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ff6f44c0449a-0 | First Two Hours of the Trading Day, Why Is It Your Fault? I talk more about this at the end of the book when I discuss the business plan, but it does touch a little on technology here. The bottom line is that a trader needs focus and concentration in order to be successful in this business. The most critical hours in t... | Page 816 |
de3d05dbf217-0 | generally the first two hours of the trading day. This is where most of the setups occur. It is up to a trader to communicate to his colleagues or, if he is trading from home, to his spouse and children that he cannot be disturbed during this time. When I am trading, I am not checking e-mail, I am not answering the pho... | Page 817 |
46190749249a-0 | be dropped off at the gym before the trading day starts, she knows the deadline. If she lets me know after the deadline, my answer is always the same, “Honey, you know I love you. The trade is on.” Click. (I usually remember flowers on those days.) It can be hard to communicate things like this directly. You’ll find it... | Page 818 |
92acac242b2e-0 | helpful to write out a fully developed trading plan and then share it with the people in your life. Once they understand that this is important to you and that you are serious, they will generally respect any boundaries that are clearly outlined in what they are reading. Think of it from their perspective. I know that ... | Page 819 |
d2986c6aba30-0 | if I’m working very hard. I’m just kicked back, looking at charts. Of course, I’m actually very focused, and I’m watching and waiting for the market events to unfold. “Just because I’m not digging a ditch,” I like to tell her, “doesn’t mean I’m not working.” In terms of communicating with people throughout the day, for | Page 820 |
f56c8106d68c-0 | anyone who doesn’t utilize instant messaging software, this is an incredibly efficient way to stay in touch. People can call at exactly the wrong moments during a trade. With instant messaging, people can type in a question and the trader can get back to them at her leisure. Instant messaging was built for traders. Thi... | Page 821 |
e920695d8bad-0 | MSN, Yahoo!, and AOL. I now mostly use Skype and the chat feature that comes with Gmail (Google’s e-mail service). The key with instant messaging software, however, is to block everybody except for people that the trader has specifically permitted on her list. If everyone knows you are online, then everyone will bug yo... | Page 822 |
46b2d9080f84-0 | their brokers and other traders is appropriate. It is inappropriate from anyone else who could interrupt a trader’s workday, and this includes family members and clients. There are very few people who are on my list, but they are all important to my trading day. My wife did make the cut, however, and it has proved to ... | Page 823 |
a9d5f34f3406-0 | your life. Life is short. Put a stake in the ground and own your time. Why Is Watching Harry Potter on DVD After 12 Noon Eastern Better Than Watching CNBC? I am bringing this up because I’ve seen too many traders who quit their jobs and follow what I call the “CNBC setup.” They are | Page 824 |
7bb393af0a12-0 | excited because they are finally able to trade full-time. They feel they’ve been at a disadvantage all these years, getting quotes from the Internet, sneaking trades onto their computers in between meetings, and hearing about key news events only after the markets have already closed. So what do they do? They plop a TV... | Page 825 |
250aafde560f-0 | themselves to the screen, looking for trading opportunities. CNBC has a very specific job: to provide viewers with enough entertainment so that they tune in and watch. When a lot of people are watching, the network makes more money from the commercials. It’s as simple as that. CNBC is fun to watch, and when things get | Page 826 |
4cc22d578588-0 | serious, it does a great job of reporting. I found out about 9/11 as it unfolded live before my eyes from Mark Haines. I flipped to some of the other channels, but I ended up parking it on CNBC that day because it did, hands down, the best job of reporting about it. Who can forget Maria Bartiromo reporting about the ev... | Page 827 |
78e4c997dc15-0 | collapsed? It was a gut- wrenching experience to watch, and the reporters and the network did a great job. That said, traders must realize that they cannot make a living “trading the news” off any financial news channel. By the time something appears on television, it is way too late to react. Trading floors have alrea... | Page 828 |
fe5ea4be3adf-0 | by the time it makes it to the public, the floor traders are closing their positions, ideally to suckers who just saw the headlines. If anything, CNBC can be used as a fading tool—taking the opposite side of the news. Once it runs out of stories and starts repeating the same things over and over, I turn down the volume... | Page 829 |
bb062116dd02-0 | in a while, plop in a DVD. Who can get tired of watching Gladiator ? Traders who do this for a living spend their days waiting for specific setups to take shape. Yet one of the biggest weaknesses of most traders is a need to be in every move. If the markets start running away, many traders just can’t help but jump in,... | Page 830 |
c35734b8990c-0 | may be missing something big. This is a fatal flaw that will ruin any trader who can’t control this habit. If there is anything I can hammer into your brain as you are reading this book, it is this: it is okay to miss moves. Professional traders miss moves; amateur traders try to chase every move. By listening to music... | Page 831 |
f75381877348-0 | can use to pass the time while they wait for their specific setup to take shape. This makes them less prone to jump impulsively into trades just because they are bored or because they can’t stand missing out on a move. The goal is not to catch every move in the market. The goal is to take the specific setups that you h... | Page 832 |
b3270d30f09a-0 | gunslinger, and sooner or later all gunslingers get killed. We’ve set up www.tradethemarkets.com/platforms with information on discounted commissions and VIP service with the brokers discussed in this chapter. | Page 833 |
d3c09a53aa86-0 | 4 Futures Markets 101 — Understanding the Basic Mechanics of the Futures and Commodity Markets To the brave man | Page 834 |
290ae5452aeb-0 | every land is a native country. G REEK P ROVERB The World Beyond Stocks: Why Is It Important? We’ve covered why markets move, how traders sabotage themselves, and what to do with your computer. That was the equivalent of prep school. It’s time for you to graduate and start looking at | Page 835 |
97bc2b0f6876-0 | the markets. Deciding what markets to trade is critically important. The reality is, some markets offer much better opportunities than others. Where would you rather open up a hot-dog stand—inside Yankee Stadium or at the side of a dirt road in the middle of Nebraska? I wrote this chapter specifically for stock traders | Page 836 |
087fd3eb297b-0 | who have never ventured beyond those borders into the world of futures contracts, which include stock indexes, currencies, interest rates, gold, oil, grains, and a variety of other asset classes. My goal is to provide a straightforward guide to these markets from a trader’s perspective. I’m not going to go into a disse... | Page 837 |
043404e80d87-0 | contracts. This information is readily available at www.cmegroup.com . I’m just going to focus on the mechanics of buying or selling these contracts from a trader’s perspective, and the key things to know if you do decide to give them a try. I also am not going to try to talk a person into trading these markets—more in... | Page 838 |
2eacbb8fca65-0 | than anywhere else. Why? Because they jump right in without understanding the leverage involved and end up trading way too many contracts for their account size. We already know what happens to a trader who is not psychologically ready to do this for a living. Add leverage to that equation, and a trader is behind the ... | Page 839 |
bce2a88ea931-0 | you understand them. They provide 24-hour access to all the major asset classes in the world, they are great for day trading or longer-term trades, and there is always something that is moving. That is, if the stock market is having a quiet week, a trader can always check out what is happening in the gold market. I als... | Page 840 |
3e672631323d-0 | discuss how all these markets interact with and influence one another on a global level (although I will hit upon some of the basics). That would involve a macro discussion of how the world works, and it is not within the scope of this book. I just want to show you how I trade them for a living. Ultimately, if you deci... | Page 841 |
8a3f9a663750-0 | they work, how they affect the stock market, and even how to use them to time your stock picks. For traders who are already familiar with these markets, feel free to skim through this chapter and move on to the next— although I would read both the next section and the part that compares trading the mini-sized Dow (YM) ... | Page 842 |
8626a7f853aa-0 | trading the E-mini S&Ps (ES). Although I say in the introduction that I won’t be focusing on basic trading terminology such as uptrends , I do want to explain the other markets outside of stocks that I refer to in this book. The reason for this is that most traders I’ve met are stock traders only. Some might have a | Page 843 |
d5ba7ce9e665-0 | little experience with the E- mini futures, but for the most part, their focus is on actual stocks and that’s it. To put this in perspective, there are roughly 25 million stock brokerage accounts in the United States. When I wrote this book in 2005, there were only about 450,000 futures accounts. However, that number h... | Page 844 |
902616709957-0 | Ameritrade have embraced futures trading. For people who are familiar only with stocks, contracts such as the 30-year bond, soybeans, S&Ps, euros, and gold often seem nebulous, scary, and out of reach. But are they really? Not really, and they provide a lot of flexibility that can’t be found in stocks alone. Figure 4.1... | Page 845 |
07b548a2cdf5-0 | good reason for knowing how all these various markets work, and that reason is as follows: there are always going to be some markets that are trending and some that are stuck in a trading range. Some are going to be moving higher while others are moving lower. While Figure 4.1 shows uptrending gold and 10-year note ma... | Page 846 |
f6b415d13c96-0 | euro currency is range- bound. Although Figure 4.1 is based on a weekly time frame, this same kind of thing happens on all intraday time frames as well. While one market is chopping, another market is trending. I have setups for both types of markets that I review later in this book. Markets Are a Reflection of the Pe... | Page 847 |
41562908fe67-0 | Them: Is Your Competition Wired on Starbucks or Methodically Filling In a Crossword Puzzle? In addition to traders exposing themselves to a wider variety of potentially trending markets, it’s important to at least understand how these other markets work for three reasons. First, these other markets affect stock prices. | Page 848 |
0bdf7c8bcb08-0 | A lasting rally in bonds can force large funds to start buying stocks in order to readjust their allocations. A surge in oil prices can place downward pressure on stocks. Rising lumber and steel costs can hurt some companies’ earnings but help others. Second, there are going to be times when the stock market is dead in... | Page 849 |
e41a61911fa0-0 | opportunities for traders to continue making a living. Third, each market has its own personality. Traders who have been exposed only to stocks are betting it all that this is the market that best suits their personality. There may be another one out there that fits like a glove, so to speak, which makes the traders’ j... | Page 850 |
fa071bf9d12e-0 | trade if you are looking for momentum-type moves. For momentum moves, it’s better to look to GC (gold), EC (euros), and S (soybeans). | Page 851 |
9c74672db19a-0 | Figure 4.1 In the end, all charts and all markets are the same. They always have been, and they always will be, because all chart patterns depict the same thing—emotional reactions and decisions made by human beings. Even if it is a mechanical system that is making the trades, it was still written by a human. A trader ... | Page 853 |
60e249d51a49-0 | traders, no matter what the market. Yet each market is made up of different types of traders. What are these traders like? If they are S&P traders, then it’s possible that they are wired on Starbucks and are super-aggressive. If they are trading bonds, it’s possible that they are methodically filling in a crossword puz... | Page 854 |
7621a1a04857-0 | trades. If they are trading corn, it is possible that they are napping at their desk, as they are more concerned with hedging a cash crop. Which type of trader would you rather trade against? Compete against? One of the key differences between most successful traders and unsuccessful traders is this: successful traders... | Page 855 |
7052b6d49639-0 | A stark example of this can be found in a friend of mine who trades 10-year notes. He routinely makes just over seven figures a year trading this market. A few years ago, he got bored and decided to start trading the S&Ps. He liked the excitement and the action, and he wanted to be a part of that game. The result? It w... | Page 856 |
a412fd19c416-0 | thousands of dollars. Licking his wounds, he went back to trading 10-year notes—and making just over seven figures a year. Boring is not necessarily a bad thing. I can’t emphasize enough the importance of trading the right market for your personality. Also keep in mind that many firms realize that there are many newer ... | Page 857 |
59762d95ad67-0 | there who are buying the latest software packages in order to “beat the markets.” These firms buy the same software and use it to trade against the newbies. This is in addition to these firms having a full-time research staff and access to tons of information. These types of firms usually focus on the S&P futures. Are ... | Page 858 |
2f7247092439-0 | make a living off their occasional mistakes and bad judgment? I started off as a stocks and options trader. I liked these markets, did well in these markets, and continue to trade in these markets. However, I was always curious about the other markets that were available. For a long time I didn’t do much about this cur... | Page 859 |
f7dc8b6de947-0 | Why? Frankly, the futures markets seemed scary. Yet I really just wanted to see how these other markets worked and at least to see how I would do trading them. Maybe I would find something I liked better than stocks. However, I felt that futures and foreign exchange currency trading (forex) were suited only to traders ... | Page 860 |
5307ab344c81-0 | so it took me a while to finally venture into these markets. This isn’t so much the case today because these markets have become more accessible. Ironically, however, some of these same institutional traders now visit me at my offices to learn the various trade setups I utilize in these markets. They had no problem tra... | Page 861 |
493fa9f1caed-0 | try it with their own money, the psychological factors kicked in, and they struggled. I eventually worked with some traders in these markets in the mid-1990s, and they helped to strip away the myths, showing me how these markets worked and how to reduce risk and create solid trading opportunities. In my search to under... | Page 862 |
34120bacea42-0 | had to pull bits and pieces together from different sources over the course of several months before I finally understood how all these trading instruments worked. Most of the information was elusive at best— a more apt description would be worthless. I never was able to find a consistent, easy-to-understand summary th... | Page 863 |
3b37170b88c5-0 | these instruments, and this process was frankly frustrating and annoying. As a trader, I just wanted to know the basics—how do I trade them, how much money do I need to trade them, and how does the price movement affect my P&L? I’ll use the rest of this chapter to create the summary information I wish I’d had then. In ... | Page 864 |
2c5d3c33df5e-0 | markets, as it is these other markets that allowed me to make the jump to trading full-time for a living. Why Should Traders Learn About the Futures Markets? Think of this as a quick blurb designed to help a trader better understand the futures markets. This account is by no means comprehensive— | Page 865 |
60cb9e3f1b97-0 | there are entire books written on the subject. However, to an individual who has traded only stocks, the futures markets are probably a mystery, and maybe even a little menacing. Yet traders who have already learned the importance of strict money management will appreciate what futures trading has to offer. Typically,... | Page 866 |
9562f1109430-0 | The ease of entry on both the long and the short sides, the ability to focus on a few markets instead of hundreds of stocks, and the lack of market-maker games make them a refreshing change from the world of stocks. Let’s begin. First off, there are many types of futures contracts. A person can trade anything from copp... | Page 867 |
c3d01213d953-0 | stock indexes to silver, or from pork bellies to palladium. It’s not important to worry about most of these contracts in the beginning, but it is important to understand a core group of them and how they work. I know many traders who focus on only one of these contracts and are doing quite well. However, it took them t... | Page 868 |
00cac24c8fe3-0 | that market that was best suited to their personality. This can often be a long and perilous journey, but once they found the right fit, they never looked back. These are the main futures markets that I follow and trade outside of stocks: • E-mini S&P (ES) • E-mini Nasdaq (NQ) • Mini-sized Dow (YM) | Page 869 |
8689e472cd15-0 | • E-mini Russell (TF) • Full-sized 100-oz. electronic gold (GC), 5,000-oz silver (SI) • Mini-sized gold (YG), mini-sized silver (YI) • Full-sized 30-year bond (US—pit, ZB— electronic) • Ten-year notes (TY—pit, ZN—electronic) • Soybeans (S) | Page 870 |
b0e349dbdb5f-0 | • Corn (C) • Wheat (W) • Currencies (EC, BP, AD, CD, SF, and JY) • Crude oil (CL) and natural gas (NG) • Mini-crude oil (QM) • Various single-stock futures (referred to later in the book as SSFs) Note that some of these | Page 871 |
3cefb5b068b7-0 | are mini and some are full- sized, although that can be a misnomer. For example, trading the E-mini S&P ES contract has about the same specs as trading the full-sized corn contract. This is why, as a trader, the most important thing is to get an idea of the daily range of these markets, and what that means for your P&L... | Page 872 |
0059d04b9dfd-0 | Figure 4.2 shows a move in the full-sized 100-ounce gold contract (GC). As it states, this contract represents 100 ounces of gold. The trading dome shows a purchase price at $1,650.20 per ounce. The contract is currently trading at $1,651.70 per ounce, a gain of 15 “ticks” (ticks are the smallest price increment in w... | Page 873 |
b4552d1cb37a-0 | $1,650.20 to $1,650.30 (1 tick, which in this case is 10 cents) is worth $10.00 on 100 ounces of gold. This move of 15 ticks ($1.50) on 1 contract shows a gain of $150.00. If I’d had 10 contracts, then the gain would be $1,500.00, and so on. There are two things to be gained from this. First, the move on 1 contract isn... | Page 874 |
154d57b29abb-0 | futures contract is just like buying and selling a stock. | Page 875 |
018b528e3819-0 | Figure 4.2 The minis on these stock indexes have huge volume and great liquidity. I very rarely trade any of the pit- traded contracts. Nearly everything is available today in electronic format, right on your computer screen. To get charts on these, traders will have to instruct their quote vendor that they want to add... | Page 877 |
e9e8c75d4698-0 | CBOT (Chicago Board of Trade) (for the mini-sized Dow, bonds, 10-year notes, and grains), the CME (Chicago Mercantile Exchange) (for the E-mini S&P, E-mini Nasdaq, and currencies), and the NYMEX (New York Mercantile Exchange) if they want quotes on oil and gold. There is an “E-mini only” quote feed that is cheaper, but... | Page 878 |
a27e879abb0f-0 | version to get quotes on the full-sized contracts. It will cost around $80 a month for full versions of both the CME and the CBOT. And it should be noted here that all of this is available for free on the thinkorswim trading platform, as well as a few other platforms One thing that throws newer traders off is that futu... | Page 879 |
76c9e919b4f5-0 | months. The stock index and currency futures trade quarterly: March, June, September, and December. If it’s May 7, then you’ll be trading the closest month out, which in this case is the June contract (letter code M), also called the “front month.” In June, this contract will stop trading, and the new “front month” wil... | Page 880 |
6998ce287dbe-0 | each of the contract months. The stock index and currency futures months have been highlighted. Other contracts, such as soybeans, oil, and gold, trade a little differently with regard to contract months. If you are ever unsure, just go to www.cmegroup.com and look up the contract specifications, or, better yet, just ... | Page 881 |
035a28546cad-0 | In a Nutshell, What Do Traders Really Need to Know? When traders buy a futures contract, they are not physically buying anything. This is simply a way of participating in the price movement of the market of their choice. If they think a market is going to move 10 points, they can buy a futures contract, long or short,... | Page 882 |
bf5658925c30-0 | make money on the move if it goes in their direction. Obviously, they can also lose money on the move if it goes against them. Also, if they own a stock index futures contract that expires, they are not going to get a bunch of stock certificates dumped on their doorstep. The expired contract will be converted to cash, ... | Page 883 |
235dda0a4772-0 | soybeans, are “deliverables,” meaning that a person can be the proud owner of 5,000 bushels of soybeans per contract upon expiration. Is this really a worry? Brokers never like it when a contract expires in a trader’s account. They will call and badger a trader to get him to close it out, so there is little danger of h... | Page 884 |
b3d7f02fcecd-0 | close it out for you. They just don’t want to have to deal with an actual delivery. If for some reason it still happens, you won’t have a truckload of soybeans dumped on your doorstep. It’s all handled on the brokerage end, and people there can get the account back to normal. | Page 885 |
1c4b4e856fb0-0 | Figure 4.3 For price movement, if a trader has one contract in the E-mini S&P futures, for | Page 886 |
73bcd3af1f88-0 | example, and it moves 1 point (for example, from 1,032.75 to 1,033.75), that translates into $50 on her P&L. For the Nasdaq, a 1- point move equates to $20. For the mini-sized Dow, a 1- point move is $5. Therefore, if a trader buys three E-mini S&Ps and catches a 2-point move, that is $50 times 2 points times 3 contrac... | Page 887 |
56b96c210965-0 | manageable than most people think. Where traders get in trouble is when they trade too many contracts in relation to their account size, something I talk more about later. By the way, when the S&P moves a point, the Dow moves roughly 10 points, so these two contracts are nearly identical to trade. If traders say that t... | Page 888 |
e734af223d5b-0 | 5 points in the ES (E-mini S&Ps). Figure 4.4 shows a mini- sized Dow trade with 10 contracts. The chart reflects a 27-point move, which is worth $1,350 to a trader’s P&L. I summarize all these contract specifications for bonds, euros, soybeans, and so on, at the end of this chapter. Of course, these price fluctuations... | Page 889 |
b7df9d8a1b06-0 | ways, so money management is the absolute key to trading futures. It is imperative that traders know their stop before they enter a trade, and that they stick to it and not play any psychological games. In futures, as in stocks, hoping and praying can, and do, lead to ruin. However, the nice thing about futures is that... | Page 890 |
a3c81d2b4d3e-0 | out, and then a few moments later get right back in. A trader can’t be afraid to take small losses, period. Reentry is only a commission away. | Page 891 |
3d2fa91b8e8f-0 | Figure 4.4 In addition, electronic contracts were set up specifically for traders: they are super liquid, and fills are instantaneous. There are no market-maker games such as those that happen daily with individual stocks. And with electronic contracts, a trader is out of the pit, where outsiders can sometimes be | Page 893 |
11e103eb17ea-0 | treated little better than a cockroach. Here are a few other things I like about futures: • If traders think the market is going to break out, they can buy a stock like INTC (Intel Corp.) and watch it sit there while the market roars on without them. They were right about the market—but their stock | Page 894 |
3413a7cbf19b-0 | pick didn’t move with the market. With the stock index futures, a person is trading the market instead of watching the market. It is what it is. • A trader can short on a downtick—this makes a huge difference in trying to get filled during a breakdown. If traders try to short the stock KLAC | Page 895 |
91f56ec803e2-0 | (KLAT-encor Corp.) “at the market” on a breakdown, they may not get filled for 20 cents until it has an uptick. If they short the futures “at the market” on a breakdown, they get a quick fill at the current market price. Recently this is becoming less of an issue, as the exchanges continue to see the wisdom of | Page 896 |
71fee9413dc6-0 | allowing more and more stocks to be shorted on downticks. • I used to be a big trader of OEX (S&P 100 Index) options for day trades. After trading futures, I stopped trading OEX options. The spreads and premium of OEX options now look ridiculous. Where else can a person be dead | Page 897 |
cabadd40b05b-0 | right on an intraday move and still lose money? The OEX options market! Although I do use OEX options (or, more likely, SPY options) for swing trading, I wouldn’t day- trade them with my mother-in-law’s trading account. Not when the mini-sized Dow and the E-mini S&P futures are so clean and efficient. | Page 898 |
3adf099a1ef7-0 | • A person can do most of his trades “at the market” and get good fills, unlike stocks and especially unlike options. • For stocks, a person needs $25,000 to day- trade. For futures, a trader can open an account with $5,000 (or less) and day-trade. There are no day-trading | Page 899 |
689cb0bff471-0 | rules or classifications. That said, I recommend that people start with a larger-sized trading account, but I also realize that everyone has to start somewhere. My first trading account was $2,000. Can people quit their job, open up a futures account with $5,000, and trade for a living? Absolutely … not. I talk more ab... | Page 900 |
d21bbadbba09-0 | this later. To buy one of the futures contracts discussed in this book as a day trade, under day-trading margin, traders generally need about $2,000 in their account. This varies by broker and can be lower, but this is an average. This money is called margin , and a trader can think of it as making a 4 percent down pa... | Page 901 |
99222cde3d04-0 | By making the down payment, the trader controls the house, so to speak, and she benefits from any price increase and loses on any price decrease on the house itself. So if a trader has a $10,000 account, she can buy five mini-sized Dow contracts (five $50,000 houses) and sometimes more by utilizing lower intraday margi... | Page 902 |
3f3f1b82b136-0 | purposes, I heartily recommend that you give some thought to how many contracts you are trading in an account. This is a critical part of your trading plan, and it is something that I discuss in more detail at the end of the book. You can certainly choose to trade five contracts in a $10,000 account. You can also choo... | Page 903 |
58bb9ab7178c-0 | mean it’s a good idea. (My Internet guru, Priyanka, is from India, and she keeps daring me to eat at a roadside food stand next time I visit.) I typically trade one contract for every $10,000 to $15,000 that is in my account. This way, the account swings will not be as severe, and I can trade with a level head. One tra... | Page 904 |
9add1a476a9d-0 | for every $50,000 in his account. He makes money and is never stressed out. Conversely, I’ve seen programs that say that a trader should take a $5,000 account and trade five contracts, and by doing this, she can make six figures a year. This is insane; the trader would be better off donating that $5,000 to charity, bec... | Page 905 |
1950bff82109-0 | There are few guarantees in the futures industry, but losing all of your money if you trade with this much “maxed out” margin is the one sure bet available today. Here are some other key points about futures: • There are also now futures available on stocks. Called single- stock futures , they are great to use as swin... | Page 906 |
61b05b41d423-0 | trades in combination with index futures. Although some of the symbols have low actual volume, the “real volume” is based on that of the underlying stock. (I talk more about single-stock futures in the chapter on propulsion plays.) • With futures, at the end of the year, traders don’t | Page 907 |
902cd0dfdcd6-0 | have to list each individual futures trade for their tax return the way they would have to do with stocks. They get a 1099 form from their broker with their total profit or loss for the year. All they have to put on their tax return is the number that’s on the 1099. That is much easier and much less time-consuming than | Page 908 |
c1945a14263f-0 | listing every trade. Tax treatment is also favorable. For stocks, a trader has to hold them for more than a year to get classified at the cheaper “long-term gain” rate. For futures, a trader gets a 1099 that says, for example, that he had $20,000 in gains for the year. Of this, 60 percent of the money is treated as lon... | Page 909 |
90b07c4fa6dc-0 | gains (lower tax rate), and 40 percent is taxed at the short-term rate. This is the 60/40 rule. This rule holds true even if you go flat at the end of every trading day. This applies to all futures contracts except single-stock futures, which are treated as stocks in this regard. • It is possible to trade | Page 910 |
4ea59e85ef21-0 | futures in an IRA or retirement account through a trust company. I don’t recommend this unless traders have already developed a proven track record in their own speculative accounts. And if this is the case, I recommend that they then allocate no more than 15 percent of any retirement funds to these vehicles. Traders | Page 911 |
725d01056e60-0 | have no business starting out in futures using their retirement funds. This is like deliberately choosing to go into battle without a bulletproof vest, or, for that matter, a weapon. As already discussed, each stock index futures vehicle has four contracts that are traded each year: March (H), June (M), | Page 912 |
fdd36a3c96a0-0 | September (U), and December (Z). A trader will want to trade the closest month, because that is where the volume is concentrated. For example, if today is February 15, 2012, then the closest month is the March 2012 contract. To get a quote for the March 2012 contract on the E-mini S&P (ES), a trader would enter the sym... | Page 913 |
5f590c63d82d-0 | (symbol), H (month = March), 12 (year = 2012). The full symbol would be ESH12. This is for TradeStation. For eSignal, it would be ES H2. For thinkorswim, it’s/ESH2. Each quote service is a little different. When one contract expires, just start trading the next contract out. The four times a year that the contracts ex... | Page 914 |
fbac5d15bf26-0 | the transition from one contract to the next. Just remember that although the E-mini futures expire the same day as options expiration, on the third Friday of the month they are being traded in, the volume actually jumps into the next contract month on Thursday of the preceding week. For example, in March 2011, options... | Page 915 |
bb531f2bf4fe-0 | expiration was on the third Friday, which was March 18. The volume jumped into the June stock index futures contracts on Thursday, March 10. Bonds actually switch three weeks early. Each contract is a little different. If traders aren’t sure, they just need to ask their broker, write it down, and put it next to their P... | Page 916 |
7051c80e73ed-0 | always a price difference between two contracts. When the March 2011 contract says 11,686 for the mini-sized Dow, the June contract may say something like 11,698. A trader shouldn’t be confused by this too much. Futures contracts really are based on “future prices,” which accounts for the difference. Just remember that... | Page 917 |
cce1c28d9011-0 | rollover day and see that the S&P futures are up +8.00 points, when in actuality they haven’t moved. It’s just that the new contract month is being quoted, since the new June contract was trading higher than the old March contract. Most quote systems get a little confused by this. They end the day with the closing pric... | Page 918 |
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