Why Trade Futures?
I have been trading futures for around 15 years. When speaking to people about trading and investing today, I still find that many people still think of futures speculating as high risk wild west gun slinging and this could not be further from the truth. The truth is, in many ways, these are the lowest risk markets in the world and really do make the most sense for many people looking to get involved in market speculation.
Teaching exactly what futures are and how to trade them is what we do in our week long course which is beyond the scope of this piece. Before needing to know that, however, it is important that you understand the four main benefits of the futures markets so you know what you are getting into. Here they are:
1) The Tax Break: There is a major tax break when you trade futures. It is the 60/40 long term capital gains benefit which is much more attractive than stock trading. This makes a big difference and is something many people simply don't know.
2) Leverage: Futures offer incredible leverage. Many people think that they need to get involved in options to attain big leverage. The futures markets offer much more leverage than stocks or options do. If you think this means high risk, think again. If you use protective stops, these markets become some of the lowest risk markets in the world because in the high volume/liquid futures markets, you are more likely for your stop to get filled where you want than you are in stock trading.
3) Futures are Low Risk: When trading stocks, each day we can find stocks gapping double digit percentage points on the open. If it is a gap in your favor that's great but if it is not, your trading or investment account can be ruined. When trading the high volume/liquid futures markets, gaps like this don't happen. While there is always the risk that a major gap can happen in any market, can you imagine a 10% gap in the 30 Year Bond, the S&P, the 10 Year Note, and many more?? There are some futures markets that don't have much volume and gap sometimes but we don't trade those.
4) Non-Correlated Market Opportunity: For me, the most important reason to get involved in the futures markets is the fact that these are the only markets in the world that offer Non-Correlated Opportunity. There are always small exceptions but for the most part, most stocks simply move in the same direction as the S&P over time. It is not common that you will be short one stock and long another and both will make a profit. In futures, however, you can be long the S&P futures, short Crude Oil futures, long the Yen futures, short the 10 Year Note futures, and all these positions can be very profitable at the same time. Also, when you trade the futures, you have a global opportunity at your fingertips. Some of the futures markets I trade in Europe have much more volume than any of the markets here in the US.
The chart above is the Nasdaq futures and represents a potential shorting opportunity going into today's session. When you trade just one Nasdaq futures contract, you are making or losing $20 per point. For example, if you bought one at 2040.00 and sold it at 2041.00, you just made $20. Watch this supply level today for a potential shorting opportunity in the Nasdaq futures or Nasdaq stocks.
If you like using moving averages or any indicator or oscillator, you would use them the same in futures as you do in stocks. In the 10 Year Note futures chart above, you can see that the buy signals from a moving average cross over or a pullback to up-sloping moving averages works fine when applied properly.
I trade over 20 futures and forex markets with one simple supply (resistance) and demand (support) strategy and the benefits to trading these markets is fantastic. The goal of this piece is not to convert stock traders to futures traders. It is to simply to help educate people on what futures are and some of the benefits of trading them. There are other benefits such as hedging your portfolio risk with the S&P futures, hedging your adjustable rate mortgage risk with the 10 Year Note Futures, and more. If you would like more practical information on futures trading, email me. If you want to learn more about the specifications on some of these markets, you can always go to the exchanges such as the Chicago Mercantile Exchange (www.cme.com) and the Chicago Board of Trade (www.cbot.com). When you go to these websites, click on the "contract specification" tabs and there you will find the numbers behind these futures contracts. If you want to learn how to trade these markets, perhaps I will see you at an Online Trading Academy futures course in the future.
Have a great day.
- Sam Seiden, sseiden@tradingacademy.com
|
Sam brings over 15 years experience of equities and futures trading which began when he was on the floor of the Chicago Mercantile Exchange. He has traded equities, futures, interest rate markets, forex, options, and commodities for his personal interests for years and has educated hundreds of traders and investors through seminars and daily advisory services both domestically and internationally. Sam has been involved in the markets since 1991 both on and off the floor of the Chicago Mercantile Exchange. He has served as the Director of Technical Research for two trading firms and regularly contributes articles to industry publications. Sam is known for his trading, technical research, and educational guidance.