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I read somewhere that when Michael Jordan was making an advert that required him to miss the basketball hoop a number of times; he just couldn't do it, he couldn't not get the ball in the hoop. I have for a long time thought that it would make an interesting futures trading exercise to try very hard to lose as much as possible. I imagine that when we try to lose as much as possible it won't be as easy as we imagine. The problem with this exercise, if I was to give it to a group of workshop delegates, is that they would quickly realise that the easiest and surest way to lose money in the Futures Markets is to repeatedly buy the offer and sell the spread. That way they would be constantly losing the spread and their losses would rack up quickly. This, I thought, would defeat the object of the exercise, until I realised what a great insight this is. If paying the spread is the best way to lose money trading futures, surely not paying the spread is essential to making money. The last trading date prior to delivery (the last day the contract is traded) is the Monday preceding the 3rd Wednesday of the contract month, however, most day traders switch over to the next contract month the Monday before the 2nd Wednesday. You must remember to change the symbol on your chart and your verbal order starting the Monday before the 2nd Wednesday in order to be trading the correct month. Leverage In the futures market you use leverage to buy a contract. The value of a contract of 125,000 Swiss Franc is approx. $100,000. As a day trader you are allowed to buy or sell this contract for only $1,000 as long as you get out of the market by the end of the trading day. Your one thousand dollars per contract is kept in your margin account with your broker as a security deposit against any loss. At the end of the day, your account is reconciled and any profits you made are added to your account. Remember, as a day trader all contracts are closed before the end of the day. If you hold a contract overnight, margin requirement may be as high as $4,000 per contract. Floor Traders Each individual currency is traded through a small group (50-60) floor traders representing various brokerage firms and institutions that all have seats on the exchange. This means you can not buy or sell this currency without these floor traders. In essence, they control the market. At any moment of time, they have a buy price and a sell price (bid and ask). In order to understand this better, lets say that they are trading the Japanese Yen and are bidding .6212 to buy Japanese Yen and asking .6214 to sell the Japanese Yen. If you offer to sell at 6212 they will buy. If you offer to sell at 6213, they may buy or may refuse. If you offer to sell your shares at "market" you may get 6212, or you may only get 6211 or 6210! There is no regulation -- anything goes. Commodity Brokers In order to execute a trade on the exchange you must first establish a commodity trading account with a commodity broker. Commodity brokers range from full service, usually charging $40-80 per round trip, to discount and online brokers who may charge as little as $9 per round trip per contract. All commodity brokers should have a direct line to the trading floor of the CME and be able to execute an order within 30 seconds of your order being called in.
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