The Complete Guide to Futures Trading

313 Pages·2005·6.38 MB·English

The Complete
Guide to
Futures Trading
What You Need to Know about
the Risks and Rewards
REFCO PRIVATE
CLIENT GROUP
John Wiley & Sons, Inc.
The Complete
Guide to
Futures Trading
The Complete
Guide to
Futures Trading
What You Need to Know about
the Risks and Rewards
REFCO PRIVATE
CLIENT GROUP
John Wiley & Sons, Inc.
Copyright © 2005 by Refco Private Client Group. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form
or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as
permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior
written permission of the Publisher, or authorization through payment of the appropriate per-copy
fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400,
fax [phone], or on the web at www.copyright.com. Requests to the Publisher for permission
should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street,
Hoboken, NJ 07030, 201-748-6011, fax [phone], or online at www.wiley.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and the author have used their best
efforts in preparing this book, they make no representations or warranties with respect to the
accuracy or completeness of the contents of this book and specifically disclaim any implied
warranties of merchantability or fitness for a particular purpose. No warranty may be created or
extended by sales representatives or written sales materials. The advice and strategies contained
herein may not be suitable for your situation. You should consult with a professional where
appropriate. Neither the publisher nor the author shall be liable for any loss of profit or any other
commercial damages, including but not limited to special, incidental, consequential, or other damages.
FUTURES TRADING INVOLVES THE SUBSTANTIAL RISK OF LOSS AND IS NOT SUITABLE FOR
ALL INVESTORS.
Designations used by companies to distinguish their products are often claimed by trademarks. In all
instances where the author or publisher is aware of a claim, the product names appear in Initial
Capital letters. Readers, however, should contact the appropriate companies for more complete
information regarding trademarks and registration.
For general information about our other products and services, please contact our Customer Care
Department within the United States at 800-762-2974, outside the United States at 317-572-3993 or
fax [phone].
Wiley also publishes its books in a variety of electronic formats. Some content that appears in print
may not be available in electronic books. For more information about Wiley products, visit our web
site at www.wiley.com.
Library of Congress Cataloging-in-Publication Data:
The complete guide to futures trading : what you need to know about the
risks and rewards.
p. cm.
“The author is under a company’s name: Refco Private Client Group.”
ISBN-13 978-0-471-48802-6 (pbk.)
ISBN-10 0-471-48802-X (pbk.)
1. Financial futures. I. Refco Private Client Group.
HG6024.3.C67 2005
332.64'52—dc22 2005003024
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
Contents
Foreword ix
Preface xi
About the Contributors xiii
CHAPTER 1 Futures: The Investment for the Twenty-First Century 1
Mark Sachs
Historical Roots 2
What Futures Are 2
What Futures Are Not 4
Who Trades Futures? 9
Making Your Choice 11
CHAPTER 2 Becoming a Futures Trader 13
Dan McMullin
Trading Decision Issues 14
Fundamental Analysis Highlights 18
Technical Analysis Highlights 25
Putting It All Together 56
CHAPTER 3 Trading with a Broker as a Partner 59
Jim Gombas
What a Broker Can Offer 59
Options versus Futures 65
Market Should Fit Strategy 66
Paper Trading, Back-Testing 67
CHAPTER 4 Letting the Pros Trade Your Account 69
Carol Dannenhauer
Why Managed Futures? 70
Where Do You Start? 74
v
vi CONTENTS
Evaluating Trading Programs 76
Investing in Managed Futures 80
CHAPTER 5 Using an Auto-Executing Trading System 83
Herb Kral
Why an Auto-Executing Trading System? 83
Look at Yourself First 85
What to Look for in a Trading System 86
Why “Successful” Systems May Fail 88
Summing up Systems 89
CHAPTER 6 Resources for the Self-Directed Trader 91
David Howe
Brokerage Firm Choice 91
Trading Platform 93
Trading Support Tools 95
Match Resources to Your Needs 98
CHAPTER 7 Knowing Your Margins and Marching Orders 99
Greg Gulotta
Trading on Margin 99
Order Types 101
Placing Orders 108
Tips about Trading Mechanics 110
Connectivity Issues and Questions 113
CHAPTER 8 Futures: Diverse Markets You Can Trade 115
Susan Abbott Gidel
Equity-Based Futures 117
Financial Instruments 122
Commodities 127
CHAPTER 9 Options on Futures: A Flexible Trading Tool 139
Dan McMullin
Issues to Consider When Investing in Futures Options 140
Mechanics of Futures Options 144
Basic Futures Options Strategies 151
Contents vii
CHAPTER 10 Forex: Another Opportunity for Traders 167
Phillip Fondren
What Is the Forex Market? 167
Exchange Rates and Central Banks 171
The Trading Instrument 172
Spot Market versus Futures Market 176
Electronic Trading 177
Costs of Trading 178
CHAPTER 11 Deciding to Trade 181
Mark Sachs
The Money Factor 181
Time for Trading 183
Knowing the Market 183
Who Are You? 183
Your Trading Plan 184
Picking a Brokerage Firm 186
CHAPTER 12 Opening an Account 189
Nancy Westwick
Opening Account Information 190
Risk Disclosures 190
Type of Account 192
Power of Attorney 193
Customer Identification (Patriot Act Requirements) 193
Single-Stock Futures 193
Account Funding Requirements 194
Margin Calls 194
Resolving Disputes 195
CHAPTER 13 The Tax Factor for Traders 197
Philip Silverman
Section 1256 Contracts 197
How to Report Gains or Losses 199
Special Considerations 201
viii CONTENTS
CHAPTER 14 The Business of Futures: Who Does What 203
Laura Oatney
Regulatory Structure 203
Futures Exchanges 205
Clearinghouses 205
Futures Industry Professionals 207
APPENDIX A Domestic and International Futures
Contract Volume 211
APPENDIX B Futures Contract Specifications 251
APPENDIX C Speculative Margins 269
Glossary 273
Index 289