Teacher and consultant to the futures industry since 1983
Teacher and consultant to the
futures industry since 1983
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Items you need to improve and protect your FCM or IB... 1. Very important and useful forms and letters for different applications for the FCM and the Introducing Broker. Visit our "forms" page. |
MORE TRADING FAQs Q. From Chester K.(Location: Jefferson City): I just saw the article in Forbes called "Seasonal Suckers". The article has a side-bar article called; "Commodity Shark" about even more abuse by so-called experts in this field. Goes to prove that the business is full of scam artists... I'm going back to trading stocks! A. I'll bet your futures trading didn't go too well. I am sorry to hear the bitterness in your letter, but when a person loses money it isn't easy. As before, I can't comment on any one trading program or trading course. I believe that whether good or bad, each course can teach you something and is another tool to increase knowledge. The problem is that these courses can be very expensive, and if you use only one source of input to form your trading plan, you are making a big mistake. Before you trade, you must work hard to develop a method and style that is right for you. The results of thinking that futures trading is easy and that all one has to do is read the paper to make trading decisions, is shown above. Trading is a job! You must take it seriously and do your research or your are throwing your money away. I am sorry that your experience was a bad one Chester, but don't generalize about us or our industry. Q. From Marla S.(Location: Bridgeport): I got your video on option buying, from the ad I saw on CNN. I have had an interest in starting to trade commodities and options. I have traded some stock options, but not futures, are they done the same? A. In many ways yes, and in a few, no. With the securities options, the "underlying" is usually 100 shares of the stock, and the cost to buy or write the options is the premium times 100. In futures options, the "underlying" is a futures contract, not the commodity itself. In other words, if you exercise a call option on a soybean futures, you will receive a long futures position, not 5,000 bushels of soybeans. The other main difference is that the cost of the option is the premium times the contract size. So if you buy a soybean option for 10 cents, it is 10 cents times 5,000 bushels, or $500. There are other considerations you should look at before trading futures options of course, but these are two main differences. If you have specific questions, call me or email and I will help the best I can. Q. From Donald O.(Location: Newport News): I have been solicited several times to consider futures and options trading. I genuinely want to get the best advice about opening an account before I do. I don't want to open an account then regret that I did. I appreciate the free help you have given me on your web pages. You make the whole experience sound exciting. Do you handle customer accounts, I would like to open an account with you. A. Donald, thank you for the nice words. I no longer handle accounts as my compliance work keeps me quite busy and I couldn't devote the time necessary to give my customers the attention they deserve. I do get the feeling I would like to get behind the quote machine again once-in-a-while though. I am glad the web pages have helped, and, as I always say, if you desire more specific information, please feel free to call. Thanks again. Q. From Norm L.(Location: Duluth): A friend of mine wants to trade with me and wants me to control his account. How can I do this if I am not registered? Is there a way? A. There are actually two ways Norm. First you could simply have Power-Of-Attorney over his account. As he fills out the paperwork from the FCM, he will sign the power to trade the account over to you. Then you can make arrangements with him to pay you. The other way would be to pool your accounts together and have a joint account. It depends upon what type of arrangement you wish to have, and how you would like to be paid for your services. Q. From Teri M.(Location: Daytona): How much money is really necessary to open a commodities account? A. You could open and account for the price of an option plus the commission fees you are charged, so I guess that could be for a few hundred dollars. It certainly isn't prudent though. If you plan to make a serious attempt at trading, then the bigger the account, the better chance you have at being one of the winners. It is a matter of diversity and "staying" power. As a futures representative, I even discouraged $5,000 accounts. I am one who believes that you need an account of at least (very least) $10,000 to make a good attempt. I know others will try to get you to open for smaller amounts, but I would be wary of any solicitations from people that suggest anything less than $5,000. Good luck, and be careful. Q. From Ron S.(Location: Milwaukee): Could you explain a "fence" trade? A. Well Ron, you've been hangin' around hedgers.. right? A "fence" is used in hedging to establish a price for a product. It actually sets a maximum and minimum that one can receive for their cash product. It involves buying puts at a certain strike price (establishes the minimum price) and selling calls at a higher strike price (establishes the maximum price). The money from selling the calls can be used to buy the puts, and therefore, although not exact, the trade to set the price basically costs nothing. If you are a hedger, call me and I can go into greater detail. Q. From Luke H.(Location: Boca Raton): I have been faxing the account opening documents to prospects to open accounts. I was told this is against the rules is that true? A. No, it isn't against the rules per se. It is however up to the FCM and the Introducing Broker you work for. This can be a touchy area when a customer brings a complaint. The customer could say they never received the risk disclosure portion of the forms since you only faxed the signature pages. The proper procedure (if your FCM and IB allow it, and don't argue if they don't... they are just trying to stay out of any potential problems), is to fax ALL the pages to the prospect. Then instruct the prospect to sign the proper locations, AND to initial the top of every page before faxing them back. The originals should then be sent by regular mail (or overnight) so the FCM has the originally signed documents at some point. Q. From R.J. C.(Location: Miami): I took your advice from when we spoke and started writing options. This premium income is great and I just wanted to let you know your ideas worked, Thanks? A. I really appreciate the email R.J., but I hope you are also remembering the risks we talked about. Don't get complacent and over-trade, and don't get over confident. As I said, there are potholes in even the smoothest of roads. There will be some losses, and if you are not on top of your trades, they can be devastating. I don't mean to be a downer, just the voice of reason saying stick with the discipline and things can go well. I am glad it's working, stay with it and be careful. Q. From Evan B.(Location: Toledo): I have been told, by you and everyone else, to cut my losses and let my profits run. I have done well at cutting my losses, but think of the conflict you cause on the other side. You say take your profits, but you also say let your profits run... which should I do? A. That's a good one Evan. It does seem that letting your profits run and taking profits is a contradiction, and in a way I guess it is, but think of this. If you have carefully planned your trade, you are expecting a reward at least three times greater than the risk you are willing to take. So don't jump out of your trade if you get just a portion of that reward. Stay with your trade the way you planned it, and follow your profits with a trailing stop. If you are trading a single contract and your reach your original goal, just tighten the stop and stay with the position, or liquidate it if you are shaky about the move continuing. If, on the other hand, you have multiple contracts, then when you reach your intended target, close at least half of the contracts and let the others continue to move with a tight trailing stop. Q. From Marie T.(Location: Las Vegas): In my trading plan (using pure technical with a program I developed), I can follow many contracts. You said a person should specialize, and I feel like I am breaking some sort of rule by trading several families of commodities. Should I narrow my field and trade only the contracts that respond best to the program? A. Not at all Marie. If you are getting good results from your system and feel comfortable trading several families of commodities, stick with it. If you find a contract or family that is starting to give you problems, then refine the program for it or abandon it for a time, but when all is going well and you are happy with your performance, have fun, and I wish you great profits. Q. From Michael L.(Location: Columbus Nebraska): I have developed a trading system using Omega Trade Station. I have what I believe is a good signal generator, but the back-testing is a problem. I have some data for about two years, but would like to check back about five or six years. I have checked around and found that the companies that offer data for sale charge $400 to $700 and I was wondering if you knew of any less expensive sources? A. I really don't. Two observations though. First, if you have back-tested for two years, you have tested the most recent market conditions. The markets constantly evolve and reactions to events change. That means that the most important information you can get is the information that is most current. If you will be using the system only for yourself, then you may not need more than two years of back-testing. If you are developing a hypothetical track record for a CTA disclosure document, then you probably would like it to show at least five years. The second observation, and probably the most important... would even $1,000 be too expensive if it could save you tens or hundreds of thousands later when you actually begin trading? Q. From Greg T.(Location: Modesto California): It sure is easy to lose money trading! I ain't blaming anyone but myself, and you! I started trading with $7,500 and now have a grand total of $467 in my account. I blame myself since I did all the trades, and I blame you cause you didn't have your "tip-of-the-week" feature for me to go by when all this happened. I wish I had the chance to see that information along with the FAQ section before I started. I now realize that I was like a blind person walking into a viper pit. I love the futures "game" and will do it again, but I will be counting on you for the great help. A. Wow, you scared the bajibbies out of me. I thought it was time to run for cover. I too wish I could have been of help, and will gladly do all I can to help you not have that happen again. You have a great attitude, and if you have the risk capital to try again, good luck. Q. From Frank A.(Location: Buffalo): I am a long time trader of about 25 years, and I am anxious each week to see your tip of the week. I sometimes slip into the "I know it all" mode, and the losses start to come hot and heavy. Then I read the tips and realize that it is time to get back to basics. Your site is like the two-by-four that smacks me up-side the head once in a while to bring me back to reality, Thanks. A. Two great letters in a row... I posted these because they pat me on the back (I got the ego too), but also they are, in themselves, very helpful tips. Hopefully they will help many of you out there to know that you simply MUST learn before you trade, and always stick to the basics. Get in touch with us by
email.
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