R
rtstine
I want to learn about futures trading. I'd appreciate some suggestions on books for beginners. I have experience trading stocks and options, but have little info on futures. Thanks.
RTS
RTS
rtstine,
The best book I've ever read about futures is "The Futures Game: Who Wins, Who Loses, & Why" by Jones, Warwick and Teweles. It not only covers the basics of futures trading including the available markets, different types of orders you can place, picking a broker, etc., but also subjects like money management which becomes more critical with futures because of the higher leverage. This book was written prior to internet trading, so it won't give you much information about online execution, but the basics are still the same.
Another good book which does cover online trading is "The Complete Guide to Electronic Futures Trading: Everything You Need to Know to Start Trading Online" by Scott Slutsky.
One problem with futures, other than the electronic contracts like the S&P or Naz e-minis, is that there is still no direct access to most markets, meaning you're held hostage by floor traders and relatively slow executions, leading to greater slippage costs. My advice is to stay away from all but the largest, most liquid contracts like t-bonds or the S&P 500. Good Luck.
Kirk
The best book I've ever read about futures is "The Futures Game: Who Wins, Who Loses, & Why" by Jones, Warwick and Teweles. It not only covers the basics of futures trading including the available markets, different types of orders you can place, picking a broker, etc., but also subjects like money management which becomes more critical with futures because of the higher leverage. This book was written prior to internet trading, so it won't give you much information about online execution, but the basics are still the same.
Another good book which does cover online trading is "The Complete Guide to Electronic Futures Trading: Everything You Need to Know to Start Trading Online" by Scott Slutsky.
One problem with futures, other than the electronic contracts like the S&P or Naz e-minis, is that there is still no direct access to most markets, meaning you're held hostage by floor traders and relatively slow executions, leading to greater slippage costs. My advice is to stay away from all but the largest, most liquid contracts like t-bonds or the S&P 500. Good Luck.
Kirk
R
rtstine
WarEagle,
Thanks, I really appreciate the info. I've traded options so I know what you mean about being held hostage.
Or is it worse with futures? Are the execution times lengthier?
I was thinking of trading naz futures. What do you think? I'm off to look for the books online.
Thanks again,
RTS
Thanks, I really appreciate the info. I've traded options so I know what you mean about being held hostage.
Or is it worse with futures? Are the execution times lengthier?I was thinking of trading naz futures. What do you think? I'm off to look for the books online.
Thanks again,
RTS
Hi rtstine,
When I started trading futures it was before there were any electronic contracts traded. To compound that I was trading options on the S&P futures. (In hindsight, that is not a way for a beginning trader to start out and I would have done it differently had I known better). This was in 1995 and there was no online execution available. You just called your broker and placed the order and then waited 20 minutes for a call with your fill report. I can't even imagine doing that now. I pulled my hair out waiting for those calls, lol. It would be completely unacceptable these days. When I started trading stock options, I had online access but was still waiting 20 min for a confirmation so it is similar. Having fast executions of stock trades was like a breath of fresh air for me.
I think when starting out its best to stick to the electronic contracts like the naz or s&p e-mini until you feel comfortable with it. They offer very fast executions and your order never sits around on the trading floor until someone decides he can make a quick scalp off your order. (Not that I'm bitter about that or anything, lol) Once you feel more comfortable and are ready to trade larger size you can move to the full S&P which is pretty liquid for an open outcry market. Someday that market will also go fully electronic I believe, but first they have to find new jobs for all those floor traders.
One thing to be aware of going in is that in my opinion futures are more difficult to trade than stocks. There are only 20 or so futures markets that are heavily traded compared to the 10,000 or so stocks available. As a result, the concentration of professional traders is very high in futures, particularly in the big markets like the S&P. Everyone who is anyone trades it. Therefore it is much more efficient than stocks and harder to make money in. You are going against the very best and brightest traders. So start small, pick a good broker that gives you direct access to the e-mini markets (like Interactive Brokers, they only charge $2.95 per contract on the mini, I've never seen anything lower), and be really careful. I wish you the best.
Kirk
When I started trading futures it was before there were any electronic contracts traded. To compound that I was trading options on the S&P futures. (In hindsight, that is not a way for a beginning trader to start out and I would have done it differently had I known better). This was in 1995 and there was no online execution available. You just called your broker and placed the order and then waited 20 minutes for a call with your fill report. I can't even imagine doing that now. I pulled my hair out waiting for those calls, lol. It would be completely unacceptable these days. When I started trading stock options, I had online access but was still waiting 20 min for a confirmation so it is similar. Having fast executions of stock trades was like a breath of fresh air for me.
I think when starting out its best to stick to the electronic contracts like the naz or s&p e-mini until you feel comfortable with it. They offer very fast executions and your order never sits around on the trading floor until someone decides he can make a quick scalp off your order. (Not that I'm bitter about that or anything, lol) Once you feel more comfortable and are ready to trade larger size you can move to the full S&P which is pretty liquid for an open outcry market. Someday that market will also go fully electronic I believe, but first they have to find new jobs for all those floor traders.
One thing to be aware of going in is that in my opinion futures are more difficult to trade than stocks. There are only 20 or so futures markets that are heavily traded compared to the 10,000 or so stocks available. As a result, the concentration of professional traders is very high in futures, particularly in the big markets like the S&P. Everyone who is anyone trades it. Therefore it is much more efficient than stocks and harder to make money in. You are going against the very best and brightest traders. So start small, pick a good broker that gives you direct access to the e-mini markets (like Interactive Brokers, they only charge $2.95 per contract on the mini, I've never seen anything lower), and be really careful. I wish you the best.
Kirk
R
rtstine
WarEagle,
Thanks again, man. I'm printing out our exchanges to look at again after I'm done reading the books you recommended. I've learned a lot too as I've experienced both the stock and the options markets. The last thing I want to do is throw away good money before I've learned the ropes. That's exactly what i did with stocks. But I took the losses as an expensive learning experience.
Just as a side note, if you have 10k sitting on the side, and you figured the naz at 3000 by the end of the month, where would you put it? Naz is about 250 points away from that right now. I've got positions in stocks to take this into consideratin, as well as buying up QQQ at around 55. Would it make sense to play the futures with this extra cash? What would be your strategy as far as futures or options on futures is concerned? Again, I'm not knowledgeable at all in regards to futures, so you'll have to spell it out for me. And taking your strategy into consideration, what would the returns look like if things went according to plan, in that the naz reached 3000 by the end of the month.
RTS
Thanks again, man. I'm printing out our exchanges to look at again after I'm done reading the books you recommended. I've learned a lot too as I've experienced both the stock and the options markets. The last thing I want to do is throw away good money before I've learned the ropes. That's exactly what i did with stocks. But I took the losses as an expensive learning experience.
Just as a side note, if you have 10k sitting on the side, and you figured the naz at 3000 by the end of the month, where would you put it? Naz is about 250 points away from that right now. I've got positions in stocks to take this into consideratin, as well as buying up QQQ at around 55. Would it make sense to play the futures with this extra cash? What would be your strategy as far as futures or options on futures is concerned? Again, I'm not knowledgeable at all in regards to futures, so you'll have to spell it out for me.
And taking your strategy into consideration, what would the returns look like if things went according to plan, in that the naz reached 3000 by the end of the month.RTS
rtstine,
Whether or not to take a futures position is not just about how much free cash you have. You have to understand the additional risks involved with futures. Because the leverage is so high, theoretically you can lose more than your original capital so the following scenario is NOT a recommendation to actually make the trade.
With $10k you could only buy one naz e-mini contract (margin is a little under $8k/contract). If you are right and the naz sees 3000 by month's end then you could make $5000 per contract on a 250 point move (a one point move on the naz mini = $20, so $20*250 = 5000). Remember, this is hypothetical and assumes the market moves straight up to that point. If it drops to 2500 first and you are long 1 contract you will lose 5,000 and have your position closed by your broker if you don't meet a margin call. The naz may still hit 3000 by the end of the month, but you lose your whole account thanks to the leverage involved.
This is why I never traded the futures on a long term basis. I just didn't have the capital to keep the leverage/risk down to a managable level. Just because you can trade 1 contract with $10k doesn't mean you should. It would be much smarter to have a larger cushion so that a move like that doesn't take you out of the game. (Afterall, staying in the game is the most important goal) Ideally you only want to be risking 1-2% of your account on a single trade, not 60%. Trading futures is like having 20 to 1 margin at a daytrading firm. The wins are unbelievable and so are the losses. You have to be able to manage risk. If you find it hard to cut losses in a 2 to 1 margined stock trade it will be 10 times harder to do it in a futures trade. You can find yourself in a huge hole very quick.
Regardless of your opinion of the naz this month I would say to leave the futures alone until you have had more time to study. Its like a doctor going from being a family practitioner to a brain surgeon. It can be done, but not overnight.
Hope this helps,
Kirk
Whether or not to take a futures position is not just about how much free cash you have. You have to understand the additional risks involved with futures. Because the leverage is so high, theoretically you can lose more than your original capital so the following scenario is NOT a recommendation to actually make the trade.
With $10k you could only buy one naz e-mini contract (margin is a little under $8k/contract). If you are right and the naz sees 3000 by month's end then you could make $5000 per contract on a 250 point move (a one point move on the naz mini = $20, so $20*250 = 5000). Remember, this is hypothetical and assumes the market moves straight up to that point. If it drops to 2500 first and you are long 1 contract you will lose 5,000 and have your position closed by your broker if you don't meet a margin call. The naz may still hit 3000 by the end of the month, but you lose your whole account thanks to the leverage involved.
This is why I never traded the futures on a long term basis. I just didn't have the capital to keep the leverage/risk down to a managable level. Just because you can trade 1 contract with $10k doesn't mean you should. It would be much smarter to have a larger cushion so that a move like that doesn't take you out of the game. (Afterall, staying in the game is the most important goal) Ideally you only want to be risking 1-2% of your account on a single trade, not 60%. Trading futures is like having 20 to 1 margin at a daytrading firm. The wins are unbelievable and so are the losses. You have to be able to manage risk. If you find it hard to cut losses in a 2 to 1 margined stock trade it will be 10 times harder to do it in a futures trade. You can find yourself in a huge hole very quick.
Regardless of your opinion of the naz this month I would say to leave the futures alone until you have had more time to study. Its like a doctor going from being a family practitioner to a brain surgeon. It can be done, but not overnight.
Hope this helps,
Kirk
R
rtstine
WarEagle,
Good stuff. I had heard about futures leading to losses outside of your original capital. That's tough. I hate margining to begin with, though i sometimes find myself doing it. But you're right. If it's hard at 2 to 1, it's tougher at 20 to 1. I'll have to read up. QQQ did well today. Hope it keeps up. Thanks again for all the info. It helps a lot, and hopefully it'll help someone else too when they run across this thread. I appreciate it, buddy.
RTS
Good stuff. I had heard about futures leading to losses outside of your original capital. That's tough. I hate margining to begin with, though i sometimes find myself doing it. But you're right. If it's hard at 2 to 1, it's tougher at 20 to 1. I'll have to read up. QQQ did well today. Hope it keeps up. Thanks again for all the info. It helps a lot, and hopefully it'll help someone else too when they run across this thread. I appreciate it, buddy.
RTS
Hi RTS,
we offer a nice thick booklet that is called "guide to trading futures" and is published by the chicago board of trade.
you can either e-mail me or visit us at:
http://www.e-futures.com
we offer a nice thick booklet that is called "guide to trading futures" and is published by the chicago board of trade.
you can either e-mail me or visit us at:
http://www.e-futures.com