Wouldn’t it be nice if your investments didn’t depend on the stock market? What if everyone was losing money in their investments, but you were profiting hand over fist? How does the idea of getting rich during the financial crisis sound?

Well, if you invest with the right futures trader, these are just a few of the benefits you can experience.  Whether Dow futures are peaking at new highs or testing new lows, it really doesn’t matter. The reality is, your profit is determined by the accuracy of the trader’s market analysis, not the growth of the unstable equity markets.  The amazing thing is, some managed futures traders earned 100%+ during the financial crisis while the rest of the world lost 40%+ trusting “safer” investments.  Isn’t it ironic.. don’t you think?

In this article, we will explain the concept of buying and selling positions in the futures markets.  This will allow you to understand how you can trade futures profitably in both bull and bear markets.  First things first, let’s define the term “short-selling”, and explain its importance to those in the futures markets.

Short-selling (“going short”) is selling commodity futures in anticipation the price will decline.  If you “go short” and the market declines, your profit will be determined by the price difference and leverage you apply. On the other hand, if you “short” the market and prices for that commodity rise, you will begin to lose on that futures position.

For example, if you owned one “short” position in crude oil futures and prices moved from $81.19 to $79.19, you would earn $2 (200 “ticks”).  Though this usually translates into a $2,000 profit for crude futures, if you apply additional leverage, it can be far more. Now that you understand how to short-sell futures markets, let’s teach you what it means to “go long”.

Buying (“going long”) is purchasing commodity futures in anticipation the price will rise. If you “go long” and the prices rise, your profit is determined by the price difference and leverage you apply. If you “go long” and the prices for that commodity declines below your purchase price, you will begin to lose on that trade.

For example, if you owned one “long” position in crude oil futures and it moved from $81.19 to $83.19, you would have $2 in price movement.  Though this usually translates into $2,000 in profit, if you choose to apply additional leverage, it can become far more. Let’s face it folks, it’s really just this simple.  Why do you think futures have become one of the biggest investment markets in the world?

You may be saying to yourself, “This sounds easy, but what if you’re not sure what direction the market is trending?  Well, that’s where it gets far more advanced. If you’re a good trader, you will benefit from the market trends, and protect yourself with a “hedge” position if needed.  Also, if you are even more experienced, you can purchase options on futures contracts to define your risk up front. In most cases, managed futures traders use techniques just like this to “cover” or “hedge” their positions, lowering their yields in exchange for more stability.

In summary, whether the market is volatile or calm, futures trading can give you the opportunity to produce very high yields. If you find a good trader, just as the CTA index has shown, managed futures can be far safer than equities.  Keep this in mind, futures trading isn’t about “having a good WEEK in the market”, it’s about opportunistic trade execution.  Though you can lose money if you make a bad mistake, you can also DOUBLE your account with one good trade…

InsideTrade LLC Staff
(412) 235-2855