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Trading in the futures market is not for everyone and is inherently riskier than trading options or stocks.

The Futures Market

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THE FUTURES MARKET

     Futures trading is what I might call trading in a parallel universe.  The word Futures comes into play because you are buying or selling a contract today, that, if held past expiration day in the future, obligates you then (and only then) to buy/sell the stock or commodity.  Until that point you have no obligation, you may buy and sell futures contracts the same day or several days later or hold to expiration.  Since you don't want to buy the stock or receive 10,000 bushels of corn in your driveway, we never hold them past expiration.

     Note: I personally am not a big futures trader preferring stock and options trading. Almost all (99%) of my trading is in options. However, futures traders read the same charts I do the same way I do. The risk are different in each type of trading.

     Futures trading, since it is heavily leveraged as explained below, is not for everyone.  It is possible to lose more than your original investment.

     "Single stock futures (SSF) are futures contracts on individual stocks. A single stock futures contract is an agreement to deliver 100 shares of a specific stock at a designated date in the future called the expiration date (unless of course you sold it beforehand, you have no obligation unless you are holding that contract after the expiration date).** In most cases, four expiration dates are available for trading  single stock futures.

     Margin requirements are generally 20% of the cash value of contract, although this requirement may be lower if the investor also holds certain offsetting positions in cash equities, stock options or other security futures in the same securities account.  (Unlike options, with SSFs it is possible to lose more than your investment because of the margin rules.  You MUST understand margin rules and risk before you trade futures.)

     Because there is no uptick rule for  products, you can establish a short position on a downtick. Short sellers may also benefit from eliminating the costs and inefficiencies associated with the stock loan process.


     Security futures is the term used to collectively describe futures on individual stocks, narrow-based indexes and Exchange Traded Funds (ETFs). These products are now trading in the U.S. and represent an important new tool for professional traders. Security futures enable money managers, proprietary trading operations and other investors to efficiently execute a variety of trading strategies for U.S. listed equities.

     When a security future is traded, both the buyer and seller put up a good faith deposit called margin. Margin requirements are generally 20% of the cash value of contract, although this requirement may be lower if the investor also holds certain offsetting positions in cash equities, stock options or other security futures in the same securities account.

     Single stock futures (SSF) are futures contracts on individual stocks. www.onechicago.com lists futures on more than 85 well-known stocks such as IBM, Qualcomm and Microsoft. In late 2000, the U.S. Congress passed legislation lifting the ban on these products, which were already trading in Europe and elsewhere.

     A single stock futures contract is an agreement for delivery of shares of a specific stock at a designated date in the future, called the expiration date. The size of a single stock futures contract is 100 shares of the underlying stock.

     Narrow-based indexes (NBI) are futures contracts on small groups of stocks that allow an investor to take a position in a concentrated area of the equities market. OneChicago offers futures on Dow Jones MicroSector IndexesSM which each contain 5 stocks in a focused industry sector such as Aerospace, Banking, Biotechnology and Semiconductors.

     ETF Futures are futures contracts on Exchange Traded Funds. They have similar characteristics to single stock futures, although the underlying security is the fund itself rather than common stock in a specific company. Thus at expiration, the deliverable assets are shares in the underlying ETF."

source:  www.onechicago.com  ** Comments in parenthesis and italicized are mine. 

     The "fair value" quoted on TV refers to the relationship between the futures contract on a market index and the actual value of the index. If the futures are above fair value then traders are betting the market index will go higher, the opposite is true if futures are below fair value.


    Either you know what you're doing or not. Face it, the more you know, the better your decisions.

     Like options trading, trading futures may not be for everyone. There is risk involved and you should have a solid grasp of the rules and risk associated with trading SSFs or any futures contract.  Consult your investment professional. 

     Don't even try futures if you don't understand the basics, the risk, and the effects of margin and leverage.

The links below have very good educational material regarding Futures.  In an overall education regarding the markets you need to be aware of what the futures market is and how it affects all the markets.
cme.com or onechicago.com

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