Introduction to Futures

I am frequently asked why a person would want toor to meet the margin call. To meet the margin call the
trade futures. I can think of numerous reasons.trader would need to send funds that would bring his
However it all boils down to hedging or speculating.account balance back up to the level of the "initial
For those of you who are not aware of the futuresmargin". On the other hand, profits from trades can be
market, a futures contract is an agreement betweenused as margin for newly established positions.
two people. The purchaser of the contract agrees toIf you would like to trade futures contracts or options
take delivery of a standardized amount of aon those contracts, you need to open a futures trading
commodity at a specific price and by a specific date.account. This account can be opened with a Futures
The standardized commodity might be corn, gold or aCommission Merchant or an introducing broker for that
basket full of stocks. The seller of the contract agreesFCM. A "FCM" is a firm that is licensed by the U.S.
to make delivery of a standardized amount of aCommodity Futures Trading Commission to solicit or
commodity, at a specific price and by a specific date.accept orders for the purchase or sale of futures
Hedgers are people who are attempting to protectcontracts.
themselves. For instance, farmers producing a cropMost FCM's and Introducing Brokers offer three levels
might consider selling a futures contract to lock in aof service. At Extra Mile Trading LLC we offer those
price for their crop. A plastics manufacturer fearful thatthree levels of service.
the price of petroleum might trade higher might1. Full Service. This is where you would receive
consider purchasing crude oil futures as a way toassistance from a broker in identifying opportunities in
partially hedge his costs for raw materials. Orthe market and placing your orders.
mortgage bankers, concerned that interest rates might2. Self Directed or Discount online trading. This is
decline might consider buying 30-year treasury bondwhere you select your own trades and enter your
futures. The futures markets have many products andown orders.
contracts that might offer users and producers3. Managed Accounts. This is where a Commodity
protection from price swings in the cash markets.Trading Advisor has power of attorney over your
People who anticipate a price swing in the marketsaccount. He would identify opportunities in the market
and attempt to profit from it through the purchase orand enter and exit the trades for you.
sale of futures contracts or options on those contractsIf you would like more information on opening a futures
would be speculators. For example, a person whotrading account, on the futures markets or on Extra
thinks that inflation is rearing its ugly head mightMile Trading LLC, visit out website at Or call Les Jones
consider buying gold futures. A person who feels thatat 1 (866) 553-5225.
the stock market is too high or too low might considerDISCLAIMER: FUTURES AND COMMODITIES
buying or selling any one of a number of stock indexTRADING INVOLVES SIGNIFICANT RISK AND IS
futures. The futures markets offer an e-mini S&P, anNOT SUITABLE FOR EVERY INVESTOR. THIS
e-mini Dow Jones and an e-mini NASDAQ futuresNEWSLETTER IS STRICTLY THE OPINION OF ITS
contracts just to name a few. The "e" in e-miniAUTHOR AND IS INTENDED FOR INFORMATIONAL
denotes that the contract is electronically traded on thePURPOSES AND IS NOT TO BE CONSTRUED AS
internet. The "mini" in e-mini denotes that the contract isAN OFFER TO SELL OR A SOLICITATION TO BUY
a smaller contract than the full size contract andOR TRADE IN ANY COMMODITY OR SECURITY
consequently it might have a smaller margin. TradersMENTIONED HEREIN. INFORMATION IS OBTAINED
should also note that there is a "mini" contract withoutFROM SOURCES BELIEVED RELIABLE, BUT IS IN
the "e" that is pit traded as is the case for instanceNO WAY GUARANTEED. THE AUTHOR MAY
with the mini grains.HAVE POSITIONS IN THE MARKET MENTIONED
One of the main reasons people trade futures isINCLUDING AT TIMES POSITIONS CONTRARY TO
leverage. Futures contracts are bought and sold onTHE ADVICE QUOTED HEREIN. OPINIONS,
margin. Traders are able to control a large amount ofMARKET DATA AND RECOMMENDATIONS ARE
a commodity or cash instrument with a comparativelySUBJECT TO CHANGE AT ANY TIME. PAST
small amount of capital. Margins are determined by theRESULTS ARE NOT INDICATIVE OF FUTURE
futures exchanges. They look at the size of theRESULTS.eXtra Mile Trading, LLC wants you to know
contract, the volatility of the market and other things tothat there are substantial risks involved in trading
try to determine the risk involved. Margins may risefutures. You should, therefore, carefully consider
and fall as the volatility increase or decreases.whether trading is suitable for you in light of your
When a trader buys or sells a futures contract, theycircumstances and financial resources. Traders should
are required to put up the "initial margin" by the close ofnot rely solely on any one particular tool for investing
business. The following day the margin will revert totrading. Many unforeseen circumstances can occur
the "maintenance margin". As the price of a futureswhich affect investing/trading and their outcomes.
contract rises and falls, profits and losses are added orInvesting, trading, and especially day trading carry with
subtracted from a traders account at the close ofthem substantial and significant risks. Investors/traders
business. This is called "marked to market". If a tradersshould be prepared to sustain a partial or COMPLETE
account balance drops below the "maintenanceloss of their trading capital. In some cases, losses can
margin" level, at the close of business, then the traderexceed initial investment. eXtra Mile Trading, LLC does
is issued a "margin call". At that point the trader has tonot guarantee any trading results. Past results do not
decide whether to accept the loss and exit the positionimply future performance.