Welcome to the futures market – and relax – it’s not as complicated as you might think!

The futures market can provide opportunities that other financial markets simply cannot offer. If you were to write down the perfect investment, it would probably go something like this. I wish I could invest in:

• A product that would always be in high demand.
• Something that can’t be ruined by a greedy CEO and Board of Directors.
• Something that would move enough to make lots of money every day.
• Something where I didn’t have to put very much money down but could still make a huge return!
• Something I could buy or sell whenever I wanted – not just 9-5pm!
• Something that would always go up in value.

Yes, we have seen this wish list before, and we have some good news for you and some bad. The bad first. Unfortunately, such an investment does not exist – it’s the always going up part that ruins it every time. The good news is that there is an investment that comes pretty close: futures!

The futures market provides unparalleled access to the most basic and in-demand products in the world. Among the many investment opportunities in the futures market are commodities such as gold, oil, wheat, and orange juice (these are the kinds of products that are always in demand!). It also includes currencies such as the US Dollar, British Pound, and Japanese Yen (also high demand!). It also includes financial market indexes such as the Dow Jones Industrial Average, Nasdaq Composite, and the S&P 500 (again high demand!).

When you trade the stock market, you have a lot to consider in terms of who is running a company, what the company offers, whether the product or service has longevity, how the company performs in different economic cycles, etc.

In the futures market, you deal with the world’s most basic and fundamental products. Rather than worrying about who is running a particular aluminum company or whether they will be in business next year, you can just buy aluminum – with a level of comfort knowing there is always a market and use for aluminum.

Every day, banks deposit and lend money to customers. Instead of finding a bank with a strong fundamental balance sheet and solid management, why not invest in the product a bank makes its living from – currency. As you may be aware from recent world events, the values of currencies are constantly fluctuating, creating the opportunity to make money from the ever-changing value of money.

When it comes to success, mutual fund managers have one major challenge in life – to provide a better return than the market index. Some are successful, while others fail. Market indexes provide a baseline or fundamental benchmark for performance in the financial world. You could give your money to a money manager and give them a crack at outperforming the markets – or you could just invest in the over 25 different index futures! Chances are good that these indexes will still be ticking when your money manager has come and gone!

In addition to these advantages, futures have many other benefits over other financial instruments, including:

Leverage

Futures are one of the most efficient investment vehicles in existence. What do we mean? Simply stated, with futures you can make a large investment with a small amount of money. This concept is known as “leverage.” Leverage can be a boon to investors on the winning side of the market, as gains can be greater with futures than with other investments (this is how you invest in something that doesn’t require a lot of money but still has upside potential). However, leverage can be a double-edged sword, inflicting a lot of pain if you are on the losing side of the trade.

Diversification

With leverage, a little bit of money goes a long way. This means that excess funds in your account could be used for other purposes, including investing in other assets. Diversification is a good thing when it comes to investing since it helps to average things out! Portfolio diversification is something we will cover in detail later in the course.

Volatility

Futures are known for their considerable price movement, which is another key benefit. Like leverage, volatility can work for or against you. However, most traders want markets that move – and futures move! Just take a look at where the price of crude oil has gone over the last year, and you’ll see what we mean (didn’t you want an investment that moves enough to make lots of money every day?).

Trading Hours

Most futures markets today trade around the clock. It’s easy to get in and out of positions in popular and liquid futures markets, and you can do so at the click of a button, with lightning-fast speed. Futures markets are investor-friendly, and that has helped drive the incredible growth these markets have experienced in recent years.

Tax Benefits

Not only do investors like futures, the IRS smiles favorably on this market as well. Futures enjoy unique tax treatment not available to the equities market. Generally, securities transactions are taxed as either short-term capital gains, or more favorably as long-term capital gains. Futures transactions, however, are simply lumped together and reported on a single Form 1099 at year-end. Profits are then taxed at the “60/40″ rate – 60 percent taxed at the favorable long-term rate and 40 percent taxed at the short-term rate. We’re not tax advisors, so please consult your tax specialist about your individual circumstances.

Information

In the futures market, supply and demand form the basis of price direction – not quarterly earnings, corporate filings or management changes. Instead, the data that moves futures markets often comes from government reports that are found in the public domain. For example, the U.S. Department of Agriculture estimates crop sizes and international demand for wheat, corn and soybeans. The economy also plays an important role in futures pricing, and most economic reports are also public domain and come from central banks and various government agencies.

Not a Whole New World

Unfortunately, many people have never heard of futures trading or, worse, they have heard of futures and the stories have not been pretty. Put the horror stories aside for a moment and consider this: every time you invest you assume some level of risk. Futures are no exception. You can and many people do lose money investing in futures. However, just like any risky venture, there are steps you can take to minimize your risk.

First and foremost, if you have ever traded stocks or options, you’ll want to keep in mind what you have learned related to risk, portfolio management, discipline and emotional control. In fact, many of the concepts and knowledge you have gained trading stocks and options will translate nicely to futures. Concepts such as long and short, order types, margin, etc. all have similarities to futures trading.

Another similarity between equities and futures trading is the fundamental objective. When buying stocks or options, your objective is to buy when prices are low and sell when prices are high. This is the same objective in the futures market. There are some twists in “how” to buy low and sell high, but the objective is the same (the twists will be explained in greater detail in Module 3).

Futures traders are also able to build on the skills they have learned trading stocks and options. Concepts such as discipline, trading plan, psychology, etc. all play a role in your success as a futures trader.

A review of the characteristics of successful futures traders reveals three common factors that have more influence on their success than any other:

• Financial Resources
• Knowledge
• Discipline

The futures market can be risky, but people just like you are able to manage the risk and find success trading futures. How do they do it?

The futures market can be risky, but people just like you are able to manage the risk and find success trading futures. How do they do it?

Financial Resources

First, they have money. More specifically, they have enough money to stay in the markets long enough to make money. Experienced traders will try to get specific and tell you that you need $10,000 to $30,000 to get started. Rather than giving a specific dollar figure, it is important to understand why futures traders need significant financial resources to be successful.

Most futures traders will experience a drawdown – a streak of losing trades that reduces the capital in one’s trading account. Your account must be large enough to withstand the inevitable drawdown. Drawdowns are perfectly correlated to the amount of risk you take on each trade. If you are swinging for the fences, you’ll have larger drawdowns. If you are looking for small but consistent profits, you will have smaller drawdowns.

Knowledge

The second characteristic of successful futures traders is their trading plan. Rooted in sound financial principles, your trading plan should be simple to follow, simple to understand and simple to implement. If you were to survey the country’s most successful futures traders, you would discover that they all use different strategies; in other words each trader has his or her own unique trading plan. A successful trading plan helps you identify a competitive edge in the markets. You will also notice that each trading plan has its own set of flaws. A successful trader’s plan should include detailed instructions to compensate for these shortfalls.

Unfortunately, this type of trading plan is not created overnight. There are ample resources available to help you get started creating a simple trading plan (optionsXpress has a repository of professional lectures, forums, and discussions with ideas that will help you). However, the success of your plan depends on refinement. It is refined with time. It is refined with experience. It is refined with knowledge. When you first delve into the futures market, your trading plan must make accommodations for the acquisition of experience and knowledge over time. Time is needed to get over the learning curve. Experience is needed to learn the intricacies of the futures market. Knowledge is needed to understand the definitions, structure and boundaries of the futures market.

Discipline

Finally, if you don’t have the discipline to manage your trades according to plan, you won’t last very long in the futures market. They say that pride precedes the fall and nowhere is that more true than in the futures market. Your trading plan helps you keep your trading objective. When you fail to use discipline, your trading becomes subjective without rhyme or reason. It will be difficult for you to improve your trading success if every decision you make is according to your whims, passion and emotion. Historically, people who experience large drawdowns in futures do so because of feelings, opinions and not admitting or believing they might be wrong.

Disciplined traders are aware of the following emotional pitfalls and seek to avoid them:

• Trading for the thrill of it
• Trading to make back lost money
• Lack of money management
• Lack of a defined trading plan
• Inability to admit mistakes

Your success in the futures markets has as much to do with your financial, intellectual and emotional preparation as it does with your execution. This course will help you prepare to trade futures, but you will also need to work on preparing yourself in these other ways as well.

Your success in the futures markets has as much to do with your financial, intellectual and emotional preparation as it does with your execution. This course will help you prepare to trade futures, but you will also need to work on preparing yourself in these other ways as well.

The Investor Life Cycle

For many of the reasons we have already mentioned, over time, traders naturally gravitate to the futures market. In fact there is a growth cycle most investors go through as they develop knowledge and understanding of the financial markets.

First investors look toward mutual funds to provide growth and financial independence. For the daring few who choose to progress beyond the mutual funds, they seek the financial returns of the stock market. Traders will generally cut their teeth in this exciting financial market for 2-3 years when they naturally gravitate to the derivatives or options market. Those traders who endure the learning curve of the options market tend find a home in the futures market some 5-7 years into their trading career.

Today, however, investors are trumping the learning curve and short-circuiting the time curve to discover the wonderful opportunities that are available in the futures market much sooner – and for good reason, too.

Today’s futures markets have grown beyond the traditional commodities market of yesterday. Today, grains, gold and oil have yielded ground to a broader range of instruments including stocks, indexes, currencies and even carbon emissions futures! Today’s futures markets have grown beyond the boundaries of American borders to include a global financial market; futures trading in England, Germany, Japan and Australia has exploded as new global trading networks have evolved.

But what does this mean for you? Traditionally, the futures market was for that elite class of traders with RISK tattooed across the bicep. To set your stress at ease, today’s futures trading has made huge strides away from that stigma. Today, new products are being released with variable definitions, sizes, multipliers, etc. You can purchase “mini” futures that reduce your exposure to risk and make investing more palatable.

Who’s in charge of the Futures Market?

Like the stock market, the futures market is a highly regulated industry offering excellent protection to individual investors like yourself. Companies or individuals who handle futures money or give futures trading advice must apply for registration through the National Futures Association, a self-regulatory organization approved by the U.S. Commodity Futures Trading Commission, or CFTC.

In 1974, Congress created the CFTC as an independent pseudo-governmental agency with the mandate to regulate commodity futures and options markets in the United States.

When the CFTC was created, the majority of futures trading took place in the agricultural sector, which is why this industry is often referred to as the “commodities” industry. Today, the futures industry has become increasingly varied to encompass a vast array of highly diverse specialties including agriculture, metals, consumer staples, currencies, financial indexes, stock equities, and more.

The CFTC assures the economic utility of the futures markets by encouraging competitiveness and efficiency, protecting market participants against fraud, manipulation, abusive trading practices, and by ensuring the financial integrity of the clearing process. Through effective oversight, the CFTC enables the futures markets to serve the important function of providing a means for price discovery and offsetting price risk.

The CFTC’s mission is to protect market users and the public from fraud, manipulation, and abusive practices related to the purchase and sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and futures options markets.

The CFTC seeks to protect customers by:

• requiring companies and individuals to disclose market risks and past performance information to prospective customers,
• requiring that customer funds be kept in accounts separate from those maintained by the firm for its own use, and
• requiring customer accounts to be adjusted to reflect the current market value at the close of trading each day.

The CFTC also monitors registrant supervision systems, internal controls, and sales practice compliance programs.

In addition to federally mandated regulation offered by the CFTC, the futures industry also self-regulates through the National Futures Association, or NFA. The NFA develops rules, programs and services that safeguard market integrity, protect investors and help firms and representatives meet the CFTC’s regulatory standards.

In today’s global financial markets, it is important to identify companies that are registered with the NFA and instruments that are created and managed under the CFTC’s jurisdiction. The global financial markets have literally opened access to a whole new set of challenges related to regulating the global futures market.

Dispute Resolution

If you have a dispute arising out of your commodity futures or options account, first try to resolve the problem with your broker and his or her supervisor at the firm that employs or guarantees the broker.

If that fails, commodity futures customers have several options for resolving disputes:

• The CFTC Reparations program
• NFA sponsored arbitration
• Civil court litigation

In selecting a particular approach, you may want to consider the cost, length of time involved, and whether or not the assistance of an attorney is required.

Where are futures traded?

Futures, like stocks, are traded on exchanges. A commodity exchange is an organized market where traders meet to buy or sell various futures contracts. The exchange may be a physical location, like the Chicago Mercantile Exchange, or it may be an electronic gathering place such as GLOBEX. Either way, the exchange acts as an important part of the futures industry by:

• Providing an organized location (physical or electronic) for trading futures
• Regulating the trading practices of their members
• Gathering and transmitting price information
• Gathering and governing commodities traded on the exchange
• Supervising warehouses that store the underlying commodities
• Providing a means for settling disputes between members

History of the Futures Market

It is helpful to begin a discussion on the futures market with a historical sketch. Commodity markets have existed for centuries around the world because producers and buyers of commodities, such as rice, wheat, oil and other items have needed a centralized place to trade. In those days, cash transactions were most common, but occasionally a “forward” type arrangement was also made – deals to deliver and pay for something in the future at a price agreed upon in the present. There are records, for example, of “forward” agreements related to the rice markets in seventeenth century Japan; most scholars agree that forward arrangements actually date back much farther in time.

he immediate predecessors of futures contracts were “to arrive” contracts. These were simple agreements to purchase designated goods when they arrived by ship, and they were used for centuries when shipping was the primary mode of international trade.

The first organized grain futures trading in the U.S. began in places such as New York City and Buffalo, but the development of “modern” futures, which are a unique type of forward agreement, began in Chicago in the 1840s. With the construction of the railroads, Chicago began to emerge as a center for transportation between Midwestern producers and East Coast population centers. The city was a natural hub for trade, but the trading that took place was inefficient and unorganized until a group of Chicago-based businessmen formed the Board of Trade of the City of Chicago in 1848. The Board was a member-owned organization that offered a centralized location for cash trading a variety of goods, as well as trading of forward contracts. Members served as brokers who facilitated trading in return for commissions.

As future trading of forward contracts increased, the Board decided that standardizing those contracts would streamline the trading and delivery processes. Instead of individualized contracts, which took a great deal of time to negotiate and fulfill, people interested in the forward trading of corn at the Board, for example, were asked to trade contracts that were identical in terms of quantity, quality, delivery month and terms, all as established by the exchange. The only thing left for traders to negotiate was price and the number of contracts.

These standardized forwards were essentially the first modern futures contracts. They were unlike other forwards in that they could only be traded at the exchange that created them, and only at certain designated times. They were also different from other forwards in that the bids, offers and negotiated prices of the trades were made public by the exchange. This practice established futures exchanges as venues for “price discovery” in U.S. markets.

In contrast to customized contracts, standardized futures contracts were easy to trade since all trades were simply re-negotiations of price, and they usually changed hands many times before expiration. People who wanted to make a profit based on a fortuitous price change, or alternatively, who wished to cut mounting losses as quickly as possible, could “offset” a futures contract before expiration by engaging in an opposite trade: buying a contract which they had previously sold (or “gone short”), or selling a contract which they had previously bought (or “gone long”).

The usefulness of futures trading became apparent, and a number of other futures exchanges were established throughout the country in the decades that followed. The Chicago Butter and Egg Board was founded in 1898 and evolved into the Chicago Mercantile Exchange (CME) in 1919. Futures exchanges also opened in Milwaukee, New York, St. Louis, Kansas City, Minneapolis, San Francisco, Memphis, New Orleans and elsewhere. Chicago, however, became the most influential and predominant location for futures trading in the U.S.

In recent years, the commodities exchanges have experienced tremendous change by way of mergers and acquisitions. Most notably, the Chicago Mercantile Exchange has redefined itself as the Chicago Mercantile Exchange Group – a conglomeration of the Chicago Mercantile Exchange, the Chicago Board of Trade, and the New York Mercantile Exchange. Otherwise know as the “Merc,” the Chicago Mercantile Exchange Group also controls the world’s largest electronic futures exchange: Globex.

In addition to the Merc, there are many other commodity exchanges both domestically and around the globe. The industry is in a state of significant growth, and change is announced almost daily. As of this writing here are some other exchanges you may come across:

Kansas City Board of Trade

A commodity futures and options exchange that specializes in hard red winter wheat – the principal ingredient of bread.

Chicago Climate Exchange

A relative newcomer to the futures industry, the Chicago Climate Exchange is North America’s only voluntary, legally binding greenhouse gas (GHG) reduction and future trading system for emission sources and offset projects.

Intercontinental Exchange

An electronic based marketplace which trades futures and over-the-counter (OTC) energy and commodity contracts as well as derivative financial products. While the company’s original focus was energy products, recent acquisitions have expanded its activity into the “soft” commodities, foreign exchange and equity index futures.

One Chicago

A subsidiary of the Chicago Mercantile Exchange, One Chicago is the home of single stock futures (SSF’s), which are futures contracts with the underlying asset being stock.

Futures trading is also growing around the world with many notable exchanges including Canada’s Montreal Exchange, Britain’s London Metal Exchange, Eurex, and many more.

How futures are traded on exchanges

Trading at the futures exchange is conducted in two ways: an open outcry format and the electronic trading platform.

Open Outcry

The open outcry method consists of floor traders standing in a trading pit to call out orders, prices, and quantities of a particular commodity. Traders on the floor of the exchange wear different color jackets to indicate their position and affiliation. In addition, complex hand signals (called Arb) are used. These hand signals were first used in the 1970s. The pits are areas of the floor that are lowered to facilitate communication, sort of like a miniature amphitheater. The pits can be raised and lowered depending on trading volume. To an onlooker, the open outcry system can look chaotic and confusing, but in reality the system is a tried and true method of accurate and efficient trading.

Electronic Future Trading

Approximately 70 percent of total futures volume is conducted via electronic trading platforms. Fully electronic trading systems allow market participants to trade from booths at the exchange or while sitting in a home or office thousands of miles away.

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Who are the players in the futures market?

You’ve already learned of two players in the futures industry: the regulators and the exchanges. Now we want to introduce the rest of the players in this industry and give you an idea of why they are there and what they hope to accomplish.

Generally speaking, the two primary players in the futures market are hedgers and speculators.

Hedger

The futures markets exist to facilitate the management of risk and are thus used extensively by hedgers – individuals or businesses who have exposure to the price of an agricultural commodity, currency, or interest rate, for instance, and take futures positions designed to mitigate those risks. This requires the hedger to take a futures position opposite to that of his or her position in the actual commodity or financial instrument. For example, a soybean farmer is at risk should the price of the commodity fall before he harvests and sells his crop. A short position in the futures market will return a profit when the price of soybeans declines, and the hedger’s profit on the short futures position compensates for the loss on the physical commodity.

Speculator

Speculators are attracted to future trading simply because they see the opportunity to profit from price swings in commodities and financial instruments. Speculators take advantage of the fact that the futures markets offer them access to price movements; the ability to offset their obligations prior to delivery; high leverage (low margin requirements); low transaction costs; and ease of assuming short as well as long positions. In pursuit of trading profits, speculators willingly assume the risk that hedgers wish to transfer. In this process, speculators provide the liquidity that assures low transaction costs and reliable price discovery, market characteristics which in turn make futures markets attractive to hedgers.

Besides these two broad classifications of players in the futures market, traders can also be categorized in a number of other ways. There are full-time professional traders and part-time traders; traders who trade on the trading floor or behind a computer screen. Each of these market participants plays an important role in making the markets efficient places to conduct business.

Public Traders

The vast majority of speculators are individuals trading off the floor with private funds. This diverse group is generally referred to as “retail” business. With the growing movement from trading on the floor to the computer screen, the retail customer is becoming a more important force in futures trading.

“Local” Traders

Perhaps the most visible and colorful speculator is the professional floor trader, or local, trading for his own account on the floor of an exchange. Locals are usually more interested in the market activity in the trading pit as opposed to the activity in the underlying market fundamentals. With the popularity of electronic trading sweeping the industry, a trader who operates in a fashion similar to a floor local has emerged-the “electronic local.” The electronic local trades using the same method as the local except they do so through the Internet rather than in the trading pits of Chicago.

Proprietary Traders

Another major category of trader is the proprietary trader, who works off the floor for a professional trading firm. These “upstairs” traders are employees of large investment firms, commercial banks and trading houses typically located in major financial centers. This group has a number of different trading objectives. Some engage in speculative trading activity, profiting when the market moves in their direction. Such proprietary traders are compensated according to the profits they generate. Other proprietary traders manage risk, hedging or spreading between different markets-both cash and futures-in order to insulate their business from the risk of price fluctuation or exploiting differences and momentary inefficiencies in market-to-market pricing.

Market Makers

Market makers give liquidity to the market, constantly providing both a bid (expression to buy) and an offer (expression to sell). Increasingly important in electronic markets, market makers ensure that traders of all kinds can buy and sell whenever they want. Market makers often profit from the “spread,” or the small difference between the bid and offer (or ask) prices.

You can see the futures market is made up of many different players working with different motivations for the common good of the market place. Each player has his or her own motivation and executes business in a strategy that best fits those individual objectives.

What are the Strategies?

With the many different players in this market, you may think that learning future trading is going to be an insurmountable task. In reality, futures are very simple to understand. That’s not to say it’s easy to make money trading them, but futures are very straightforward. Speculators and hedgers alike trade two primary strategies – long or short. If you’ve ever traded options, you will understand that there may be variations to these strategies, but the root of any investment strategy in futures is to be long the market when prices are rising or to be short the market when prices are falling. You are either a buyer or a seller. It really is that simple.

This may seem obvious, but prices don’t always go up. Sometimes they fall. With futures, it’s just as easy to sell, or take a short position in a commodity as it is to buy, or take a long position. Unlike many cash-based investments, there are no special forms to fill out, no “uptick rule” and no higher financial requirements to meet when you take a short position. The requirements to sell short are exactly the same as to buy long. Either strategy is treated equally, and can be executed with equal ease.

How are prices determined?

Futures trading is based on the principle of forward pricing. While this may sound complicated, it really isn’t. The concept has been around for hundreds of years. Let’s explain it with an example:

Suppose you have a wheat farmer and a baker. For many years, the baker has bought the farmer’s wheat and made delicious bread for the townsfolk. Their transaction always happens in September and they always set the price to the current market price of wheat (i.e. they don’t bicker over price!).

This example describes a typical cash transaction involving no forward pricing. It would be the equivalent of you going to the grocery store and purchasing milk. Milk prices are different every time you go to the grocery store. When you purchase the milk you pay the current price. In the futures world, the going rate is called the cash or spot price.

This example describes a typical cash transaction involving no forward pricing. It would be the equivalent of you going to the grocery store and purchasing milk. Milk prices are different every time you go to the grocery store. When you purchase the milk you pay the current price. In the futures world, the going rate is called the cash or spot price.

Despite years of great business, when spring rolls around, both the baker and the farmer suffer a little stress. Both their incomes depend on where the price of wheat is come fall. Sometimes wheat is high, which is good for the farmer and sometimes it’s low, which is good for the baker.

One spring they meet to see if they can work out an agreement that will help ease the stress and reduce some of the guesswork in their businesses. After talking for a few hours, they agree that it would be in their best interest to set a price now that would make it possible for both to make a profit this year.

In this example, the two parties have made an agreement, which in the futures market is called a forward contract, because of the fact that the agreement will be fulfilled in the future. It is from these types of forward contracts that the futures market was born.

The two strike an agreement for a future delivery of wheat at a specific price of $3.00 and for a specific delivery date of September 15th.

The terms are important elements of any futures contract. The two elements of this contract include price and time. In the financial world these are called the strike price or contract value and the expiration date. In this example, the terms are customized to the needs of the baker and the farmer. In the futures market the terms are fixed or standardized. You will learn more standardization in terms and contracts in Module 2.

Another valuable lesson we learn from this example is the motivations of the different players. In this case both parties in the contract are hedgers. The baker is a manufacturer or user (a term you have learned previously) and created a long hedge (he buys the wheat). Manufacturers use the futures market to lock in prices at favorable – low – rates. The farmer is a producer or dealer and created a short hedge (he sells the wheat). Producers also use the futures market to lock in favorable selling prices.

Still unsure about exactly how this contract is going to work, the baker calls up a friend of his in Chicago who is an expert in price forecasting analysis. With a little bit of anxiety over the whole deal, the baker explains what he has done in arranging a forward contract with his friend, the farmer. The analyst tells the baker that he did a great thing in working out this type of arrangement, and that if the baker wanted he would be willing to buy the contract for the wheat from him right now for $3.50 a bushel – and the baker could essentially walk away from the transaction and pocket $0.50 right now.

We have now introduced another party to the contract – the speculator! The speculator has an entirely different motive than the hedger. The analyst is an expert in forecasting future price levels. In this scenario, the speculator believes the prices will continue to increase over the summer and will be more than $3.50 before the contract expires.

The baker first hedged away his risk by entering the contract with the farmer. Now the value of the contract has grown in the futures, or secondary market. Notice that the cash market and the futures market are offering two different prices: the cash market is trading at $3.00 and the futures market is trading at $3.50. The futures are trading at a premium to cash.

One final thing we should understand is that by selling the contract to the speculator, the baker closed his position. In futures trading , you don’t always have to take delivery of the underlying commodity to “get out” of your obligations. You simply turn around and perform an offsetting transaction that brings you back to a no obligation position. In this case the baker bought the contract from the farmer at $3.00 and then closed his position by selling the contract to the speculator for $3.50 making $0.50 on the deal.

A few weeks later, the price of wheat dropped significantly. The farmer, who was also concerned about taking care of his friend the baker, worried what if my wheat doesn’t grow, how will I provide wheat to baker? He decides to call up a friend of his in Chicago who brokers wheat. He explains the deal to the broker. The broker congratulates him on an excellent deal and says that if he locked in prices right now, he could sell him a fall wheat contract for $2.50 a bushel plus a $500 finders fee. Eager to lock in enough wheat to give the baker, the farmer buys the contract.

A different type of speculator, the broker or dealer plays an important role in the futures industry by creating a market for the underlying commodity. The broker or dealer is essentially a matchmaker bringing together people who want to buy with people who want to sell. Brokers and dealers usually specialize in a particular commodity and derive their living by charging a commission or transaction fee on every transaction.

We should learn another lesson from this example. Just like the baker, the farmer closed his original contract by purchasing another contract. Remember the farmer essentially “sold” his contract to the baker – creating a short hedge. The farmer has an obligation to deliver wheat – wheat that has not grown yet. The farmer closed his short position to deliver wheat by purchasing a contract to receive wheat. In this example, the farmer makes money because he sold the rights to his wheat to the baker for $3.00 and bought the rights to other farmers’ wheat for $2.50 making a profit of $0.50 minus the dealer’s commission.

One afternoon the farmer and the baker met at the local cafe. The baker explained what he had done with his contract and with an approving laugh the farmer explained what he had done with his contract. Patting each other on the back the farmer put away his tractor and the baker turned off the oven and they enjoyed a nice afternoon at the golf course.

Both the farmer and the baker were able to deflect risk off to third parties and in the process lock in profits that would make their businesses run smoother.

As it turned out, it was an exceptionally stormy spring and the wheat crop was damaged. As a result of the decreased supply of wheat, the cash price for wheat shot up to $4.00 a bushel.

So, what happened to the broker, the speculator and the other farmer?

The broker already made his money. Being compensated for every transaction, the broker in this example ended up making $500. The broker makes money on the number of transactions that run through the brokerage. It really doesn’t matter to the broker whether prices go up or down. He is buying and selling inventory all the way up the price scale and all the way down – making $500 a pop!

The speculator in this circumstance made out fine as well! For a while the speculator suffered some heat as the cash market dropped to $2.50 a bushel. But thanks to his trading plan, knowledge and expertise in forecasting price and with the discipline of a Gregorian Monk, the speculator ended up making money in the end.

The tragedy of this story was the other farmer – who really didn’t fare so poorly either. It ends up that at the end of the year it cost him $2.00 a bushel to produce the wheat. Since he sold the wheat contracts for $2.50 he ended up making $0.50 on each bushel he sold. Where the tragedy occurs is in the “should of, would of, could of” dreams that keep haunting him at night. But then again, everybody (the baker, the dealer, the first farmer, the speculator) has those dreams and there’s always next year!

A couple of points we need to make sure we understand:

Cash Prices and Supply and Demand

Cash prices respond to the present supply and demand for the actual commodity. If there is a shortage of the underlying commodity, its price will be bid up. If there is a surplus of the commodity, the cash price will fall.

Cash prices and Futures Prices

Futures prices respond to changes in the cash price. The futures price most affected by a change in the cash price is that of the nearest expiration date. Other futures prices will include a small premium to the cash price.

Futures Prices and Traders’ Expectations

Futures prices are also valued by traders’ expectations. The mere threat of drought, crop damage, labor strike, hurricane, etc. can send futures prices up long before the actual event materializes.

source

Pink Quote , informally known as the Pink Sheets , is an electronic quotation system operated by Pink OTC Markets that displays quotes from broker-dealers for many over-the-counter securities. Market makers and other brokers can use Pink Quote to publish their bid and ask quotation prices. Starting in 1913, and prior to the creation of the electronic system in 2000, these quotes were printed on pink colored paper by the National Quotation Bureau. The term Pink Sheets is also used to refer to a market tier within the current Pink Quote system. 

The Pink Sheets is not a stock exchange. To be quoted in the Pink Sheets, companies do not need to fulfill any requirements (e.g. filing financial statements with the SEC). With the exception of foreign issuers, mostly represented by ADRs, the companies quoted in the Pink Sheets tend to be closely held, extremely small, or thinly traded. Most do not meet the minimum U.S. listing requirements for trading on a stock exchange such as the New York Stock Exchange. Many of these companies do not file periodic reports or audited financial statements with the SEC, making it very difficult for investors to find reliable, unbiased information about those companies.

For these reasons the SEC views companies listed on Pink Sheets as “among the most risky investments” and advises potential investors to heavily research the companies in which they plan to invest.

Buying Pink Sheets shares is supposed to be difficult. Broker-dealers are enjoined to weed-out unsophisticated investors who may get an e-mail or word-of-mouth tip about a small stock. Many Pink Sheets stocks may only be registered for sale in one state so that the only way to purchase the stock is to make a DRIP/business/unsolicited/accredited or other sophisticated form of investment. Many registered representatives do not even know how or if they can sell them. 

OTCQX market tier

OTCQX is a premium market tier offered by Pink OTC Markets that aims to raise the visibility of OTC-traded companies that, although not traded on a stock exchange, have operating businesses and provide substantial disclosure to the marketplace. The Pink Sheets has provided online stock tracking for many companies in its long history of online stock trading . Similar to companies quoted on the Pink Sheets, OTCQX companies are not required to be fully SEC reporting companies (i.e. current with all SEC filings). Despite this, OTCQX companies must provide audited financials and certain disclosures to Pink OTC Markets.

OTCQX has two subcategories, PremierQX , the highest tier, and PrimeQX for companies that are too small for PremierQX, but otherwise meet the reporting requirements. The two categories are further differentiated into International and Domestic (US) companies.

Pink Sheets market tier

Effective August 1 , 2007, all Pink Sheets traded companies that are not able or willing to meet the standards of OTCQX will be placed in one of the following disclosure categories: Current Information, Limited Information or No Information. This categorization system was designed to increase the amount of information available in all Pink Sheets traded companies. However, these disclosure categories do not signify issuer quality or merit of any security. Categorization is based on the level and timeliness of a company’s disclosure and any category can include speculative, distressed, or questionable companies. Investors are encouraged to use caution when considering these companies for investment.

Current Information

Indicates reporting companies that submit filings to regulators with powers of review and that make the filings publicly available or non-reporting companies that make current information publicly available on the Pink Sheets News Service. The Current Information category is based on the level of disclosure and is not a designation of quality or investment risk. This category includes shell companies or development stage companies with little or no operations as well as companies without audited financial statements and as such should be considered extremely speculative by investors.

Limited Information

Is designed for companies with financial reporting problems, economic distress, or in bankruptcy to make the limited information they have publicly available. The Limited Information category also includes companies that may not be troubled, but are unwilling to meet Pink Sheets’ Guidelines for Providing Adequate Current Information. Companies in this category have limited financial information not older than six months available on the Pink Sheets News Service or have made a filing on the SEC’s EDGAR system in the previous six months.

No Information

Indicates companies that are not able or willing to provide disclosure to the public markets – either to a regulator, a stock exchange or Pink Sheets. Companies in this category do not make Current Information available via Pink Sheets News Service, or if they do, the available information is older than six months. This category includes defunct companies that have ceased operations as well as ‘dark’ companies with questionable management and market disclosure practices. Publicly traded companies that are not willing to provide information to investors should be treated with suspicion and their securities should be considered highly risky.

Caveat Emptor – Buyer Beware

There is a public interest concern associated with the company. This may include a spam campaign, stock promotion or known investigation of fraudulent activity committed by the company or insiders. During a spam campaign, any stock that is not in the Current Information category will also have its quotes blocked on pinksheets.com.

OTCBB 

The OTC Bulletin Board (OTCBB) is a listing of securities similar to the Pink Sheets, but operated independently. Many OTCBB companies are also listed on the Pink Sheets.

Grey Market

Securities that are not listed on any stock exchange, the OTCBB, or the Pink Sheets are considered to be in the Grey Market. Transactions are processed independently and not centrally listed or quoted. Trades are reported to a Self Regulatory Organization (SRO) who then passes the data on to market data companies.

Commodity Trading

Online commodity trading transactions on the commodity exchanges fall into two broad categories: cash contracts and futures contracts. Accordingly, the commodity exchange may be a cash market or a futures market, or may combine both. The cash contracts for the purchase of commodities are those which call for payment of the full contract price, in cash, on delivery. Such contracts are also referred to as physical contracts, in the sense that they deal in actual or physical products. The cash or physical contracts may be sub-divided into two sub-classes: spot contracts and forward contracts.

Spot transactions are those cash contracts which involve the payment by the buyer and the delivery of the specified grade of goods by the seller immediately, or within a short time. These contracts relate to the purchase or sale of commodities on the spot. The essence of such contracts is the ready delivery and acceptance of the delivery of the goods sold. Forward dealings are those cash contracts made in the cash or physical market, which call for the delivery of goods and payment of the price after a specified period, on a fixed date.

As against cash contracts, which require the payment or cash against the physical delivery of goods immediately on the spot or after a specified period, a futures contract is a special type of agreement made strictly under the rules of a commodity exchange, which may or may not call for the actual delivery of goods and payment of price in cash on a future trade.

A future contract can be defined as a contract for the future delivery of some commodity without reference to specific lots, made under the rules of some commercial body, in a set form, by which the conditions as to unit of amount, the quality and time of delivery are stereotyped and only the determination of the total amounts and the price is left open to the contracting parties. 

Option Trading

By Rob Forbes

As the markets have crashed in every possible way in the last month, everyone has got burnt. Stocks have crashed by 40% on average, which means that lots of people got hit by more than 40%. Stock portfolios, retirement funds, mortgages all look disastrous, and no-one wants to hear “buy and hold” anymore. Overall trust in investing and the stock market is at an all time low.  Every investing strategy looks bad.  Or does it?

Options trading is a strategy that is not dependent on the market direction, and in fact does better in volatile markets. That is what makes now the best time to trade options.   So, why would you trade options?

Options trading does not need to be risky or a gamble. It is true that there are some people who do gamble with options, but they quickly lose their shirts and leave the field. Options trading gives you a wide range of strategies that have varieties of profit and risk potential. In fact, many strategies are significantly less risky than “buy-and-hold”, and most are significantly more profitable than just about any stock trading strategy that you can name.

When trading options, most of your portfolio is in cash for most of the time. In fact, even when you are actively trading, you can still have your whole portfolio in cash!

When trading options, your trades are by definition short term, and you do not need to hang around for months and months to see whether you make a profit or not.

Options work in ANY market – up, down, or stagnant.

Which strategies are best to use during a recession?

Despite the massive leverage and profit potential of buying and selling calls and puts, it can look too much like gambling. In fact, if you don’t have a watertight strategy, it can be extremely risky. That is why it better to look at other possibilities.

Selling credit spreads. This strategy can bring in 15-20% profit on your portfolio per month, with no cash outlay, although you do need to put up margin. You can start with $1,000, and the only technical knowledge that you need is to be able to run a simple trend analysis. No trade lasts longer than a month, and you have an 80% or better chance of winning your trade.

Selling naked puts. You effectively get paid to buy your favorite stock, or in other words, you can buy stocks at greatly discounted prices. Or you can treat them like credit spreads, and run trades every month in an upwardly trending market.

Selling covered calls. If you own a stock, you can sell a covered call on it every month. In a downward trending market, this helps you recoup your losses. In a stagnant market, it helps you reduce the net cost of your stock.  In an upward trending market, you can lock in your profits on a stock and move on.

These are all very low risk strategies, that can easily bring in a monthly income of at least 10-15% on your portfolio. You will not need to be glued to a computer screen day after day, and all three of these strategies can be accomplished with less than one hour per month in front of your computer. Each of these strategies takes advantage of time decay, the concept by which options lose value very quickly as their expiration date approaches.

There are other strategies such as Iron Condors, Straddles, Strangles and so on, which can be very effective, but none are as reliable nor as safe as these other three. In addition, they often incur higher brokerage fees.

Strategies such as DITM (Deep-in-the-Money) options trading can be useful if you favor a swing trading type stock strategy. You effectively buy stocks at about half price. Buying and selling calls and puts is hugely profitable, but highly risky. Both of these strategies are very susceptible to the effect of time decay.

An option is simply granting someone the right to buy or sell something in the future. In the case of Dow index futures options, when someone buys a Dow call option they are buying the right to purchase that underlying Dow future at a specific price, known as the “strike price,” at a future point in time, known as the “expiration date.” When an investor buys a put, they are essentially selling the market; a call essentially buys the market. Likewise, selling a put essentially buys the market; selling a call essentially sells the market.

Oil Future

With well over a century of steady usage of crude oil, it is fairly easy to predict some of the recurring trends in the rise and fall of crude oil future prices. What we have to do is simply employ the old rule of thumb that tells us there is nothing new under the sum and then apply that to projections on crude oil production and consumption. Here are some examples of changes that we can anticipate to occur right on schedule.

As the nation emerges from cold weather and reaches toward the summer months, more of us will be thinking about vacations to far away places, and maybe even some short trips to the beach if we live within a reasonable distance to the coastline. Past experience teaches us that we can expect an increase in crude oil future prices around the time that people begin to get serious about some holiday traveling. Everything from gasoline to airfare will increase around this time. At times, the increase is attributed to slow production due to some production facilities being understaffed, while at other times there is speculation about crude oil being hoarded by the this nation or that. Regardless of the reason, there is always at least once factor that leads to an increase in prices as the weather begins to warm. 

Just as predictably, any occurrence of natural disasters during the summer months will bring about increase in petroleum prices. Tornadoes and hurricanes that impact the production ability of offshore rigs and onshore processing plants will surely result in prices going up, even if people are not really in a good position to handle the increase. Keep your bicycle tires pumped up just in case.

As we begin to go into the autumn of the year, we will see crude oil future prices begin to level off and perhaps even dip a bit. It is usually not a god idea to get too excited with any significant change we see, as it will most likely be short lived. From the decrease, we can expect a small rebound to a slightly higher price, which will most likely be fairly constant for the winter months, barring any type of major problem somewhere in the world.

Predicting crude oil future prices based on past experience is a fairly reliable way for the consumer to plan for any upcoming changes that may have to be made in order to accommodate the shift in pricing. Make sure you watch the current status of the prices, and let history be your guide in planning your upcoming budget. 

Types of Day Traders

There are two major types of day traders: institutional and retail.

An institutional day trader is a trader who works for financial institution. This type of trader has certain advantages over retail traders as he/she generally has access to more resources, tools, equipment, large amounts of capital and leverage, large availability of fresh fund inflows to trade continuously on the markets, dedicated and direct lines to data centers and exchanges, expensive and high-end trading and analytical software, support teams to help, and more. All these advantages give them certain edges over retail day traders.

A retail day trader is a trader who works for himself, or in partnership with a few other traders. A retail trader generally trades with his own capital, though he may also trade with other people’s money. Law has restricted the amount of other people’s money a retail trader can manage. In the United States, day traders may not advertise as advisors or financial managers. Although not required, nearly all retail day traders use direct access brokers as they offer the fastest order entry and to the exchanges, as well as superior software trading platforms.

In the past, most day traders were institutional traders due to the huge advantages they had over retail traders. However, since the technology boom in the second half of the 1990s, advances in personal computing and communications technology, realized in the accessibility of powerful personal computers and the Internet, have brought fast online trading and powerful market analytical tools to the mainstream. Low, affordable commissions from discount brokers as well as regulation improvements in favor of retail traders have also helped level the trading playing field, making success as a retail trader a possibility for many and a reality for some.

E-Mini S&P, often abbreviated to “E-mini” and designated by the commodity ticker symbol ES, is a stock market index futures contract traded on the Chicago Mercantile Exchange‘s Globex electronic trading platform. The notional value of one contract is US$50 times the value of the S&P 500 stock index.

It was introduced by the CME in 1998 after the value of the existing S&P contract (then valued at $500 times the index, or over $500,000 at the time) became too large for many small traders. The E-Mini quickly became the most popular equity index futures contract in the world. The original (“big”) S&P contract was subsequently split 2:1, bringing it to $250 times the index. Hedge funds often prefer trading the E-Mini over the big S&P since the latter still uses the open outcry pit trading method, with its inherent delays, versus the all-electronic Globex system. The current average daily implied volume for the E-mini is over $140 billion, far exceeding the combined traded dollar volume of the underlying 500 stocks.

Following the success of this product, the exchange introduced the E-mini NASDAQ-100 contract, at one fifth of the original NASDAQ-100 index based contract, and many other “mini” products geared primarily towards small speculators, as opposed to large hedgers.

In June 2005 the exchange introduced a yet smaller product based on the S&P, with the underlying asset being 100 shares of the highly-popular SPDR Exchange-traded fund. However, due to the different regulatory requirements, the performance bond (or “margin“) required for one such contract is almost as high as that for the five times larger E-Mini contract. The product never became popular, with daily volumes rarely exceeding 10 contracts a day.

The E-Mini contract trades 23.5 hours a day, five days a week, on the March quarterly expiration cycle.

Stock Analysis Software

Stock analysis software works a lot like technical analysis software, it’s a program that helps you manage and control your money that you have invested in stock. There are many different kinds of stock analysis software out there and some can cost your thousands of dollars. You have to find a happy medium with the stock analysis software you choose can do the job you need it to and what your wallet can handle as well.

Once you have picked the right stock analysis software, its then time to know what exactly you are doing when using stock analysis software. Here are some different ways to navigate you through using stock analysis software.

Fundamental Analysis of Stocks, which is when the investors analyze stocks when considering the financial information of the companies that are releasing stocks. The most common form of Fundamental Analysis of Stocks found in stock analysis software is the CANSLIM method. The CANSLIM method is defined as the analyizing of stocks by looking into the companies that offer high buying demand and above average growth in earnings.

Technical Analysis of Stocks within the Stock Market, which is when investors study price activity of the stock market by way of using the quantitative techniques and also a variety of charts (line, bar, candlestick, etc.). The main purpose behind this technique is to predict overall price trends. This is the most used and most popular technique that stock analysis software has to offer, especially in this economy.

Up next is Index Method, which is when investors increase the value of their portfolios by create diverse investment plans of action as investment portfolios are weighted by the market capitalization. This form of stock analysis software, the investor finds ways to lower the risk of taxes, maximizing the trend of the general stock market, and also makes “outside the box” investment.

All this complex information may make a first time or novice investor a little wary. But that’s what stock analysis software is all about. Stock analysis software is very user friendly. The form of stock analysis software below may be the best for rookie investors.

Online stock market analysis, a very new age stock analysis software, will help to do the research and in turn helps stock decisions in an easy to follow and also logical manner. If an investor has always been confused by how to select certain stocks, understanding stock options, and also other securities, they you might not be doing the correct amount of analysis of the portfolio and overall average market trends. By doing analysis on the stock market, the businesses you have invested into, and also your stocks will be able to help determine whether it is time to buy, to sell, or hold it down.

In closing, here are some helpful tips when investing and using stock analysis software:

-Perform an in depth research companies and businesses before you buy into their stock,

- Be very careful where you get your advice, there are many people online that don’t know any more than you do.

-   Buy into companies and businesses that you trust, go with your first gut instinct

Stock Market Report … Trading low priced stocks from home

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You don’t necessarily have to trade low priced hot stocks all the time. But you can learn how to take advantage of them when you encounter the best opportunities while at the same time limiting your risk.

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Online Forex Trading

Online Forex Trading brokers are considered to be the middle man of the trading game. They are the ones who provide you with crucial information on you current line of business. You may have spent some quality time with your own forex trading business but the expertise that these professionals can provide you with is still exceptional. This is because they have everything that is necessary for your business to get boosted. They have the technical expertise, the forex acumen, and the networks to move around the forex market.

Here are some useful tips you can use to find forex trading brokers

Look online – These days, the foreign currency trading game has seen a lot of growth in the internet sector. Most people have discovered how transactions can be done much faster if its made through the internet. Just the same, expect forex brokers to ride on this promising bandwagon. Those considered to be experts in the said field would have taken advantage of the internet to promote themselves and their services in the form of blogs or online columns. The internet also allows you to make quick comparisons among different forex brokers.

Ask for references – Getting a forex broker is almost the same as finding an applicant to fit in a job you need to get accomplished. Credentials are crucial and you also need to have a way to assess if the person you are considering for the said work can indeed deliver some good results. The best way for you to be able to do that is to talk to their previous clients. Get in touch with their existing or past customers so you can have a clearer view and perspective on how it might be like to work with them. This is also a good way for you to identify if they have a clean record in conducting business transactions.

Get in touch with regulatory agencies – The forex market has plenty of government and non-government agencies which have their own policies that help develop and continue to sustain the market scene. The best you can do is to primarily coordinate with these people since they may have forex broker organizations wherein you can tap your possible forex partners. This helps ease up your background research process because the people you will get from these agencies are most probably certified to have clear professional records.

Trading platform to be used - You should also check out what type of trading platform is being used by the forex broker you wish to hire. The two most popular versions these days are the downloadable software and the web based application. If the forex broker uses a specific software, you should care to ask its specifics especially if you use one yourself. This will help smoothen out compatibility issues and make information dissemination much easier for both of you. Web based application are usually open source programs that are accessible when you go online. Forex trading brokers who use these might be able to give you better rate deals because most of these open source programs are free.

Automated forex trading is defined as the ability to trade forex with the help of a trading program or solution. Automated forex trading is done using robots which are created by high-level developers. Automated forex trading is one of the way to leverage due to. Automated forex trading is another option for many forex traders.

Forex markets provide multiple opportunities to trade and profit within a 24 hour period. Forex trading tools that deliver fast and accurate data in a timely manner is the key ingredient to trading success. Forex trading online can be challenge without the right tools that guide you to the right way. Forex forecasting is the key to profitable trade – Forex forecasting helps a trader predict price movements in the highly volatile forex market. Forex trading can be done at your convenience.

Trading this way is easily the fastest way to turn a profit but in the past, traders relied on a great deal of guesswork before algorithms, making trading much more risk prone without it.

Automated Forex trading is one of the leading methods of making money online, that is, if you have the best programs at your disposal and the right information, of course. Automated forex trading will allow foreign currency traders to be able to trade in real time. Automated trading makes possible for you to trade in different markets, and also in diverse time zones. Automated trading software allows you to cancel all open orders and flatten all positions automatically at the end of the day. Automated forex trading is done using robots which are created by high-level developers. Automated forex trading really favors day trading and swing trading as profiting from these trading styles require fast trading. Automated FOREX trading is exactly what it sounds like.

Online forex trading allows you to trade at your convenience – There was a time when forex trading was limited to banks and large financial institutions. Online Forex brokers will come with various trading platform software as well as tools to make trading easier on you. Online trading is not difficult to learn, the fact is when one using the foreign currency software, to trade online it becomes so easy. Online Forex Trading is Quickly Becoming a Booming Business Online Forex trading is more popular now that most everyone has access to a computer and internet. Online trading is the easy way to buy and sell shares from the comfort of your home.

Foreign Currency Trading is the world’s largest enterprise and the rise of the Internet allows anyone to trade and the rewards are great, but 95% of traders lose and in most cases is because they do not understand the facts closed …. Foreign exchange market operates 24 hours a day seven days a week.

Making Money On Forex Online Without Bank Wires Online has become a meeting place for most advantageous financial and Internet technologies. Making money from money you’ve already earned from your investments is known as ‘compounding interest’.

Automated FOREX trading is exactly what it sounds like. Automated forex trading is a relatively new concept that is rapidly growing in popularity among retail forex traders. Automated Forex Trading is an option to be availed by an investor in the international currency market. Automated Forex trading is where some or all of your Forex trades are decided by a computer program. 

Online Forex Trading Profits

Online Forex Trading is the short form for foreign exchange and makes up an exciting line of work that is increasing in fame. In foreign exchange, one currency of a nation is traded for another. The foreign exchange market place is one of the largest markets because foreign exchange transactions happen between big banks, central banks, government agencies, multinational corporations etcetera.

On an average, transactions of the volume of US $2 trillion take place globally day-after-day.

In addition to that the transaction volume in the derivatives market is 1.26 trillion, day-by-day. That shows the size of the market place and the potentiality it has for the players involved. Though retail traders who take part through brokers and banks form a small fraction of the total participants the Forex market holds a high potential of profit for the participants.

Online Forex Trading Videos

A Forex video training course is one of the most effective learning tools for enabling students to master the art of trading. As opposed to live seminars which are also more expensive, Forex training videos can be viewed at any convenient time and replayed again and again. There may be sections that warrant repeated viewing while other sections can be viewed briefly or skipped. The video format for learning has proven to be extremely effective for learning trading principles quickly.

Should You Learn Trading?

Learning Online Forex Trading is not that hard in that there are a lot of systematic courses conducted by many institutes/universities all over the world. When an entrepreneur commits to learn trading, she will be mainly exposed to two types of analysis. One is technical analysis and another is fundamental analysis.

Technical Analysis

Technical analysis is the market-generated data utilized for forecasting price movements. Tools like price charts and graphs are being used to illustrate the concept. The forecasting is based on three postulates viz., the market data contains all the fundamentals, volatility of the market and market sentiments. The possible market trends are up, down and sideways. More often than not the market moves in predictable patterns. The ultimate aim of technical analysis is to unravel this pattern basing upon the past trends.

Fundamental Analysis

Fundamental analysis assumes a country to be like company with economic reports that reveal the financial health of that countys currency. The value of a countrys currency depends upon the products and services it supplies to the international market. The more it supplies and is able to sell them the more of a demand is created for the currency because of its need by the purchasers of the product and services. Fundamental analysis takes into account the countrys potential to generate international trade. Fundamental analysis is found to be more effective when the learner uses the same judiciously. Learning the trade in these broad categories help the traders perform well in the market

Forex trade holds high prospects for profit as well as the potential for loss depending upon the traders skill and understanding of the market. Learning Forex trade provides that knowledge which should be analytically used for achieving better performance. The trader who has a more thorough understanding of the market has a distinct advantage and greater likelihood of creating consistent profits. As with any business, education and training are the first step toward long term success.