hello Noitartist...i will try and help you understand at a Different Angle.
Let's look at the Contract Specification Page...which contains most Relevant info about a Particular Futures Contract.
Look at the Specifications Tables for CL=Crude Oil....
You can see all Relevant Data for this Futures Contract....
For you to Understand Better of what you are Trading we will look at the column labeled Size and Tick Value....
The data Under Size tells us we are Trading 1000 barrels, or 42,000 gallons of Crude Oil per Contract.....and
The amount of Dollars that is worth to us as Profit if we are correct on direction...will be $ 10 per Tick...
That is $ 1000 dollars per contract we Trade for every Dollar a Barrel CL moves in our favor....example would be...
CL moves from $81 per barrel to $82 per barrel...that equals $1000 for the Trader per Contract Traded.
The other data you would need to focus on is the Months the Contract is available to Trade....
Example....Z is the December Contract...we are currently Trading this Month on CL...and you can continue to Trade in the December Contract until it's Expiration, or just days before it expires....you can find this information out in the following:
Contract Expirations Table below...in this Table we see that December Crude Oil Contract Expires on 11-20-14.
So what Traders Normally do is Trade that Contract up until just before that date.....usually keeping an eye on the next upcoming months volume....when the next months volume is Greater than current month being traded...
you will just start taking trades in that month which would be January Contract month.
There are 2 Attachments for you to look at....the Contract Expirations Table is very Small/Thin...click it.
So in Comparison to Trading a Stock vs Futures...you can see the similarity of Trading 1000 shares compared to Trading 1 Contract of CL....this is because they are equal in value per dollar they move.
Example....you trade 1000 shares...it moves from $81 to $82 times 1000 shares = $1000 for the Trader.
Example....you Trade 1 Contract of CL ...it moves from $81 to $82 this also equals $1000 for the Trader based on what the Futures Contract is worth.....There are Different Values for Futures other than CL....some pay the same
per Tick moved...others pay Different Values per Contract...you have to look in the Contract Specifications to know.
You buy 1000 shares of Stock X at USD 10 per share. It cost you USD 10k. If price goes up to 10.50, you make 500.
You go long(buy) eg in CL (crude oil) at 80.00 , and it goes up to 80.50, you make 500.
Leverage is where you do not need to put up 10k in acct to do that. Maybe like 3k (not very sure). That's like 17% profit in short amount of time. Of course the KEY to know here is, if price goes against you from 80.00 to 79.00, you lose 1000, which is 33% of your capital. That is why lots of people are saying futures are "too risky".
Off course, if say you have 100k in an account, and you trade only 1-2 contracts, your leverage would be similar to stocks. The risk is in the trader, not the market.
Also, futures trading is a game where a traders job is to take money away from the other traders. Unless you are better than them, they will take your money. If you are still interested to trade futures, prepare to spend years in learning.
Sleep well, Eat Healthy, Breathe...
The following user says Thank You to mykee for this post:
I can't imagine anyone putting 33% at risk on a single trade unless they were "gambling". Most would suggest risking 1%-2% tops and a lot of conservative traders will risk well under 1% which you alluded to (granted, most of those probably have more than $50k-$100k trading accounts otherwise "why bother").
Usually one doesn't have to worry in daytrading futures contracts. It's only during expiration of the contract where one who has kept contracts overnight has to get out and sell his contracts. A retail trader usually doesn't have to worry about taking "ownership" of a 1000 barrels of oil, or a bunch of corn or hogs; usually the broker can resolve the contracts at expiration but at high fees and penalty then passed to the account holder retail trader. I prefer to think of retail traders trading against the market and big money as opposed to other retail traders where retail trading size is relatively miniscule. Most index and currency futures are tied to their cash equivalents. Differing price movement, even due to big lots and size which are generally not retail traders, are not off by much.
Last edited by Cloudy; November 8th, 2014 at 11:45 AM.
I see you don't understand the why day trade. Your understanding of a futures contract is just a hedge against future uncertainty and really that's what it is. The farmer of corn for example needs to hedge his corn against future uncertainty. A futures contract represents a number of bushels of corn. In the corn case 5000 bushels. If the price of corn futures today is 350 and the farmer has calculated that he would make a good profit at 350, he may sell a number of contracts that will cover the number of corn he reasonably expects to harvest. The period from preparing the field to harvest is long and full of uncertainty. The price of corn may go up or down. Regardless what happens, he is assured of the price of his crop.
As he sells, someone else has to buy. And since he's not the only farmer, there are a lot of contracts being offered in the market. He sells his contracts in the markets. That's where day traders come in. They are not interested in buying any corn. As long as all conditions for a good crop season are well, price will not fluctuate much. If they perceive that the weather is bad now and it might worsen and prevent the farmers from sowing enough, they will start buying the contracts because they expect to sell it higher than what they paid for it. For example if their is a bad weather forecast, ones the market opens, they'll buy say at 356. When so many people buy, the price will eventually stall and most likely come down. But they're not interested in down. Say they bought at the 356 at 9:46 AM, and at 10:14 AM the price reached 362, they sell, raking in the profits. This is a cycle that goes one every day.
Not only weather may cause futures market to move, but also economic news or just large buyers that need to hedge their inventory. The economy is linked, woes in one market may cause worries in another. These worries or very favorable non farm payrolls drive prices up or down. During the life span of the contract, every movement in the price is caused by day traders. No movement, no money. Movement = Cash earned or lost if you're on the wrong side of the trade.
Thank you, everyone. I still don't quite understand leverage, or why it's done (seems like a discount), but I think I can see the advantage to the speculator of leveraging, assuming he's quick 'n smart. As to it being a zero-sum game, given were all working to foresee the future, I think i get it.
Hm...that chart was very interesting, sandptrader, even if can't yet really understand, though I'm beginning. what does 20/11 stand for, however? It's not a normal date, is it? As a number, December, is a twelve, not an eleven. Is it a timspectrum, tween the 11th, and 20th, of the month?
As to market movement, I take it I ought to just trust my edge, or inicators, just like a pilot. has to trust his instrument panel. I take it that unsuccessful traders are just like JFK Jr. and other crashed pilots, who didn't do what they were supposed to in the moment of decision.
They're what I'll be measured by.
Oh...and where is a good place to get demo account online? I hear Ninjatrader software is good, a ny acoount will need to be compatible with it.
In the above answers a main point about a FUTURE has not been given.
We need to distinguish between an INDEX and a FUTURE. The index is a basket
of real time stocks or commodities. This index can NOT be traded - only the
underlying stocks or commodities. But there is a FUTURE (and its derivatives)
that can be traded. Normally the future has longer trading time over the day.
The index itself has ONLY trading hours (named cash hours) when the stocks
or commodities are traded. In every future there are some halting hours in the
night and over the weekend. In these pauses the margins at a broker are normally
higher and with most brokers the stops are no longer guaranteed...
Futures are held by the broker and he is sending it to the futures market.
So futures are bets on how the index will perform. Price of the future is widest
away when the future starts and goes exactly to the price of the index on the
Futures even here on the indizes are traded often as a hedge for bigger positions
of stocks in the index basket.
The german DAX is a basket of 30 german company stocks that are traded
at the stock market(s). This index is showing the level of the market of
THESE THIRTY companies. The trading hours (cash hours) are from 09:00 to
17:30 without a pause. This DAX index can not be traded.
The future of the Dax or FDAX is traded. Trading hours are from monday to
friday from 08:00 to 22:15. So much longer than the stocks and reacting on
other markets that are in the cash hours around the world.
There are four Dax futures per year and the most actual one (and strongest traded)
is expiring after 3 months at the triple witch day.
The actual Dax future is named December 2014 contract and will expire on
december 19th (friday) at 13:00h CET. There are parallel Dax futures that can
be traded too right now (but with less volume and a higher price) - as the
march 2015 contract or the june 2015 contract.
Why are futures traded - and what are the benefits thereof?
Futures (but NOT the derivatives) are traded at their respective ONE exchange.
This allows the trader (and interested) to see the exact traded VOLUME at
any given time - so some special charts can be built with this extra information.
All this volume at a time information is missing in the Forex and derivatige markets
as there are different exchanges (resp. brokers) over the world trading parallel.
Hope this helps.
Last edited by GFIs1; November 9th, 2014 at 04:29 AM.
The following user says Thank You to GFIs1 for this post:
Well, thank you; I was just trying to test my understanding of something by reframing it. That definition given spoke nothin' of leverage, however.
Don't rightly understand hedging, though. Stock options, in some cases, can be valuable if the stock goes up; otherwise, they be worthless. A reflection of the underlying asset's expansion in value, then?
Last edited by Noitartst; November 12th, 2014 at 01:12 PM.