Trade S&P Futures and Dow Futures.S&P futures contracts are valued in ticks worth 0.1 index points or $25. Regular trading hours for S&P futures contracts are from 8:30 A.M to 3:15 PM. S&P futures contracts are another example of how 24 hours a day trading enables traders to respond to economic news releases in pre-market and after-market sessions.Know candlestick charting.
The evening session starts at 3:30 PM (15 minutes after the close) and continues on the Globex until 8:15 AM overnight. Individual contract holders are limited to no more than 20,000 net long or short contracts at any one time.
A price limit is how far an S&P futures contract can rise or fall in a single trading session. The limits are set on quarterly basis. If the index experiences major declines or increases beyond these limits, a procedure is set in place to halt trading. If these price limits are crossed, circuit breakers are triggered.
Collar Rule: The collar rule addresses price swings related to program trades that move the Dow Jones Industrial Average (DJIA) more than 2% by requiring index arbitrage orders, or orders that bet on the spread between the futures and the cash of stock indexes to be stabilizing. This limits the traders from piling buy or sell orders in an attempt to exaggerate the gains or losses of the market. What this rule does is limit the chance of huge gains or losses as a result of futures trading.
Overnight or pre-market trading can be thin and dangerous especially during slow seasons in the stock market such as summer, fall and around the winter holidays. Once you have mastered futures basics such as the performance bond margins, the mark to market requirements and the account specifics, it’s time to learn how a futures contract ticks.
Hundreds of futures contracts trade on the federally regulated futures exchanges in the United States. Each of these exchanges trade contract that are somewhat unique to it. CME’s most actively traded contracts are Eurodollar futures and S&P futures including the E-minis.
E-mini S&P Futures contracts: The E-mini S&P futures contracts (ES) are among the most popular stock index futures contract because they enable you to trade the market’s trend with only one fifth of the requirement. The E-mini S&P futures contracts (ES) are the favorites of the day traders because of its high intraday price volatility and major price swings on a daily basis.
One tick on E-min S&P futures contract is equal to 0.25 of the index point or $12.50. The value of the E-mini S&P futures contract is $50 times the value of the S&P 500 stock index. The E-mini S&P futures contract can be very volatile and can move even more aggressively during times of extreme market volatility.
Trade S&P Futures and Dow Futures.S&P Futures are the most popularly traded stock index futures contract. S&P futures contracts are traded on the Chicago Mercantile Exchange (CME). The S&P 500 stock index is a market valued weighted index of 500 large capitalized stocks traded on the New York Stock Exchange (NYSE), American Stock Exchange (AMEX) and Nasdaq National Market Executive System (NASDAQ).Learn swing trading.
The S&P 500 is made up of 400 industrial companies, 40 financial companies, 40 utilities and 20 transportation companies offering a fairly diversified view of the US economy. The S&P index introduced in 1957 is currently the investment industry’s standard for measuring portfolio performance.
The original S&P 500 futures contracts were valued at $500 times the index in the beginning. As the stock market began to surge higher in those days, the index more than doubled in three years. The value of the S&P futures contract neared $500,000. A 10 point change on the S&P 500 index was worth $5,000 with the index approaching the 1000 level.
Margin requirements for the S&P futures contract trading were very high. Many traders were ruled out of the futures market with the margin requirements for that sized contract. CME introduced an S&P futures contract that was worth $250 times the value of the index in 1997. The value of the contract was halved in order to make the S&P futures contract more accessible to traders. Now, a move of a full point is worth $250 only. Suppose the S&P 500 index value is at 1350. The value of the S&P futures contract will be ($250) (1350) = $337,500.
Earlier in that same year CME introduced another mini S&P futures contract. This news mini contract became highly popular with individual traders instantly and was a hit with the investing public. E-mini S&P futures contract is worth only $50 times the S&P 500 index and the value of this new E-mini S&P futures contract brought the initial margin requirements down to around $4,000 at that time.
Even with a margin requirement of only about 6 percent of the contract’s value, the rising stock market put the initial margin at $15,000 with this $250,000 contract, keeping the S&P futures contract out of the reach of many individual speculators. The E-mini put the S&P 500 Index within the capabilities of many individual accounts.
But the real innovation was letting small orders of this new E-mini market trade entirely on an electronic platform and not in the traditional open-outcry pits. CME officials decided that trading orders could take place entirely on a trade matching computer with no human intervention, giving traders direct access to the market without going through an order handler.
E-mini S&P futures contracts would no longer be limited to after-hours trading or to supplement the primary pit contract. As the allowable number of contracts was increased over time, electronic trading became the mainstream market for the E-mini S&P futures contracts.
And, as long as trading was all computer-based, the CME also decided it might as well keep the market open almost 24 hours a day. The radical move caught the wave of online trading and day trading that was revolutionizing the stock market at the same time.
Have you ever thought of market timing? There is always a bull market somewhere if you look hard. In other words if you look around you will always be able to find a market that is trending up or down that you can use to make money. Market timing maybe the trading method of the 21st century! Develop a winning forex trading system.
Power and influence is spreading to more places around the world. The world is moving from a North American and Eurocentric world view to one that includes Asia, South America especially China, India, Brazil and Russia. Know the forex market. Understand forex charts.
Internet has ushered in a revolution in the global financial system. Money gets transferred around the globe at the speed of light. This is enough to create opportunity for market timing.
This is the new world where the ability to move faster in and out of trading positions and to trade markets that are rising or falling profitably is becoming increasing important to the long term investors. Don’t forget the hedge funds when we talk of long term investors. Hedge funds have the skills and resources for market timing around the globe. The buy and hold investing strategy is losing its appeal. Does buy and hold work in today’s market? Most say it does not.
Whether it is stocks, options, futures, bonds, commodities or currencies around the globe, market timing is the act of entering or exiting trades at the most opportune times in any market.
Now if you can make money when the market is going up and when the market is going down, you have twice the opportunity to make money. Your goal in using market timing is to maximize your profit potential.
Many people try to confuse market timing with day trading. Market timing is not day trading. Market timing is about recognizing opportunities early on in any market. Moving into positions with well planned strategies and monitoring the progress on a frequent basis.
Market timing is close to swing trading and position trading. It can last as long as the trend continues in the market and getting out when your profit targets have been met. Market timing is about seeing the intermediate term trend which lasts for weeks or months.
Investors who can adapt to this new world are the ones who will have the best chances of success. What makes market timing one of the useful trading methods is that you can use the techniques to time stocks, bonds, mutual funds, futures, options, currencies, commodities or exchange traded funds!
Market timing requires knowledge of fundamental and technical analysis. With market timing, you can diversify your investment opportunities. Market timing is as much a state of mind as it is a combination of trading methods.
Market timing also helps you decrease your exposure to risk. With market timing, you want to stay with the dominant trend. You want to swim with the tide by buying stocks in a rising market and selling or shorting in a falling market.
Brian, Your thoughts on Gold/Precious Metals.
I recently bought some Freeport Gold & Copper FCX and it is up 15% in one week. The price of gold is $745+-. Many analysts are saying that Gold will double in 2 years. Should I buy more? What percentage do you have in Gold/Precious Metals?
Jake, Even though I really like FCX and have owned it in the past (going back to 1999 when it was Freeport-McMoran C&G;), it is not a gold pure play. It is as much copper as gold (and other minerals), but it is a very good China play since most of its mines are in Indonesia and an “anti-dollar” which is the key value of gold right now, as the dollar dives. Another good stock very similar to FCX is BHP.
I have been using funds to create a core position in precious metals and then dabbling around the edges with option contracts on the miners. My favorite gold fund is VGPMX, but it may be closed right now. It has done great the past three years I have owned it (41% annualized return over 3 years). I started buying another fund, GGN, early this year when VGPMX was closed. GGN is a “natural resource” fund and so has a lot of energy stocks as well as gold and basic materials. It also has a very good yield at 6%. There are other good precious metals funds that can be found on Morningstar or other websites.
Once I have my core position, I trade around the edges when the stocks are moving up. Precious metals and basic material stocks are very volatile, so they create good trading and option opportunities. I have been playing with AU, GG and AUY. The latter is a small cap and so very volatile. It is also a darling of the day trading crowd, so really moves fast. I just closed out my positions on AU that I have held off and on for four years. I will get back into AU when it approaches $40 again. I will probably sell put options to get in. Same is true for GG which I closed out in June when it was around $27. Now it is over $30, so probably got out too early. I just got back into AUY this week as it is well below its 52 week high. I sold (20) October 12.50 put contracts for 0.65 each on Friday (worth $1300 on Oct. 19 if AUY finishes above $12.50). That price is still good and will be on Monday (with the price of AUY at $13). I am looking for $15 or $16 in the next 6 weeks if gold stays at these levels.
Selling put options, you may end up with the stock if the price drops. That has happened to me with all the gold stocks along the way. If it happens, I just hold the stock knowing that the price is volatile and I will have a chance to get out at a profit. This is what I just did with the AU (Anglogold) and GG and AUY in the past.
Other conservative gold plays include the bullion ETF (GLD). You could also look at the silver ETF (SLV). Large cap miner possibilities are Newmont (NEM) and Barrick (ABX).
I think gold might double in 2-3 years from this level. It depends on the Fed and tax / spending policy. As long as we run fiscal deficits and also cut interest rates / create excess money, we will continue to see a devaluing dollar which encourages the price of gold to rise. If Congress and the Fed decide to protect the dollar, by raising interest rates and taxes and/or cutting Federal spending, then gold will decline in value. But I am not betting on that in the short term (during an election year).
Access timely suggestions in the sphere of managed forex trading – your personal tips store.
Trade Dow Futures.Stock-index futures are by far the largest category of futures contracts traded as a percentage of the total number of futures contracts traded. Stock index futures like the Dow Futures are traded for speculation as well as hedging purposes. The dominance of index futures clearly speaks of the major role that stock-index futures play in risk management for the entire stock market. Know candlestick charting.
There are many advantages of trading stock index futures like the Dow Futures. Stock index futures like the Dow futures are a better option than trading individual stocks. Some of these advantages are gains in the futures markets are taxed at a lower rate than the stock market capital gains. Learn swing trading.
Globex is a 24 hour electronic trading system for a wide variety of futures contract. If something happens on the stock market overnight when it is closed and you want to hedge your risk, you can trade Dow Futures on Globex. Many futures brokerages offer lower commission rates as compared to stocks.
When you trade stock index futures like the Dow Futures, you are betting on the direction of the contract value, in this case DJIA and not on the individual stocks that make up the index.
You are blocking out a good deal of the noise that is often associated with the daily gyrations in the prices of the individual stocks in a sense by focusing on the value and the general trend of the stocks as a group when you trade stock index futures like the Dow Futures.
Stock index futures like the Dow Futures are guaranteed to move in response to the economic indicators. You can simply speculate with the futures contract like the Dow Futures just by using technical and fundamental analysis. You can setup positions with both futures and options as you wait for the news to hit the wire.
For the past many years, the monthly employment report which is issued the first Friday of every month at 8:30 AM EST has been an excellent mover for stock index futures like the Dow Futures.
You don’t need to trade every major index contract in the world to be successful; you just need to find one or two with which you’re comfortable -the ones that enable you to implement your strategies.
The more you know about a particular type of a contract, the better off you are. So the best way to trade futures contracts is to become a specialist in one type of the contract like the Dow Futures or the S&P 500 Futures or NASDAQ-100 Futures.
You can use your knowledge of technical analysis to figure out how many days the Dow Futures contract tends to spend rising or falling using Bollinger Bands or Moving Averages. You can get an idea when the Dow Futures contract is likely to turn around. So by becoming a specialist in trading Dow Futures you can make a lot of profit daily for the daily movements in DJIA. This way you can become a Dow Futures swing trader. Every time profiting from a turn in the DJIA!
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