| I am frequently asked why a person would want | | | | point the trader has to decide whether to |
| to trade futures. I can think of numerous | | | | accept the loss and exit the position or to |
| reasons. However it all boils down to hedging | | | | meet the margin call. To meet the margin call |
| or speculating. | | | | the trader would need to send funds that |
| | | | would bring his account balance back up to |
| For those of you who are not aware of the | | | | the level of the "initial margin". On the |
| futures market, a futures contract is an | | | | other hand, profits from trades can be used |
| agreement between two people. The purchaser | | | | as margin for newly established positions. |
| of the contract agrees to take delivery of a | | | | |
| standardized amount of a commodity at a | | | | If you would like to trade futures contracts |
| specific price and by a specific date. The | | | | or options on those contracts, you need to |
| standardized commodity might be corn, gold or | | | | open a futures trading account. This account |
| a basket full of stocks. The seller of the | | | | can be opened with a Futures Commission |
| contract agrees to make delivery of a | | | | Merchant or an introducing broker for that |
| standardized amount of a commodity, at a | | | | FCM. A "FCM" is a firm that is licensed by |
| specific price and by a specific date. | | | | the U.S. Commodity Futures Trading Commission |
| | | | to solicit or accept orders for the purchase |
| Hedgers are people who are attempting to | | | | or sale of futures contracts. |
| protect themselves. For instance, farmers | | | | |
| producing a crop might consider selling a | | | | Most FCM's and Introducing Brokers offer |
| futures contract to lock in a price for their | | | | three levels of service. At Extra Mile |
| crop. A plastics manufacturer fearful that | | | | Trading LLC we offer those three levels of |
| the price of petroleum might trade higher | | | | service. |
| might consider purchasing crude oil futures | | | | |
| as a way to partially hedge his costs for raw | | | | 1. Full Service. This is where you would |
| materials. Or mortgage bankers, concerned | | | | receive assistance from a broker in |
| that interest rates might decline might | | | | identifying opportunities in the market and |
| consider buying 30-year treasury bond | | | | placing your orders. |
| futures. The futures markets have many | | | | |
| products and contracts that might offer users | | | | 2. Self Directed or Discount online trading. |
| and producers protection from price swings in | | | | This is where you select your own trades and |
| the cash markets. | | | | enter your own orders. |
| | | | |
| People who anticipate a price swing in the | | | | 3. Managed Accounts. This is where a |
| markets and attempt to profit from it through | | | | Commodity Trading Advisor has power of |
| the purchase or sale of futures contracts or | | | | attorney over your account. He would identify |
| options on those contracts would be | | | | opportunities in the market and enter and |
| speculators. For example, a person who thinks | | | | exit the trades for you. |
| that inflation is rearing its ugly head might | | | | |
| consider buying gold futures. A person who | | | | If you would like more information on opening |
| feels that the stock market is too high or | | | | a futures trading account, on the futures |
| too low might consider buying or selling any | | | | markets or on Extra Mile Trading LLC, visit |
| one of a number of stock index futures. The | | | | out website at Or call Les Jones at 1 (866) |
| futures markets offer an e-mini S&P, an | | | | 553-5225. |
| e-mini Dow Jones and an e-mini NASDAQ futures | | | | |
| contracts just to name a few. The "e" in | | | | DISCLAIMER: FUTURES AND COMMODITIES TRADING |
| e-mini denotes that the contract is | | | | INVOLVES SIGNIFICANT RISK AND IS NOT SUITABLE |
| electronically traded on the internet. The | | | | FOR EVERY INVESTOR. THIS NEWSLETTER IS |
| "mini" in e-mini denotes that the contract is | | | | STRICTLY THE OPINION OF ITS AUTHOR AND IS |
| a smaller contract than the full size | | | | INTENDED FOR INFORMATIONAL PURPOSES AND IS |
| contract and consequently it might have a | | | | NOT TO BE CONSTRUED AS AN OFFER TO SELL OR A |
| smaller margin. Traders should also note that | | | | SOLICITATION TO BUY OR TRADE IN ANY COMMODITY |
| there is a "mini" contract without the "e" | | | | OR SECURITY MENTIONED HEREIN. INFORMATION IS |
| that is pit traded as is the case for | | | | OBTAINED FROM SOURCES BELIEVED RELIABLE, BUT |
| instance with the mini grains. | | | | IS IN NO WAY GUARANTEED. THE AUTHOR MAY HAVE |
| | | | POSITIONS IN THE MARKET MENTIONED INCLUDING |
| One of the main reasons people trade futures | | | | AT TIMES POSITIONS CONTRARY TO THE ADVICE |
| is leverage. Futures contracts are bought and | | | | QUOTED HEREIN. OPINIONS, MARKET DATA AND |
| sold on margin. Traders are able to control a | | | | RECOMMENDATIONS ARE SUBJECT TO CHANGE AT ANY |
| large amount of a commodity or cash | | | | TIME. PAST RESULTS ARE NOT INDICATIVE OF |
| instrument with a comparatively small amount | | | | FUTURE RESULTS.eXtra Mile Trading, LLC wants |
| of capital. Margins are determined by the | | | | you to know that there are substantial risks |
| futures exchanges. They look at the size of | | | | involved in trading futures. You should, |
| the contract, the volatility of the market | | | | therefore, carefully consider whether trading |
| and other things to try to determine the risk | | | | is suitable for you in light of your |
| involved. Margins may rise and fall as the | | | | circumstances and financial resources. |
| volatility increase or decreases. | | | | Traders should not rely solely on any one |
| | | | particular tool for investing/trading. Many |
| When a trader buys or sells a futures | | | | unforeseen circumstances can occur which |
| contract, they are required to put up the | | | | affect investing/trading and their outcomes. |
| "initial margin" by the close of business. | | | | Investing, trading, and especially day |
| The following day the margin will revert to | | | | trading carry with them substantial and |
| the "maintenance margin". As the price of a | | | | significant risks. Investors/traders should |
| futures contract rises and falls, profits and | | | | be prepared to sustain a partial or COMPLETE |
| losses are added or subtracted from a traders | | | | loss of their trading capital. In some cases, |
| account at the close of business. This is | | | | losses can exceed initial investment. eXtra |
| called "marked to market". If a traders | | | | Mile Trading, LLC does not guarantee any |
| account balance drops below the "maintenance | | | | trading results. Past results do not imply |
| margin" level, at the close of business, then | | | | future performance. |
| the trader is issued a "margin call". At that | | | | |