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| Information About Futures (Part 2) |
Trading commodity futures and options is not for everyone.
It is a volatile, complex, and a risky business. Before you invest any money in futures or option contracts, you should :
1. Consider your financial experience, goals, and financial resources and know how much you can afford to lose above and beyond your
initial payment / capital,
2. Understand commodity futures and option contracts and your obligations before entering into those contracts,
3. Understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is
required to give you,
4. Know whom to contact if you have a problem or question.
The purpose of the Daytrader-Generation courses is to provide you with general information about trading in general, future contracts
and options in order to encourage you to ask more questions and gather more information before you open an account and starting working
yourself on the market.
It is a volatile, complex, and a risky business. Before you invest any money in futures or option contracts, you should :
1. Consider your financial experience, goals, and financial resources and know how much you can afford to lose above and beyond your
initial payment / capital,
2. Understand commodity futures and option contracts and your obligations before entering into those contracts,
3. Understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is
required to give you,
4. Know whom to contact if you have a problem or question.
The purpose of the Daytrader-Generation courses is to provide you with general information about trading in general, future contracts
and options in order to encourage you to ask more questions and gather more information before you open an account and starting working
yourself on the market.
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| Daytrader-Generation “No Gambling but True Working Tools to Achieve Profit” "Day-Trading, Business of the Future !" |
| Some questions and answers |
* Who trades in futures and options and why ?
Most of the participants in the futures and options markets are commercial and institutional users. For example, a company or individual who
holds an asset such as coffee, corn, soybeans, U.S. Treasury bonds, or a portfolio of stocks, wants the value of that asset to increase. That
person also wants to limit, if possible, any loss in value. The company or individual may use the commodity markets to take an opposite
position that can minimize the risk of financial loss from holding those assets when and if their price changes. This is called "hedging".
Other participants are speculators who hope to profit from changes in the price of the futures contract. A speculator buying a futures contract or
call option, or selling a put option, hopes to profit from rising prices, while a speculator selling a futures contract or call option, or buying a put
option, hopes to profit from declining prices. Because, unlike a hedger, a speculator does not own the underlying commodity, the components of
the underlying index, or other product, losses in the futures market are not offset by gains in the cash market, and speculators can lose
substantial amounts.
Individuals do participate in the market. An individual who owns or runs a business might participate as a hedger. Or, an individual with a
substantial and diversified portfolio of investments might speculate using futures or options contracts. Individual investors should also have
adequate resources to absorb the significant losses that can occur in futures and option trading.
Most of the participants in the futures and options markets are commercial and institutional users. For example, a company or individual who
holds an asset such as coffee, corn, soybeans, U.S. Treasury bonds, or a portfolio of stocks, wants the value of that asset to increase. That
person also wants to limit, if possible, any loss in value. The company or individual may use the commodity markets to take an opposite
position that can minimize the risk of financial loss from holding those assets when and if their price changes. This is called "hedging".
Other participants are speculators who hope to profit from changes in the price of the futures contract. A speculator buying a futures contract or
call option, or selling a put option, hopes to profit from rising prices, while a speculator selling a futures contract or call option, or buying a put
option, hopes to profit from declining prices. Because, unlike a hedger, a speculator does not own the underlying commodity, the components of
the underlying index, or other product, losses in the futures market are not offset by gains in the cash market, and speculators can lose
substantial amounts.
Individuals do participate in the market. An individual who owns or runs a business might participate as a hedger. Or, an individual with a
substantial and diversified portfolio of investments might speculate using futures or options contracts. Individual investors should also have
adequate resources to absorb the significant losses that can occur in futures and option trading.
* Can futures and option trading meet my investment goals ?
Futures and option trading is inherently complex and risky, and it is not appropriate for all investors. You should know how much you potentially
can lose and honestly evaluate if you can afford to lose it in view of your financial resources and investment goals. You should share your
conclusions with your broker. If you decide you have the resources and the reasons to invest in futures, you should also determine the extent to
which you plan to rely on advice from a broker versus making your own trading decisions. Then you should evaluate and compare the methods
of trading before choosing the one you feel will best implement your goals. Finally, set some limits on the duration of your investment and the
amount of loss you are willing to incur. Like other financial markets, futures and options markets are cyclical and gains may not be immediate.
Remember that, because of the leveraged nature of futures, losses can be more than your original deposit.
Futures and option trading is inherently complex and risky, and it is not appropriate for all investors. You should know how much you potentially
can lose and honestly evaluate if you can afford to lose it in view of your financial resources and investment goals. You should share your
conclusions with your broker. If you decide you have the resources and the reasons to invest in futures, you should also determine the extent to
which you plan to rely on advice from a broker versus making your own trading decisions. Then you should evaluate and compare the methods
of trading before choosing the one you feel will best implement your goals. Finally, set some limits on the duration of your investment and the
amount of loss you are willing to incur. Like other financial markets, futures and options markets are cyclical and gains may not be immediate.
Remember that, because of the leveraged nature of futures, losses can be more than your original deposit.
* Is there anything I should watch out for ?
First, if it sounds too good to be true, it probably is. Promises of huge returns with limited risk are usually false. Be on the alert for anyone who
downplays the importance of the disclosure statement; you should always receive one and always read it thoroughly before you open an
account. Do your homework! Don't be pressured to "act now." Always ask questions. Beware when a salesperson tells you to borrow money to
invest, and never agree to give money to someone you have never met. Watch out for guarantees of profit or boasts about past performance. Do
not rely on promises of profits due to "predictable" seasonal or market cycles or claims based on the impact of current news events.
First, if it sounds too good to be true, it probably is. Promises of huge returns with limited risk are usually false. Be on the alert for anyone who
downplays the importance of the disclosure statement; you should always receive one and always read it thoroughly before you open an
account. Do your homework! Don't be pressured to "act now." Always ask questions. Beware when a salesperson tells you to borrow money to
invest, and never agree to give money to someone you have never met. Watch out for guarantees of profit or boasts about past performance. Do
not rely on promises of profits due to "predictable" seasonal or market cycles or claims based on the impact of current news events.
* What are commodity futures and option contracts?
A futures contract is a legally binding agreement between two parties to buy or sell in the future, on a designated exchange, a specific quantity of
a commodity at a specific price. The buyer and seller of a futures contract agree now on a price for a product to be delivered, or paid, for at a set
time in the future, known as the "settlement date." Although actual delivery of the commodity can take place in fulfillment of the contract, most
futures contracts are actually closed out or "offset" prior to delivery.
An option on a commodity futures contract is a legally binding agreement between two parties that gives the buyer, who pays a market
determined price known as a "premium," the right (but not the obligation), within a specific time period, to exercise his option. Exercise of the
option will result in the person being deemed to have entered into a futures contract at a specified price known as the "strike price." In some
cases, an option may confer the right to buy or sell the underlying asset directly, and these options are known as options on the physical asset.
A futures contract is a legally binding agreement between two parties to buy or sell in the future, on a designated exchange, a specific quantity of
a commodity at a specific price. The buyer and seller of a futures contract agree now on a price for a product to be delivered, or paid, for at a set
time in the future, known as the "settlement date." Although actual delivery of the commodity can take place in fulfillment of the contract, most
futures contracts are actually closed out or "offset" prior to delivery.
An option on a commodity futures contract is a legally binding agreement between two parties that gives the buyer, who pays a market
determined price known as a "premium," the right (but not the obligation), within a specific time period, to exercise his option. Exercise of the
option will result in the person being deemed to have entered into a futures contract at a specified price known as the "strike price." In some
cases, an option may confer the right to buy or sell the underlying asset directly, and these options are known as options on the physical asset.
* How does risk affect my returns?
Your returns may change radically at any time because futures and options are subject, by nature, to abrupt changes in price. Commodity prices
are volatile because they respond to many unpredictable factors: weather, labor strikes, inflation, foreign exchange rates, government monetary
policies, etc. And, in an individual account, because your position in futures and options is leveraged, even a small move against your position
may result in a large loss, including the loss of your entire initial margin payment and liability for additional losses. The same risk of loss
applies to a commodity pool, but your loss may be limited to the amount of your investment.
* Are there strategies for reducing risk ?
In an individual account, there are certain types of orders (such as "stop-loss" orders or "stop limit" orders), which are designed to limit losses to
certain amounts. However, these orders may not be effective in limiting losses because market conditions may make it impossible to execute
your orders at a reasonable price. Strategies using combinations of positions, such as "spread" and "straddle" positions, may be as risky as
taking simple "long" or "short" positions. In a commodity pool, you should ask the pool about any strategies it employs to reduce risk. As always,
be extremely wary of claims of guaranteed profit and minimal risk.
Your returns may change radically at any time because futures and options are subject, by nature, to abrupt changes in price. Commodity prices
are volatile because they respond to many unpredictable factors: weather, labor strikes, inflation, foreign exchange rates, government monetary
policies, etc. And, in an individual account, because your position in futures and options is leveraged, even a small move against your position
may result in a large loss, including the loss of your entire initial margin payment and liability for additional losses. The same risk of loss
applies to a commodity pool, but your loss may be limited to the amount of your investment.
* Are there strategies for reducing risk ?
In an individual account, there are certain types of orders (such as "stop-loss" orders or "stop limit" orders), which are designed to limit losses to
certain amounts. However, these orders may not be effective in limiting losses because market conditions may make it impossible to execute
your orders at a reasonable price. Strategies using combinations of positions, such as "spread" and "straddle" positions, may be as risky as
taking simple "long" or "short" positions. In a commodity pool, you should ask the pool about any strategies it employs to reduce risk. As always,
be extremely wary of claims of guaranteed profit and minimal risk.
| Trader : Herman Bogaerts -- Tradersname : Freedom -- E-Mail : Admin@daytrader-generation.com -- Skype Address : Freedom1608 |
| Go to Futures Info Part 3 : click here Back to "Futures Info" : click here Back to "Frequently AskedQuestions" : click here |
| Source : * About.com * Wikipedia.com |