The foreign exchange market or forex is the largest and most liquid markets in the world. Its growing popularity can be seen by the whooping $2 trillion trades a day. While the forex can be an extremely lucrative market, it can also be somewhat complicated. These ten tricks will help insure trading success in the foreign exchange market.
First, make sure you implement a trading plan. You should develop a foreign exchange trading system that you can stick with. Having a decent strategy is not enough you need a well-developed system to effectively implement your strategies. You should start by creating a schedule of when you will do your Forex trading. Next create on organized budget to keep track of the inflow and outflow of your money. It’s important to understand that Forex trading, like any business venture, will have its peaks and slumps. You should be prepared to stick to your system despite these fluctuations to maximize profits in the long run.
Second, make plans to trade within your means. Quite simply, if you cannot afford to lose, then you really cannot afford to win either. All traders hope that the will be profitable in their investments, but losing at some point is inevitable. For this reason it is important that you invest only money that you could stand to lose. Try setting aside some saving that you can dedicate just to trading.
Another helpful hint is to trade along side the majorities. This means trading mainly on the most common currency pairs. The most common currencies are the United States dollar, USD, the Japanese yen, JPY, the European Euro, EUR, the United Kingdom pound, GBP, the Australian dollar, AUD, the Swiss franc, CHF, and the Canadian dollar, CAD. The most common pairs of currency are referred to as majors and are GBP/USD, EUR/USD, AUD/USD, USD/JPY, USD/CHF, and USD/CAD.
Another way to insure success is to avoid emotional trading. Stick to you trading strategy and do not deviate because of gut feelings or hunches. Learn to exit the market when signals indicate that the market is about to swing in an unfavorable direction.
Learning to trust the trends is another important trick. Although currencies will always fluctuate slightly, they generally move steadily in one direction. If you are not sure on where to position yourself in the forex, following a trend is usually a safe bet.
Next, you should anticipate small losses. Know matter how well you know the market or how long you have been a trader you will probably encounter small losses. You need to expect and accept these losses as small components of a larger plan. Be ready for these small losses and put them aside in anticipation of acquiring greater returns in the future. The key to long-term success in the Forex market is patience.
Another helpful hint for traders is to avoid Forex strategies that you do not understand. You should do your research ahead of time and draw on the information from useful Forex guides and tutorials. It is important to be cautious of Forex scams. There are numerous scams popping up where companies offer to do your trading for you, these are the ones you should avoid. You should develop your Forex methods with an expert and only make trades on your own or through a licensed broker. The bottom line is making sure that you are fully aware of all aspects of your strategy and are comfortable with the risks and benefits.
Next, make sure you have an exit strategy planned out. Though you should expect small losses, you need to be able to recognize when you are in to deep. Before you jump into the Forex market you should set yourself limits on how much you plan to invest. One you determine the amount that you plan devote to your Forex trading do don’t surpass you limit. Be able to cut you losses once you realize the situation will not get better.
Showing posts with label Futures Spread Trading. Show all posts
Showing posts with label Futures Spread Trading. Show all posts
Thursday, July 16, 2009
Tuesday, July 14, 2009
Detroit Free Press Patricia Montemurri column: Companies gain with teleworking
Jul 14, 2009 (Detroit Free Press - McClatchy-Tribune Information Services via COMTEX) -- Alison Gleeson manages 1,100 employees nationwide, and she's doing it from a home office in Bloomfield Hills for part of her work week.
Gleeson is a married mother of two elementary school-age kids, Marcus and Alexandria Beaton, and works as a vice president of commercial sales for information technology giant Cisco Systems, based in San Jose, Calif.
A few weeks ago, she captained a meeting while sitting in her car at a T-ball game for her son.
"It's about work-life balance becoming possible," says Gleeson. "It's about me participating in things as a mom I don't want to miss. I can attend a meeting through a mobile device. You are so much more empowered -- any time, any place."
Gleeson's experience mirrors that of some 2,000 Cisco employees, who participated in a recent survey that found that telecommuting generates multimillion-dollar savings for the corporation and contributes to high satisfaction among employees.
Gone are the days that career paths are limited by geography, says Gleeson. "You can still live in Michigan and through collaboration technologies, be part of the corporation globally." The number of companies and employees embracing telecommuting -- also known as teleworking -- is growing. People working at least 8 hours per week from home grew from 6 million to 12 million from 2000 to 2007, according to market research firm Gartner Dataquest.
Telecommuting has also gained ground in government. There are 381 telecommuting state of Michigan employees. Some 95,000 employees, or 7.6% of the federal workforce in 2007, were telecommuters. The feds view it as a tool for recruitment and retention, and as a "green" initiative that cuts down on energy and building costs, according to a U.S. Office of Personnel Management report.
"Young people are asking in their interviews how many days a week can they work at home. That's stunning to some managers, but good talent will go elsewhere if there isn't flexibility," said Debra Dinnocenzo, who authored "101 Tips for Telecommuters."
And for both workers and companies, telecommuting has proven benefits.
At Cisco, some 80% of the employees surveyed said telecommuting improved their quality of life. Cisco workers also say they were more productive while working remotely.
Cisco said enhanced productivity by its telecommuting employees was worth about $227 million annually.
"For me and my team, it's about the ability to participate in meetings without missing a beat," says Gleeson.
Gleeson is a married mother of two elementary school-age kids, Marcus and Alexandria Beaton, and works as a vice president of commercial sales for information technology giant Cisco Systems, based in San Jose, Calif.
A few weeks ago, she captained a meeting while sitting in her car at a T-ball game for her son.
"It's about work-life balance becoming possible," says Gleeson. "It's about me participating in things as a mom I don't want to miss. I can attend a meeting through a mobile device. You are so much more empowered -- any time, any place."
Gleeson's experience mirrors that of some 2,000 Cisco employees, who participated in a recent survey that found that telecommuting generates multimillion-dollar savings for the corporation and contributes to high satisfaction among employees.
Gone are the days that career paths are limited by geography, says Gleeson. "You can still live in Michigan and through collaboration technologies, be part of the corporation globally." The number of companies and employees embracing telecommuting -- also known as teleworking -- is growing. People working at least 8 hours per week from home grew from 6 million to 12 million from 2000 to 2007, according to market research firm Gartner Dataquest.
Telecommuting has also gained ground in government. There are 381 telecommuting state of Michigan employees. Some 95,000 employees, or 7.6% of the federal workforce in 2007, were telecommuters. The feds view it as a tool for recruitment and retention, and as a "green" initiative that cuts down on energy and building costs, according to a U.S. Office of Personnel Management report.
"Young people are asking in their interviews how many days a week can they work at home. That's stunning to some managers, but good talent will go elsewhere if there isn't flexibility," said Debra Dinnocenzo, who authored "101 Tips for Telecommuters."
And for both workers and companies, telecommuting has proven benefits.
At Cisco, some 80% of the employees surveyed said telecommuting improved their quality of life. Cisco workers also say they were more productive while working remotely.
Cisco said enhanced productivity by its telecommuting employees was worth about $227 million annually.
"For me and my team, it's about the ability to participate in meetings without missing a beat," says Gleeson.
Traveling Geithner displays optimism
Jul 14, 2009 (The Washington Times - McClatchy-Tribune Information Services via COMTEX) -- Treasury Secretary Timothy F. Geithner is using a trip to Europe and the Middle East this week to shore up confidence in the U.S. economy and the dollar, though he warned Monday the struggle against the global recession is far from over.
"In my view, there are still significant risks and challenges ahead," Mr. Geithner said at a news conference in London after talks with British policymakers, including Prime Minister Gordon Brown and Chancellor of the Exchequer Alistair Darling. "We have done a great deal domestically ... but there is a lot of uncertainty."
Mr. Darling agreed "there's a lot of uncertainty in the world" regarding the state of the global economy.
But Mr. Geithner and British officials said that the United States and its economic partners have responded well to the financial crisis that nearly crippled world markets last fall.
"I think we have remarkably strong consensus in place on core elements," Mr. Geithner said.
Mr. Darling predicted "there is a very good chance" that the United States and world economies will recover and have sustained growth during the next few quarters.
"We are making progress, we are coming through," he said.
Mr. Geithner traveled to Saudi Arabia on Monday and later this week will visit the United Arab Emirates in an attempt to reassure the Persian Gulf state leaders that the U.S. dollar assets they hold in large quantities remain a sound investment. The two nations are the Arab world's two largest economies.
Mr. Geithner also will meet with French officials in Paris later this week before returning home.
There has been increasing talk in recent days that the dollar's long hegemony as the world's reserve currency could be under threat, with officials in China and Russia among those hinting that a new reserve currency should be considered.
But Mr. Geithner told CNN in an interview broadcast Sunday that the U.S. dollar's role as the world's reserve currency is not likely to weaken because global investors will continue to use it as a safe haven.
"When people are most concerned about risk, generally they want to be investing in the most liquid and safest markets in the world, which is still the market for our Treasury bills," Mr. Geithner said. "We want to be sure we can maintain that basic response."
The secretary on Monday addressed concerns on Wall Street that the federal government so far has ignored pleas for financial aid from CIT Group, a New York-based lender that is facing a possible financial collapse.
CIT's bond and share values have tumbled in recent days out of concern that the Federal Deposit Insurance Corp. has not allowed the lender to participate in its bond-guarantee program created last year to unfreeze debt markets.
"I'm actually pretty confident [that] in that context, we have the authority and the ability to make sensible choices," he said. "We have a significant interest generally in trying to make sure the financial system gets through this [crisis], adjusts where it needs to adjust and emerges stronger.
But Mr. Geithner declined to say if CIT will receive any additional money from the $700 billion Troubled Asset Relief Program.
"Obviously, in that case, as always, we're watching closely developments in those markets," he said.
Following Mr. Geithner's meeting in London, the British Treasury announced it will host a two-day meeting of finance ministers and central bankers of the Group of 20 nations in London starting Sept. 4.
The gathering will precede a late September meeting Mr. Obama will host in Pittsburgh of the G-20 leaders. The G-20 includes the Group of Eight industrialized nations -- the United States, Japan, Germany, France, the United Kingdom, Italy, Russia and Canada -- plus the European Union and the world's major developing economies.
"In my view, there are still significant risks and challenges ahead," Mr. Geithner said at a news conference in London after talks with British policymakers, including Prime Minister Gordon Brown and Chancellor of the Exchequer Alistair Darling. "We have done a great deal domestically ... but there is a lot of uncertainty."
Mr. Darling agreed "there's a lot of uncertainty in the world" regarding the state of the global economy.
But Mr. Geithner and British officials said that the United States and its economic partners have responded well to the financial crisis that nearly crippled world markets last fall.
"I think we have remarkably strong consensus in place on core elements," Mr. Geithner said.
Mr. Darling predicted "there is a very good chance" that the United States and world economies will recover and have sustained growth during the next few quarters.
"We are making progress, we are coming through," he said.
Mr. Geithner traveled to Saudi Arabia on Monday and later this week will visit the United Arab Emirates in an attempt to reassure the Persian Gulf state leaders that the U.S. dollar assets they hold in large quantities remain a sound investment. The two nations are the Arab world's two largest economies.
Mr. Geithner also will meet with French officials in Paris later this week before returning home.
There has been increasing talk in recent days that the dollar's long hegemony as the world's reserve currency could be under threat, with officials in China and Russia among those hinting that a new reserve currency should be considered.
But Mr. Geithner told CNN in an interview broadcast Sunday that the U.S. dollar's role as the world's reserve currency is not likely to weaken because global investors will continue to use it as a safe haven.
"When people are most concerned about risk, generally they want to be investing in the most liquid and safest markets in the world, which is still the market for our Treasury bills," Mr. Geithner said. "We want to be sure we can maintain that basic response."
The secretary on Monday addressed concerns on Wall Street that the federal government so far has ignored pleas for financial aid from CIT Group, a New York-based lender that is facing a possible financial collapse.
CIT's bond and share values have tumbled in recent days out of concern that the Federal Deposit Insurance Corp. has not allowed the lender to participate in its bond-guarantee program created last year to unfreeze debt markets.
"I'm actually pretty confident [that] in that context, we have the authority and the ability to make sensible choices," he said. "We have a significant interest generally in trying to make sure the financial system gets through this [crisis], adjusts where it needs to adjust and emerges stronger.
But Mr. Geithner declined to say if CIT will receive any additional money from the $700 billion Troubled Asset Relief Program.
"Obviously, in that case, as always, we're watching closely developments in those markets," he said.
Following Mr. Geithner's meeting in London, the British Treasury announced it will host a two-day meeting of finance ministers and central bankers of the Group of 20 nations in London starting Sept. 4.
The gathering will precede a late September meeting Mr. Obama will host in Pittsburgh of the G-20 leaders. The G-20 includes the Group of Eight industrialized nations -- the United States, Japan, Germany, France, the United Kingdom, Italy, Russia and Canada -- plus the European Union and the world's major developing economies.
U.S. budget deficit surpasses $1 trillion
Jul 14, 2009 (The Washington Times - McClatchy-Tribune Information Services via COMTEX) -- The U.S. budget deficit topped $1 trillion in June -- with three months still to go in fiscal 2009.
The Treasury Department reported Monday that the budget deficit for the first nine months of fiscal 2009 totaled $1.086 trillion. The deficit for the first nine months of fiscal 2008 was $286 billion, en route to $459 billion for the full year, a nominal record that has been smashed this year.
During the first nine months of the fiscal year, the federal government borrowed more than 40 cents for each dollar it spent.
"This is the first trillion-dollar budget deficit in world history -- that is $8,500 per household borrowed from our children and grandchildren," said Brian Riedl, a budget analyst at the Heritage Foundation.
"Under the Obama budget, America would borrow $9 trillion more over the next decade. These trillion-dollar deficits will become as routine as the high interest rates, steep taxes and economic stagnation they bring," Mr. Riedl said.
Last month's deficit of $94 billion was the first budget shortfall in June in more than 10 years, said Douglas Elmendorf, director of the Congressional Budget Office.
The evolving deficit confirms "how serious the economic downturn is," said James Horney of the Center on Budget and Policy Priorities. Revenues plunged and safety-net spending -- from unemployment benefits to food stamps and Medicaid -- increased, Mr. Horney explained. So, too, did spending to rescue the banking system and Fannie Mae and Freddie Mac, the mortgage-financing giants that were taken over by the government in September.
"Unfortunately, given the situation, the deficit is unavoidable. To reduce the deficit now would be counterproductive to the economy," said Mr. Horney, who added that the long-term budget imbalance must be addressed.
Compared with the October-June period of fiscal 2008, during the first nine months of fiscal 2009:
--Revenues plunged $345 billion, or 17.8 percent;
--Spending soared $455 billion, or 20.5 percent;
--Defense spending increased 7.5 percent to $474 billion;
--Spending on food stamps increased 36.8 percent to $40 billion;
--Medicaid spending increased 23 percent to $186 billion;
--Unemployment benefits increased 165 percent to $77 billion;
--The Troubled Asset Relief Program, which began in October, has cost taxpayers an estimated $147 billion;
--Bailing out Fannie Mae and Freddie Mac has cost $85 billion.
Both the Obama administration and the nonpartisan Congressional Budget Office project that this year's deficit will total about $1.84 trillion. Even adjusted for inflation, that deficit level is three times larger than any annual deficit incurred during World War II, according to budget documents.
The economy during the 1940s, of course, was much smaller than today's. This year's projected deficit of $1.84 trillion represents nearly 13 percent of gross domestic product. In fiscal 1943, the nominal budget deficit of $55 billion totaled more than 30 percent of GDP.
In January, before President Obama took office, the CBO estimated that the budget deficit for fiscal 2009, which was already more than three months old, would approach $1.2 trillion.
Since then, the economy deteriorated more than expected, causing revenues to plunge more steeply. In addition, the administration's multiyear $787 billion economic-stimulus package, which was enacted in February, added $185 billion to the 2009 deficit, according to CBO estimates.
The administration's May forecast, which will be updated later in the summer, projected a $1.26 trillion for fiscal 2010, which begins Oct. 1. That includes $399 billion in stimulus, 45 percent of which will be tax cuts, according to CBO estimates.
The Treasury Department reported Monday that the budget deficit for the first nine months of fiscal 2009 totaled $1.086 trillion. The deficit for the first nine months of fiscal 2008 was $286 billion, en route to $459 billion for the full year, a nominal record that has been smashed this year.
During the first nine months of the fiscal year, the federal government borrowed more than 40 cents for each dollar it spent.
"This is the first trillion-dollar budget deficit in world history -- that is $8,500 per household borrowed from our children and grandchildren," said Brian Riedl, a budget analyst at the Heritage Foundation.
"Under the Obama budget, America would borrow $9 trillion more over the next decade. These trillion-dollar deficits will become as routine as the high interest rates, steep taxes and economic stagnation they bring," Mr. Riedl said.
Last month's deficit of $94 billion was the first budget shortfall in June in more than 10 years, said Douglas Elmendorf, director of the Congressional Budget Office.
The evolving deficit confirms "how serious the economic downturn is," said James Horney of the Center on Budget and Policy Priorities. Revenues plunged and safety-net spending -- from unemployment benefits to food stamps and Medicaid -- increased, Mr. Horney explained. So, too, did spending to rescue the banking system and Fannie Mae and Freddie Mac, the mortgage-financing giants that were taken over by the government in September.
"Unfortunately, given the situation, the deficit is unavoidable. To reduce the deficit now would be counterproductive to the economy," said Mr. Horney, who added that the long-term budget imbalance must be addressed.
Compared with the October-June period of fiscal 2008, during the first nine months of fiscal 2009:
--Revenues plunged $345 billion, or 17.8 percent;
--Spending soared $455 billion, or 20.5 percent;
--Defense spending increased 7.5 percent to $474 billion;
--Spending on food stamps increased 36.8 percent to $40 billion;
--Medicaid spending increased 23 percent to $186 billion;
--Unemployment benefits increased 165 percent to $77 billion;
--The Troubled Asset Relief Program, which began in October, has cost taxpayers an estimated $147 billion;
--Bailing out Fannie Mae and Freddie Mac has cost $85 billion.
Both the Obama administration and the nonpartisan Congressional Budget Office project that this year's deficit will total about $1.84 trillion. Even adjusted for inflation, that deficit level is three times larger than any annual deficit incurred during World War II, according to budget documents.
The economy during the 1940s, of course, was much smaller than today's. This year's projected deficit of $1.84 trillion represents nearly 13 percent of gross domestic product. In fiscal 1943, the nominal budget deficit of $55 billion totaled more than 30 percent of GDP.
In January, before President Obama took office, the CBO estimated that the budget deficit for fiscal 2009, which was already more than three months old, would approach $1.2 trillion.
Since then, the economy deteriorated more than expected, causing revenues to plunge more steeply. In addition, the administration's multiyear $787 billion economic-stimulus package, which was enacted in February, added $185 billion to the 2009 deficit, according to CBO estimates.
The administration's May forecast, which will be updated later in the summer, projected a $1.26 trillion for fiscal 2010, which begins Oct. 1. That includes $399 billion in stimulus, 45 percent of which will be tax cuts, according to CBO estimates.
Monday, July 13, 2009
Forex Statistics
Once you become somewhat familiar with how the forex market works, and you understand to a point what is involved in trading on the Foreign Exchange Market, you would want to start to gauge market trends in order to profit from your business ventures on the open market.
The name of the game is statistics, and the first rule is that you must be aware there is no such thing as a sure thing on the forex market. While you can never be 100% sure at any given time of the next move that will be made on the market as a whole, being able to read statistics and interpret them will place you ahead of the pack in regards to "guessing" what will happen next.
Forex trading is a lot like gambling. If you can keep track of the cards that have already been played, you are more informed, statistically, regarding what is likely to be dealt next, meaning you can place a bet with greater insight than someone who has no clue what has already been played. With the forex market, if you have information as to what has already occurred over the past few days, months, or even years, you are again placed in a better position to more logically conclude what will happen next. You simply learn the pattern and follow it to the end, reaping the financial rewards.
Charts And Chartists
Wait, did you think you were going to have to research and map out the market's past all by yourself? Of course not! There are people who get paid to do that sort of work. They monitor the market hourly, daily, weekly, monthly, and yearly so that they can provide big-time traders with the same knowledge mentioned before. The more a trading company knows about the market, the more money they can make.
The best part of this is that you have access to the same information as these VIP clients. Chartists, who are essentially market analysts that publish their findings in easy to read charts, produce what is referred to as a candlestick charts. These charts are basically a combination of a line graph and a bar graph that show the trend of various stocks, indexes, or other interests over a specified period of time. Therefore, you can easily determine if the currency is on an uptrend or if it is taking a downturn, when the last major change occurred, and how long it is predicted that the currency pair will continue on the current path.
If your broker does not supply you with these charts, then you should easily be able to draw them yourself with the modern day charting software or trading platform that you get from your broker. These software platforms can draw most charts for you by entering a couple of parameters and viewing the result.
It is recommended however that you learn at least the basics of charting and statistics before you start trading live.
The name of the game is statistics, and the first rule is that you must be aware there is no such thing as a sure thing on the forex market. While you can never be 100% sure at any given time of the next move that will be made on the market as a whole, being able to read statistics and interpret them will place you ahead of the pack in regards to "guessing" what will happen next.
Forex trading is a lot like gambling. If you can keep track of the cards that have already been played, you are more informed, statistically, regarding what is likely to be dealt next, meaning you can place a bet with greater insight than someone who has no clue what has already been played. With the forex market, if you have information as to what has already occurred over the past few days, months, or even years, you are again placed in a better position to more logically conclude what will happen next. You simply learn the pattern and follow it to the end, reaping the financial rewards.
Charts And Chartists
Wait, did you think you were going to have to research and map out the market's past all by yourself? Of course not! There are people who get paid to do that sort of work. They monitor the market hourly, daily, weekly, monthly, and yearly so that they can provide big-time traders with the same knowledge mentioned before. The more a trading company knows about the market, the more money they can make.
The best part of this is that you have access to the same information as these VIP clients. Chartists, who are essentially market analysts that publish their findings in easy to read charts, produce what is referred to as a candlestick charts. These charts are basically a combination of a line graph and a bar graph that show the trend of various stocks, indexes, or other interests over a specified period of time. Therefore, you can easily determine if the currency is on an uptrend or if it is taking a downturn, when the last major change occurred, and how long it is predicted that the currency pair will continue on the current path.
If your broker does not supply you with these charts, then you should easily be able to draw them yourself with the modern day charting software or trading platform that you get from your broker. These software platforms can draw most charts for you by entering a couple of parameters and viewing the result.
It is recommended however that you learn at least the basics of charting and statistics before you start trading live.
Sunday, July 12, 2009
Futures Spread Trading
How professional traders optimize profits
Futures spread trading is probably the most profitable, yet safest way to trade futures. Almost every professional trader uses spreads to optimize his profits. Trading spreads offers many advantages which make it the perfect trading instrument, especially for beginners and traders with small accounts (less than $10,000).
The following example of a Soybean-Spread shows the advantages of futures spread trading:
Example: Long May Soybeans (SK3) and Short November Soybeans (SX3)
Four Advantages of Futures Spread Trading
Advantage 1: Easy to trade
Do you see how nicely this spread starts trending in mid February? Whether you are a beginner or an experienced trader, whether you use chart formations or indicators, the existence of a trend is obvious. (If you are looking for a concept of how to identify a trend, we strongly recommend visiting http://www.tradingeducators.com/?source=Tradejuicetrading_philosophy.htm). Spreads tend to trend much more dramatically than outright futures contracts. They trend without the interference and noise caused by computerized trading, scalpers, and market movers.
Advantage 2: Low Margin requirements
Many spreads have reduced margin requirements, which means that you can afford to put on more positions. While the margin on an outright futures position in corn is $540, a spread trade in corn requires only $135 — 25% as much. That’s a great advantage for traders with a small account. With a $10,000 trading account risking 8% of your account, you can enter 6 corn spreads, instead of only 1-2 outright corn futures trade. How’s that for leverage?
Advantage 3: Higher return on margin
Each point in the spread carries the same value ($50) as each point in the outright futures ($50). That means that on a 3 point favorable move in corn futures or a 3 point favorable move in the spread, you would earn $150. However, the difference in return on margin is extraordinary:Corn futures - $150/$540 = 27.8% returnCorn spread - $150/$135 = 111% returnAnd keep in mind that you can trade 6 times as many spread contracts as you can outright futures contracts. In our example you would achieve a 24 times higher return on you margin.
Advantage 4: Low time requirements
You don’t have to watch a spread all day long. You do not need real-time data. The most effective way to trade spreads is using end-of-day data. Therefore, spread trading is the best way to trade if you do not want to watch or cannot watch your computer all day long (i.e. because you have a daytime job). And you can save all the money you would have had to spend for real-time data systems (up to $600 per month).So where is the catch?If futures spread trading is so fantastic, why does it seems that hardly anybody trades spreads? Well, it is not true that hardly anybody trades spreads: the professional traders do, every day. But either by accident or design, the whole truth of spread trading has been hidden from the public over the years.The purpose of this website is to inform you about futures spread trading. In the following we will answer the four frequently asked questions:
What is a spread?
Why trade spreads?
What can you expect when trading spreads?
What Is a Spread?
A spread is defined as the sale of one or more futures contracts and the purchase of one or more offsetting futures contracts. You can turn that around to state that a spread is the purchase of one or more futures contracts and the sale of one or more offsetting futures contracts. A spread is also created when a trader owns (is long) the physical vehicle and offsets by selling (going short) futures. Furthermore, a spread is defined as the purchase and sale of one or more offsetting futures contracts normally recognized as a spread by the fact that the two sides of the spread are actually related in some way. This explicitly excludes those exotic spreads put forth by some vendors, which are nothing more than computer generated coincidences which are not in any way related. Such exotic spreads as Long Bond futures and Short Bean Oil futures may show up as reliable computer generated spreads, but bean oil and bonds are not really related. Such spreads fall into the same category as believing the annual performance of the U.S. stock market is somehow related to the outcome of the Super Bowl sporting event. In any case, for tactical reasons in carrying out a particular strategy, you want to end up with:
simultaneously long futures of one kind in one month, and short futures of the same kind in another month. (Intramarket Calendar Spread)
simultaneously long futures of one kind, and short futures of another kind. (Intermarket Spread)
long futures at one exchange, and short a related futures at another exchange. (Inter-exchange Spread)
long an underlying physical commodity, and short a futures contract. (Hedge)
long an underlying equity position, and short a futures contract. (Hedge)
long financial instruments, and short financial futures. (Hedge)
long a single stock futures and short a sector index.
The primary ways in which this can be accomplished are:
Via an Intramarket spread.
Via an Intermarket spread.
Via an Inter-exchange spread.
By ownership of the underlying and offsetting with a futures contract.
Intramarket Spreads
Officially, Intramarket spreads are created only as calendar spreads. You are long and short futures in the same market, but in different months. An example of an Intramarket spread is that you are Long July Corn and simultaneously Short December Corn.
Intermarket Spreads
An Intermarket spread can be accomplished by going long futures in one market, and short futures of the same month in another market. For example: Short May Wheat and Long May Soybeans.Intermarket spreads can become calendar spreads by using long and short futures in different markets and in different months.
Inter-Exchange Spreads
A less commonly known method of creating spreads is via the use of contracts in similar markets, but on different exchanges. These spreads can be calendar spreads using different months, or they can be spreads in which the same month is used. Although the markets are similar, because the contracts occur on different exchanges they are able to be spread. An example of an Inter-exchange calendar spread would be simultaneously Long July Chicago Board of Trade (CBOT) Wheat, and Short an equal amount of May Kansas City Board of Trade (KCBOT) Wheat. An example of using the same month might be Long December CBOT Wheat and Short December KCBOT Wheat.
Why Spreads?
The rationale behind spread trading is one of the best-kept secrets of the insiders of the futures markets. While spreading is commonly done by the market "insiders," much effort is made to conceal this technique and all of its benefits from "outsiders," you and me. After all, why would the insiders want to give away their edge? By keeping us from knowing about spreading, they retain a distinct advantage.Spreading is one of the most conservative forms of trading. It is much safer than the trading of outright (naked) futures contracts. Let’s take a quick look at some of the benefits of using spreads:
Intramarket, and some Intermarket, spreads require considerably less margin, typically around 25% - 75% of the margin needed for outright futures positions.
Intramarket, and some Intermarket, spreads offer a far greater return on investment than is possible with outright futures positions. Why? Because you are posting less margin for the same amount of possible return.
Spreads, in general, trend more often than do outright futures.
Spreads often trend when outright futures are flat.
Spreads can be filtered by virtue of seasonality, backwardation, and carrying charge differentials, in addition to any other filters you might be using in your trading.
Spreads can be used to create partial futures positions. In fact, virtually anything that can be done with options on futures can be accomplished via spread trading.
Spreads allow you to take less risk than is available with outright futures positions. The amount of risk between two Intramarket futures positions is usually less than the risk in an outright futures position. The risk between owning the underlying and holding a futures contract involves the least risk of all. Spreads make it possible to hedge any position you might have in the market. Whether you are hedging between physical ownership and futures, or between two futures positions, the risk is lower than that of outright futures. In that sense, every spread is a hedge.
Spread order entry enables you to enter or exit a trade using an actual spread order, or by independently entering each side of the spread (legging in/out).
Spreads are one of the few ways to obtain decent fills by legging in/out during the market Closing.
Live data is not needed for spread trading, saving you $$ in exchange fees.
You will not be the victim of stop running when using Intramarket spreads.
What Can You Expect?
Here is an example of what you can expect from Intramarket spread trading. We think you may be pleasantly surprised!!
This spread was entered not only on the basis of seasonality, but also by virtue of the formation known as a Ross hook (Rh). The spread moved from -69.0 to -7.5 = $3,075 per contract. The margin required to put on this spread was only $608, thus the return on margin is more than 500%.
Here is an example of an Intermarket spread. Look at the the following chart: Would you want to have been long live cattle from December until February?
But, what about a spread between Live Cattle and Feeder Cattle?
The spread moved from -10,200 to -7,200 = $3,000 per contract. The margin required to put on this spread was only $540. The return on margin is more than 550%.
Lastly, we show you another intermarket spread. This one was made between Euro and British Pound. Although you might have made money on a Euro trade, you would have suffered from serious whipsaw during the entire length of the trade.
What about a spread between the Euro and the British Pound?
You didn’t have to be in this spread for very long in order to take some fat profits: During February the spread moved from $32,500 to $36,187.50 = $3,687.50 per contract.
Futures spread trading is probably the most profitable, yet safest way to trade futures. Almost every professional trader uses spreads to optimize his profits. Trading spreads offers many advantages which make it the perfect trading instrument, especially for beginners and traders with small accounts (less than $10,000).
The following example of a Soybean-Spread shows the advantages of futures spread trading:
Example: Long May Soybeans (SK3) and Short November Soybeans (SX3)
Four Advantages of Futures Spread Trading
Advantage 1: Easy to trade
Do you see how nicely this spread starts trending in mid February? Whether you are a beginner or an experienced trader, whether you use chart formations or indicators, the existence of a trend is obvious. (If you are looking for a concept of how to identify a trend, we strongly recommend visiting http://www.tradingeducators.com/?source=Tradejuicetrading_philosophy.htm). Spreads tend to trend much more dramatically than outright futures contracts. They trend without the interference and noise caused by computerized trading, scalpers, and market movers.
Advantage 2: Low Margin requirements
Many spreads have reduced margin requirements, which means that you can afford to put on more positions. While the margin on an outright futures position in corn is $540, a spread trade in corn requires only $135 — 25% as much. That’s a great advantage for traders with a small account. With a $10,000 trading account risking 8% of your account, you can enter 6 corn spreads, instead of only 1-2 outright corn futures trade. How’s that for leverage?
Advantage 3: Higher return on margin
Each point in the spread carries the same value ($50) as each point in the outright futures ($50). That means that on a 3 point favorable move in corn futures or a 3 point favorable move in the spread, you would earn $150. However, the difference in return on margin is extraordinary:Corn futures - $150/$540 = 27.8% returnCorn spread - $150/$135 = 111% returnAnd keep in mind that you can trade 6 times as many spread contracts as you can outright futures contracts. In our example you would achieve a 24 times higher return on you margin.
Advantage 4: Low time requirements
You don’t have to watch a spread all day long. You do not need real-time data. The most effective way to trade spreads is using end-of-day data. Therefore, spread trading is the best way to trade if you do not want to watch or cannot watch your computer all day long (i.e. because you have a daytime job). And you can save all the money you would have had to spend for real-time data systems (up to $600 per month).So where is the catch?If futures spread trading is so fantastic, why does it seems that hardly anybody trades spreads? Well, it is not true that hardly anybody trades spreads: the professional traders do, every day. But either by accident or design, the whole truth of spread trading has been hidden from the public over the years.The purpose of this website is to inform you about futures spread trading. In the following we will answer the four frequently asked questions:
What is a spread?
Why trade spreads?
What can you expect when trading spreads?
What Is a Spread?
A spread is defined as the sale of one or more futures contracts and the purchase of one or more offsetting futures contracts. You can turn that around to state that a spread is the purchase of one or more futures contracts and the sale of one or more offsetting futures contracts. A spread is also created when a trader owns (is long) the physical vehicle and offsets by selling (going short) futures. Furthermore, a spread is defined as the purchase and sale of one or more offsetting futures contracts normally recognized as a spread by the fact that the two sides of the spread are actually related in some way. This explicitly excludes those exotic spreads put forth by some vendors, which are nothing more than computer generated coincidences which are not in any way related. Such exotic spreads as Long Bond futures and Short Bean Oil futures may show up as reliable computer generated spreads, but bean oil and bonds are not really related. Such spreads fall into the same category as believing the annual performance of the U.S. stock market is somehow related to the outcome of the Super Bowl sporting event. In any case, for tactical reasons in carrying out a particular strategy, you want to end up with:
simultaneously long futures of one kind in one month, and short futures of the same kind in another month. (Intramarket Calendar Spread)
simultaneously long futures of one kind, and short futures of another kind. (Intermarket Spread)
long futures at one exchange, and short a related futures at another exchange. (Inter-exchange Spread)
long an underlying physical commodity, and short a futures contract. (Hedge)
long an underlying equity position, and short a futures contract. (Hedge)
long financial instruments, and short financial futures. (Hedge)
long a single stock futures and short a sector index.
The primary ways in which this can be accomplished are:
Via an Intramarket spread.
Via an Intermarket spread.
Via an Inter-exchange spread.
By ownership of the underlying and offsetting with a futures contract.
Intramarket Spreads
Officially, Intramarket spreads are created only as calendar spreads. You are long and short futures in the same market, but in different months. An example of an Intramarket spread is that you are Long July Corn and simultaneously Short December Corn.
Intermarket Spreads
An Intermarket spread can be accomplished by going long futures in one market, and short futures of the same month in another market. For example: Short May Wheat and Long May Soybeans.Intermarket spreads can become calendar spreads by using long and short futures in different markets and in different months.
Inter-Exchange Spreads
A less commonly known method of creating spreads is via the use of contracts in similar markets, but on different exchanges. These spreads can be calendar spreads using different months, or they can be spreads in which the same month is used. Although the markets are similar, because the contracts occur on different exchanges they are able to be spread. An example of an Inter-exchange calendar spread would be simultaneously Long July Chicago Board of Trade (CBOT) Wheat, and Short an equal amount of May Kansas City Board of Trade (KCBOT) Wheat. An example of using the same month might be Long December CBOT Wheat and Short December KCBOT Wheat.
Why Spreads?
The rationale behind spread trading is one of the best-kept secrets of the insiders of the futures markets. While spreading is commonly done by the market "insiders," much effort is made to conceal this technique and all of its benefits from "outsiders," you and me. After all, why would the insiders want to give away their edge? By keeping us from knowing about spreading, they retain a distinct advantage.Spreading is one of the most conservative forms of trading. It is much safer than the trading of outright (naked) futures contracts. Let’s take a quick look at some of the benefits of using spreads:
Intramarket, and some Intermarket, spreads require considerably less margin, typically around 25% - 75% of the margin needed for outright futures positions.
Intramarket, and some Intermarket, spreads offer a far greater return on investment than is possible with outright futures positions. Why? Because you are posting less margin for the same amount of possible return.
Spreads, in general, trend more often than do outright futures.
Spreads often trend when outright futures are flat.
Spreads can be filtered by virtue of seasonality, backwardation, and carrying charge differentials, in addition to any other filters you might be using in your trading.
Spreads can be used to create partial futures positions. In fact, virtually anything that can be done with options on futures can be accomplished via spread trading.
Spreads allow you to take less risk than is available with outright futures positions. The amount of risk between two Intramarket futures positions is usually less than the risk in an outright futures position. The risk between owning the underlying and holding a futures contract involves the least risk of all. Spreads make it possible to hedge any position you might have in the market. Whether you are hedging between physical ownership and futures, or between two futures positions, the risk is lower than that of outright futures. In that sense, every spread is a hedge.
Spread order entry enables you to enter or exit a trade using an actual spread order, or by independently entering each side of the spread (legging in/out).
Spreads are one of the few ways to obtain decent fills by legging in/out during the market Closing.
Live data is not needed for spread trading, saving you $$ in exchange fees.
You will not be the victim of stop running when using Intramarket spreads.
What Can You Expect?
Here is an example of what you can expect from Intramarket spread trading. We think you may be pleasantly surprised!!
This spread was entered not only on the basis of seasonality, but also by virtue of the formation known as a Ross hook (Rh). The spread moved from -69.0 to -7.5 = $3,075 per contract. The margin required to put on this spread was only $608, thus the return on margin is more than 500%.
Here is an example of an Intermarket spread. Look at the the following chart: Would you want to have been long live cattle from December until February?
But, what about a spread between Live Cattle and Feeder Cattle?
The spread moved from -10,200 to -7,200 = $3,000 per contract. The margin required to put on this spread was only $540. The return on margin is more than 550%.
Lastly, we show you another intermarket spread. This one was made between Euro and British Pound. Although you might have made money on a Euro trade, you would have suffered from serious whipsaw during the entire length of the trade.
What about a spread between the Euro and the British Pound?
You didn’t have to be in this spread for very long in order to take some fat profits: During February the spread moved from $32,500 to $36,187.50 = $3,687.50 per contract.
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