Posts by elong

Spreads

»Posted by on Jan 3, 2012 in Shop Talk | 0 comments

As previously discussed, spreads involve the purchase of one futures contract and the sale of a different futures contract in the hope of profiting from a widening or narrowing of the price difference. Because gains and losses occur only as the result of a change in the price difference—rather than as a result of a change in the overall level of futures prices—spreads are often considered more conservative and less risky than having an outright long or short futures position. In general, as long as you are trading the same number of futures contracts, this may be the case. It should be recognized, though, that the loss from a spread can be as great as—or even greater than—that which might be incurred by having an outright futures position. An ad-verse...

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Stop Orders

»Posted by on Dec 3, 2011 in Shop Talk | 0 comments

A stop order is an order, placed with your broker, to buy or sell a particular futures contract at the market price if and when the price reaches a specified level. Stop orders are often used by futures traders in an effort to limit the amount they might lose if the futures price moves against their position. For example, were you to purchase a crude oil futures contract at $15 a barrel and wished to limit your loss to $1 a barrel, you might place a stop order to sell an offsetting contract if the price should fall to $14 a barrel. If and when the market reaches whatever price you specify, a stop order becomes an order to execute the desired trade at the best price immediately obtainable. There can be no guarantee, however, that it will be possible under all...

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Liquidity

»Posted by on Nov 3, 2011 in Shop Talk | 0 comments

There can be no ironclad assurance that, at all times, a liquid market will exist for offsetting a futures contract that you have previously bought or sold. This could be the case, if a futures price has increased or decreased by the maximum allowable daily limit and there is no one presently willing to buy the futures contract you want to sell or sell the futures contract you want to buy. Even on a day-to-day basis, some contracts and some delivery months tend to be more actively traded and liquid than others. Two useful indicators of liquidity are the volume of trading and the open interest (the number of open futures positions still remaining to be liquidated by an offsetting trade or satisfied by delivery). These figures are usually reported in newspapers...

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Choosing a Futures Contract

»Posted by on Oct 3, 2011 in Shop Talk | 0 comments

Just as different common stocks or different bonds may involve different degrees of probable risk and reward at a particular time, so may different futures contracts. The market for one commodity may, at present, be highly volatile, perhaps because of supply-demand uncertainties which—depending on future developments—could suddenly propel prices sharply higher or sharply lower. The market for some other commodity may currently be less volatile, with greater likelihood that prices will fluctuate in a narrower range. You should be able to evaluate and choose the futures contracts that appear—based on present information— most likely to meet your objectives, your willingness to accept risk and your expectations as to when the anticipated price change will...

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Understanding (and managing) the Risks of Futures Trading

»Posted by on Sep 7, 2011 in Shop Talk | 0 comments

Anyone buying or selling futures contracts should clearly understand that any given transaction may result in a loss. The loss may exceed not only the amount of the initial margin but also the entire amount deposited in the account or more. Moreover, while there are a number of steps that can be taken in an effort to limit the size of possible losses, there can be no guarantees these steps will prove effective. Well-informed futures traders should be familiar with available risk management possibilities. Reprinted with permission from the National Futures Association. Copyright 2002.

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