Well .... Futures are IMHO tougher to trade than equities in the sense that you need to be more disciplined. If you have done well with equities and their derivitives then you are probably ready for futures - although I have seen many who started in futures. Dont rely too much on others: read the posts here but do your own research. The CME website offers some resources and once you get to a point where you have some detailed questions the folks at the CME can be very helpful: see the contacts and info on their website.
Rookie needs help...
- Thread starter Rake
- Start date
with, I guess, a number of rookie questions... so take it easy on me!
1. I frankly don't get it why trading futures, say NQ, are more risky than let's say QQQs. Can someone explain the basic logic behind that?
As I see it, and probably being wrong, I can either buy 800 QQQs or 1 contract of NQ (20 NQs) for the same price. If I make a successful trade of 1%, haven't I gained the same in both cases, with the same risk?
2. If the above is true, I see a number of advantages with NQ: Smaller spread, more liquid (about twice the dollar volume), can start an account with less money (5K compared to 30K with TS), less commission (if more than one contract with TS). What are the main drawbacks then?
3. Currently in my equities account, I have a buying power of four times my value, so with 30K I could trade QQQs for 120K. How would this interpret in the futures case? Still four times buying power???
Thanks for taking it easy...
1. I frankly don't get it why trading futures, say NQ, are more risky than let's say QQQs. Can someone explain the basic logic behind that?
As I see it, and probably being wrong, I can either buy 800 QQQs or 1 contract of NQ (20 NQs) for the same price. If I make a successful trade of 1%, haven't I gained the same in both cases, with the same risk?
2. If the above is true, I see a number of advantages with NQ: Smaller spread, more liquid (about twice the dollar volume), can start an account with less money (5K compared to 30K with TS), less commission (if more than one contract with TS). What are the main drawbacks then?
3. Currently in my equities account, I have a buying power of four times my value, so with 30K I could trade QQQs for 120K. How would this interpret in the futures case? Still four times buying power???
Thanks for taking it easy...
Originally posted by granville x
1. I frankly don't get it why trading futures, say NQ, are more risky than let's say QQQs. Can someone explain the basic logic behind that?
As I see it, and probably being wrong, I can either buy 800 QQQs or 1 contract of NQ (20 NQs) for the same price. If I make a successful trade of 1%, haven't I gained the same in both cases, with the same risk?
2. If the above is true, I see a number of advantages with NQ: Smaller spread, more liquid (about twice the dollar volume), can start an account with less money (5K compared to 30K with TS), less commission (if more than one contract with TS). What are the main drawbacks then?
Well, your second question answered your first. Leverage is the reason the NQ is "riskier" than the QQQ. Actually, its only riskier if you use the margin. When you put up $3k for a contract of the NQ, you are controlling about $20k worth of stock (980 index value * $20/pt) or almost 7 to 1 margin. If they allowed 7 to 1 margin on the QQQ's or you kept $10,000 per contract in your futures account (at 2X margin), the risk would be essentially the same. Most new traders load up the margin to the max (due to a small account or hoping for a home run)...thus taking on more risk.
1. I frankly don't get it why trading futures, say NQ, are more risky than let's say QQQs. Can someone explain the basic logic behind that?
As I see it, and probably being wrong, I can either buy 800 QQQs or 1 contract of NQ (20 NQs) for the same price. If I make a successful trade of 1%, haven't I gained the same in both cases, with the same risk?
2. If the above is true, I see a number of advantages with NQ: Smaller spread, more liquid (about twice the dollar volume), can start an account with less money (5K compared to 30K with TS), less commission (if more than one contract with TS). What are the main drawbacks then?
Well, your second question answered your first. Leverage is the reason the NQ is "riskier" than the QQQ. Actually, its only riskier if you use the margin. When you put up $3k for a contract of the NQ, you are controlling about $20k worth of stock (980 index value * $20/pt) or almost 7 to 1 margin. If they allowed 7 to 1 margin on the QQQ's or you kept $10,000 per contract in your futures account (at 2X margin), the risk would be essentially the same. Most new traders load up the margin to the max (due to a small account or hoping for a home run)...thus taking on more risk.
Originally posted by qazmax
I thought the further out the future the more expensive?
Why is ES2U always a higher bid than ES2Z?
U = Sep and Z= Dec right?
Its all about expectations. Normally the out months would trade at a premium due to the "cost of carry" or the interest you are giving up to hold the contract until December (or whatever month it may be). In a bull market, where investors expect the market to be higher, this will lead to a higher premium than the front month or the cash. When the futures are trading at a discount, people are betting that the market will be lower in the future to the point that it more than offsets the cost of carry. It also involves interest rate expectations and dividends and I admit I don't understand all the complexities.
Do the ES and NQ settle in cash?
Yes.
What is the proper hedge of QQQ or SPY for one of these futures contracts?
800 QQQ has the same exposure as 1 NQ contract. 500 SPY has the same exposure as 1 ES contract.
I thought the further out the future the more expensive?
Why is ES2U always a higher bid than ES2Z?
U = Sep and Z= Dec right?
Its all about expectations. Normally the out months would trade at a premium due to the "cost of carry" or the interest you are giving up to hold the contract until December (or whatever month it may be). In a bull market, where investors expect the market to be higher, this will lead to a higher premium than the front month or the cash. When the futures are trading at a discount, people are betting that the market will be lower in the future to the point that it more than offsets the cost of carry. It also involves interest rate expectations and dividends and I admit I don't understand all the complexities.
Do the ES and NQ settle in cash?
Yes.
What is the proper hedge of QQQ or SPY for one of these futures contracts?
800 QQQ has the same exposure as 1 NQ contract. 500 SPY has the same exposure as 1 ES contract.
Thanks WarEagle, beginning to grasp the concepts... So, a contract of NQ is 3K? I thought it was 20*950=19K.
How is the price for one contract calculated then?
How is the price for one contract calculated then?
You are correct that the contract value of the NQ is $19,640. You get this by multiplying the index value (982) times the dollar value of each point ($20).
Margin and contract value are totally different things. The $3k (IB margin on 1 NQ) is just a "performance bond". You don't actually buy anything. Since futures are marked to market each day, the amount the contract moves either for you or against you is settled up at the close and either added to or deducted from your posted margin. If your account falls below the maintanence level ($2400 for the NQ) you will be required to post more margin to bring it back to $3k. That $3k allows you to control $19k worth of stock, and thus higher margin than is allowed in a stock account. That is why theoretically you can lose more than is in your account and why it is advisable to never use the full margin, especially if you plan to hold overnight.
I hope I didn't confuse you more than neccessary.
Margin and contract value are totally different things. The $3k (IB margin on 1 NQ) is just a "performance bond". You don't actually buy anything. Since futures are marked to market each day, the amount the contract moves either for you or against you is settled up at the close and either added to or deducted from your posted margin. If your account falls below the maintanence level ($2400 for the NQ) you will be required to post more margin to bring it back to $3k. That $3k allows you to control $19k worth of stock, and thus higher margin than is allowed in a stock account. That is why theoretically you can lose more than is in your account and why it is advisable to never use the full margin, especially if you plan to hold overnight.
I hope I didn't confuse you more than neccessary.
The best source for the technical contract information and the basics of how they trade are the exchange websites.
http://www.cme.com/education/index.cfm
http://www.cbot.com/cbot/www/page/0,1398,14,00.html
The book I mentioned above, "The Futures Game: Who Wins, Who Loses, & Why" was a great source of education for me as to how futures work. The edition I read was a little dated for the electronic markets, but the basics are the same. I noticed there is a 3rd edition published in 1998 that would be more current. Just remember, the rules may have changed a little but the game is the same.
Hope that helps.
http://www.cme.com/education/index.cfm
http://www.cbot.com/cbot/www/page/0,1398,14,00.html
The book I mentioned above, "The Futures Game: Who Wins, Who Loses, & Why" was a great source of education for me as to how futures work. The edition I read was a little dated for the electronic markets, but the basics are the same. I noticed there is a 3rd edition published in 1998 that would be more current. Just remember, the rules may have changed a little but the game is the same.
Hope that helps.
I am unclear on the trading hours of the GLOBEX futures?
http://www.cme.com/about_cme/about_tradinghours.cfm
This website says the ES and NQ are not traded from 3:15 - 3:45.
(15:15 - 15:45) I assume this is AM.
Is ths East Coast Time or Chicago time?
Does this mean the ES and NQ are traded 23.50 hours a day? 7 days a week?
Does anyone have experience trading these securities during other countries trading day?
Is there a solid market during this time?
What about on weekends or holidays?
http://www.cme.com/about_cme/about_tradinghours.cfm
This website says the ES and NQ are not traded from 3:15 - 3:45.
(15:15 - 15:45) I assume this is AM.
Is ths East Coast Time or Chicago time?
Does this mean the ES and NQ are traded 23.50 hours a day? 7 days a week?
Does anyone have experience trading these securities during other countries trading day?
Is there a solid market during this time?
What about on weekends or holidays?