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Disclosure

Disclosure. Commodity Trader Disclosure Acknowledgement

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Disclosure

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  1. Disclosure Commodity Trader Disclosure Acknowledgement This course of instruction will prepare you to actively invest / trade securities and/or other financial instruments only for your own account at an appropriate financial firm which utilizes the electronic transmissions of securities and other financial instruments to execute trades for its customers. This course I not preparation to be a Licensed Broker in the financial industry. Representations: Student acknowledges that Online Trading Academy has made no representations or warranties other than those expressed herein; and Online Trading academy specifically disclaims any other representation or warranties. Moreover, Student recognizes and acknowledges that individual performance depends upon the individual skills, time availability and dedication of each Student in the training program. This Agreement represents the entire understanding and supersedes all prior statements, agreements and understandings, if any, either oral or written. Moreover, the Online Trading Academy training program should not be construed as a recommendation or an offer to buy or sell any security or the suitability of any investment strategy for Student. The purchase, sale, or advice regarding any security, other financial instrument or system can only be performed by a licensed Industry representative such as, but not limited to a Broker/Dealer, Introducing Broker, FCM and /or Registered Investment Advisor. Neither Online Trading Academy nor its representatives are licensed to make such advisements. All purchasers of the Online Trading Academy training programs or products are encouraged to speak with a licensed representative of their choice regarding the appropriateness of investing/trading or of any particular investment/trading strategy. U.S. Government Required Disclaimer – Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with money you can’t afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures, stocks or options on the same. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE 4.41 – HYPOTHETICAL OR SIMULIATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGND WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED WITHIN THIS SITE, SUPPORT AND TEXTS. OUR COURSE(S), PRODUCTS AND SERVICES SHOULD BE USED AS LEARNING AIDS ONLY AND SHOULD NOT BE USED TO INVEST REAL MONEY. IF YOU DECIDE TO INVEST REAL MONEY, ALL TRADING DECISIONS SHOULD BE YOUR OWN. The content of this course was created and is owned, in its entirety by Online Trading Academy. Any reproduction, duplication, copying and distribution of this course content without the expressed, written consent of Online Trading Academy is strictly prohibited.

  2. Commodities Futures Contracts Hedge Your Risk Magnify Your Leverage

  3. Online Trading Academy Class Instructor Online Trading Academy 2009

  4. Class Courtesies The Class Schedule is: Sat & Sun – Weekdays – Lunch – 1 Hour Breaks – 10 Minutes Online Trading Academy 2009

  5. Introductions Roll Call Student Introductions & Expectations Office & Instructor Background Online Trading Academy Goals Overview of Coverage

  6. Class Courtesies This Class is for you – Ask Questions Cell Phones – Please use them Sparingly, if you must take a Call, Please Leave the Classroom There will be Plenty of Breaks – But Feel Free to get up and go out – Without Raising your Hand! Be back Promptly at the End of a Break Online Trading Academy 2009

  7. What You Will Learn Today • Introduction to the Futures Market • Understanding a Futures Contract • Getting to know Exchanges & your Broker • Risk & Money Management Online Trading Academy 2009

  8. O.K. Let’s Get Started ! Online Trading Academy 2009

  9. Why Trade Futures? • Commodities are a True Supply/Demand Market • We all need Food, Energy, Building Products, Clothing etc. • Unlike a Stock that we do not Need to Survive • Ability to Hedge your Portfolio Online Trading Academy 2009

  10. Why Trade Futures? Portfolio Diversification The best Tax Break Available to Investors/Traders Highly Regulated and Governed Online Trading Academy 2009

  11. Tax Treatment for Futures • 60/40 Split = All Trades are Taxed at this Rate regardless of how long you hold the Position • 60% is Taxed at the Long Term Capital Gains Rate • 40% is Taxed at the Short Term Capital Gains Rate Online Trading Academy 2009

  12. Tax Treatment for Futures • End of Year is just a 1099-B from your Broker with a Net Profit/Loss for the Year • All you need to Calculate your Commodity Taxes • No Itemizing your Trades, Wash Sales, Margin on Loans, Dividends etc….. • As Always, Please Consult your Tax Advisor for Help Online Trading Academy 2009

  13. Availability of Profits • All Positions are Marked to Marketat the end of every Trading Day • Funds are Available Immediately after the Close for Distribution • Unlike Stocks Where there is a 3 Day Wait for Settlement Online Trading Academy 2009

  14. Benefits of E-Futures Trading • Futures are Direct Access Order Routing • Platforms are very Transparent • Everybody Sees the same Bid & Ask Prices • Prices are Disseminated from Exchanges • Orders are Treated as First In - First Out Regardless of Size • Instantaneous Price Fill Reporting 15 Online Trading Academy 2009

  15. Security of Funds DepositedCME Group Exchange • CME Guarantees Financial Soundness of all Trades • CME Processes more than 2 Billion Trades a Year • $7 Billion in Safety & Soundness • In more than 100 Years of Trading the CME has Never had a Loss of Customer Funds from Failure of a Clearing Firm Online Trading Academy 2009

  16. Security of Funds DepositedCME Group Exchange • Regulations Require Clearing Firms to Segregate Customers Positions and Monies from their Own • Accounts are not Subject to their Creditor Claims • You can Transfer your Funds to another Clearing Firm Online Trading Academy 2009

  17. Why Commodities are Good to Trade Now • World’s Population is Expanding by approximately 80 Million People per Year • China and India are Consuming more than ever before • Generating Demands on Commodities like never before (Gold, Oil, Grains, Meats etc) Online Trading Academy 2009

  18. Why Commodities are Good to Trade Now • These Countries alone cannot Produce enough Food to Feed their People • Explains why we have such Large Exports of Soybeans and Wheat to China Alone • Keep in Mind that every 10 – 12 Years a Country Faces a Crop Failure of some type • What will happen to the World Supply when this happens again? Online Trading Academy 2009

  19. Why Commodities are Good to Trade Now • Demand for Products Needed to Grow these Crops Start to become Scarce also • Fertilizers, Pesticides, Nutrients, etc. • Commodities can help you find that next Stock Sector ready to take off before you hear about it in the News!! Online Trading Academy 2009

  20. Let’s Take a Break Back in 10 minutes please… Online Trading Academy 2009

  21. What is a Futures Contract? A Contractual Obligation to Deliver or Take Delivery of a Commodity at a Specified Date and Price at a Future Time Online Trading Academy 2009

  22. What is a Futures Contract? • Obligation can be Fulfilled in 1 of 2 Ways • Making or Taking Delivery of the Commodity; Less than 2% of these occur • Offsetting your Trade in the Opposite Direction Online Trading Academy 2009

  23. What is a Futures Contract? • Contracts have set Quantities of a Commodity • Can only be Traded in that Amount • No Partial Contract Sizes • Contract Size will always be the same • Cattle 40,000 lbs., Sugar 112,000 lbs. Etc. • Each Commodity will have their own Unique Specifications Online Trading Academy 2009

  24. What is a Futures Contract? • All Contracts Call for a Specific Grade to be accepted for Delivery • Everybody Knows What is Being Traded/Delivered Online Trading Academy 2009

  25. What is a Futures Contract? • Not all Contracts are Settled for Delivery • Some are Settled in Cash - Stock Indexes, Lean Hogs and Feeder Cattle • To Avoid Delivery • Make sure you are not Holding an Expiring Contract on or after First Notice Day Online Trading Academy 2009

  26. What is a Futures Contract? Let’s Review a Contract Specification at the Exchange: www.cmegroup.com Online Trading Academy 2009

  27. Notice Days • Terms of Notice Days • First Trading Day (FTD): First Day a Futures Contract Begins to Actually Trade • First Notice Day (FND): First Day Notices of Intention to Deliver Actual Commodities against Futures Market Positions • FND varies with each Futures Contract and Exchange Online Trading Academy 2009

  28. Notice Days www.insidefutures.com/calendar/ • Terms of Notice Days • Last Trading Day (LTD): Day on which Trading Ceases for the Current Delivery Month • Calendar of Notice Days Online Trading Academy 2009

  29. Life of a Contract • Futures Contracts have a Start and End Date • A Typical Futures Contract has a Life of Approximately 13 – 15 Months • Commodities have a Minimum of 3 – 4 Contract Months Trading at One Time • Some Markets have many more Online Trading Academy 2009

  30. Contract Rollover Rollover: When one Futures Contract Expires and the Next Contract in the Cycle becomes the New Front Month • Active Trading Volume Moves from the NEAR to the FORWARD Contract Online Trading Academy 2009

  31. Contract Rollover Note Change in Symbol – Changes in Values – Minor Change in S/R & Other Technical Measures Near Forward Online Trading Academy 2009

  32. Commodity Symbols Symbols and Numbers are used to Identify the Commodity and Contract Month/Year Online Trading Academy 2009

  33. Contract Months & Years F - January G – February H – March J – April U – September V – October X – November Z – December (Symbols) • K – May • M – June • N – July • Q – August Example: 8 = 2008 9 = 2009 0 = 2010 Digits in a Symbol Represent Year the Contract Expires: Online Trading Academy 2009

  34. Complete Commodity Symbols • Symbol Formats may vary • Know which Month/Year to Trade so there are • no Mistakes Placing the Order! Online Trading Academy 2009

  35. Margin & Leverage Margin: Amount of Collateral deposited by a Client with his Broker/Clearinghouse • Purpose of Insuring the Broker/Clearinghouse against Loss on Open Futures Positions • Similar to an Escrow Account • Good Faith Money • Every Contract Bought/Sold on an Exchange Online Trading Academy 2009

  36. Margin & Leverage • Exchanges Set these Margin Levels based on Market Volatility and Risk • 2 types of Margin Initial & Maintenance • Initial: Total Amount of Margin per Contract when Position is Opened • Maintenance: Minimum Amount of Money per Contract that must be Maintained at all Times the Position is Open Online Trading Academy 2009

  37. Margin & Leverage www.cmegroup.com • If Equity Drops Below the Maintenance Level the Broker must issue a Margin Call to Restore Equity back to Initial Margin Level • Let’s Look at some Margin Rates and Discuss Examples of Margin Calls • Chicago Mercantile Group Margin Rates Online Trading Academy 2009

  38. Can I Trade this Market? • There is One Thing that will tell you Right Away whether a Market is Right for you….. MARGIN • Margin is a Sign of how Volatile a given Market can be • If the Amount of Margin gives you Second Thoughts……Stay away! Online Trading Academy 2009

  39. Leverage Example • For Approximately 5 - 10% (Margin) of the Price of a Commodity Contract • Trader can Control 100% of the Commodity Contract • Suppose Gold is Trading for $850 per Troy Ounce • 5% (Margin) of $850 is $42.50 • Gold Contract is 100 Troy Ounces • 100 Troy Ounces * 42.50 =$4,250(Margin) Online Trading Academy 2009

  40. Leverage Example • For $4,250 Margin, Trader will be controlling approx. $85,000* Worth of Gold • *$850 per Ounce * 100 (Contract Size) • Broker sort of Loans the rest of the Money to the Trader • and there is no Interest Payment Involved Online Trading Academy 2009

  41. Leverage Example • Let’s Imagine now that Gold rises to $900 per Troy Ounce • Net Profit is: $900 - $850 = $50 per Ounce • $50 * 100 ozs (Contract Size)= $5,000 • The ROI (Return on Investment) is: ($5,000/$4,250)*100%= 117% !!! • Just Remember, Leverage can easily Go Against you also ALWAYS USE STOPS!!! Online Trading Academy 2009

  42. Selling Short in Futures • No Restrictions on Shorting • Can be done on either an Uptick or Downtick • No Borrowing a Contract to Short • No Interest Payments for Shorting like in Stocks • Fulfilling your Contractual Obligation • Buy the Contract Back Online Trading Academy 2009

  43. Limit Moves • Limit Move: Price that has Advanced or Declined the Permissible Amount during One Trading Session • As Fixed by the Rules of the Exchange • Not all Contracts have Daily Price Limits • Maximum Move from Yesterdays Close Online Trading Academy 2009

  44. Limit Moves • Limits can become Expanded if a Market Closes Limit • Not all Limit Moves Close Limit • Exchanges Decide this Rule before the Next Days Open • Each Exchange will Handle Limits Differently • Check Exchange Website for Current Limits Online Trading Academy 2009

  45. Limit Moves • Lock Limit:Occur when there is an Overabundance of Supply/Demand (Buyers/Sellers) at these Limit Levels • Market Stays at these Limit Levels into the Close • Stops do not Protect you in a Limit MoveUnless Stop was Elected before Market went Limit Online Trading Academy 2009

  46. Let’s Take Lunch Back in 1 Hour please…. Online Trading Academy 2009

  47. Volume & Open Interest • Volume: Measures Cumber of Contracts that Exchanged Hands during the Trading Session • Used to Indicate Market Liquidity • Look for More Volume around the Opening and Closing • Reported Real Time in Electronic Trade Online Trading Academy 2009

  48. Volume & Open Interest • Open Interest: Sum of Futures Contracts that have been Entered into and not yet Liquidated by an Offsetting Transaction • Updated the Following Morning • Not Real Time Information like Volume • Used to Track Participants coming Into and Out of the Markets Online Trading Academy 2009

  49. Volume & Open Interest http://www.mrci.com/ohlc/ • Two ways of Tracking Open Interest • Cumulative • Per Contract • Let’s look at some Examples Online Trading Academy 2009

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