Trading in futures can provide considerable financial rewards. Futures speculation, however, also involves substantial risks. The key to avoiding the pitfalls and reaping the rewards is to develop your trading skills and knowledge of the markets.
The Chicago Board of Trade (CBOT®) created this booklet to help you take the first step. It provides a thorough introduction to speculating for those who have had only minimal exposure to the futures markets. If you want to learn more, see our web site at www.moneyactivo.com, contact your broker, or refer to the numerous resources listed in the appendix of this booklet.
Contents
Introducing the Speculator ............................................1
Market Mechanics and Terminology ............................4
Using Fundamental Analysis to Forecast Prices.......10
Using Technical Analysis to Forecast Prices..............18
Trading Guidelines.......................................................26
The Next Steps..............................................................33
Appendix .......................................................................35
Selected Bibliography
Internet Sites
Industry Contacts
Introducing the Speculator
Speculators play a vital role in the futures markets. While futures are designed primarily to assist hedgers in managing their exposure to price risk, this would not be possible without the participation of speculators.
Speculators, or traders, assume the price risk that hedgers attempt to lay off in the markets. In other words, hedgers often depend on speculators to take the other side of their trades, and to add depth and liquidity to the markets.
Many people are attracted to futures market speculation after hearing stories about the amount of money that can be made trading futures. While there are success stories, the number of big-time traders is not unlike the number of superstars in professional sports. Many people strive for the top, but few ever reach it.
At the same time, many people have achieved a more modest level of success in futures trading.
The keys to their success are typically hard work, a disciplined approach, and a dedication to master their trade. If you intend to follow this path, this book can help you get started.
Types of Traders . . .
Futures traders can be categorized in any number of ways. Some are full-time professional speculators while others only dabble in the markets. Some of the major classifications follow:
Professional Traders
Perhaps the most visible and colorful speculator is the professional floor trader, or local, trading for himself or herself on the floor of an exchange. Locals come from all walks of life and frequently begin their careers as runners, clerks, or assistants to other traders and brokers.
Very few locals, however, reach a high level of success. Trading on the floor requires a unique set of skills, and the cost of participation is typically high.
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