable trading tool. I use technical indicators to find  profitable trading ideas in our members daily pre-market reports. If you would like a one month complimentary membership to GT members area,  register here

Short Crude

We still wish to be short of Nymex Crude Futures. I discuss levels at which we’ll initiate a position in our members daily pre-market video, If you would like a one month complimentary membership to GT members area,  register here Henry Waxman continues to push for the US to be less dependent on Canadian tar sands oil and more dependent on Middle Eastern crude! Strange hypotheses, I’m sure Mr Waxman has his reasons, can someone explain the logic to me though, please?  We love the response from the government of Alberta, who said in a full page advertisement it took in The Washington Post, as it tried to dissuade the US government from adopting Henry Waxman’s position:

A good neighbour lends you a cup of sugar. A great neighbour supplies you with 1.4 million barrels of crude oil per day.

Why trade gold miners?

I find becoming involved in conspiracy theories, valueless and time is better spent looking for investment opportunities, however here is an extract from an interesting article from GATA’s Chris Powell:

news reports describe the BIS gold swaps as a means for central banks to “raise cash,” central banks are able to create money out of nothing; they don’t have to sell or lend anything to create money, or at least not to create their own money. They might have to sell or lend something to obtain the currency of some other nation. For example, other nations might have to sell or lend gold to obtain U.S. dollars. But, third, the U.S. Federal Reserve lately has made all sorts of currency swap arrangements with other central banks so that they all can have plenty of dollars to use for market intervention. Other central banks have been able to obtain plenty of dollars just by creating more of their own currency and exchanging it with the Fed. In effect all the major Western central banks now are able to create dollars at will.

So why did any central bank have to lend or pawn its gold to get dollars? Was there some agreement among central banks, or some insistence by the United States, that more gold had to be put into the market to defend currencies, government bonds, and low interest rates, to augment the quiet gold sales recently undertaken in London every month by the International Monetary Fund? The IMF too is supposedly selling gold to “raise cash,” even as it is part of the central banking system that can “raise cash” just by creating it. Have the Western central banks more or less re-established the price suppressing London Gold Pool of the 1960s, only this time surreptitiously? Given the BIS’ traditional interest in “the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful,” the BIS arranged gold swaps must be suspected as part of a scheme to manipulate the gold market. In any case why is the mystery, the lack of official explanation, of these transactions accepted as the natural order of things?

I’ve recently been commenting in our members daily pre-market video report,  If you would like a one month complimentary membership to GT members area,  register here  why we prefer owning bullion, or GLD ETF or gold futures when we wish to be long of gold instead of  having exposure to gold miners: AngloGold this morning has reported that it has stopped all operations at its Tau Lekoa mine in South Africa after one of its miners died there. However this is a small mine, accounting for approx  3% of AngloGold’s total production. I still believe that this will put downward pressure on Anglo’s share price. Why take the additional risk of mine operations like this. Trading gold can be difficult enough, without accepting even more risk outside the parameters of price fluctuations.

Trading Ideas $EWG

We believe it is now time to get short of the European stock market, we prefer to use the German Dax index. You could either sell EWG the German ETF or Dax Futures. I will discuss entryand stop levels in tomorrows members daily pre-market report. Nearly every major global index has broken up  trend line after up trend line, so why should this short term bounce off support hold? We think it will not and so we will start selling beginning with the Dax before moving onto the CAC and S&P’s. If you would like a one month complimentary membership to GT members area,  register here