Price speculation has been around for hundreds of years; long before the existence of electronically traded markets like the NASDAQ and CME Globex. Ironically the fundamentals of trading have not changed, what has changed are the vehicles in which we use to trade.“The speculator’s deadly enemies are: ignorance, greed, fear and hope.” – Jesse Livermore
The story of speculator and trader Jesse Livermore is told by Edwin Lefevre in the book Reminiscences of a Stock Operator. Livermore began his trading career in the New England bucket shops in the early 1900s before moving to New York and receiving the nickname the “boy plunger.” The principles he used back then are the same principles that trader’s use on the floor of the exchanges, and in most recent years, on the computer screen.
It can also be argued that the process of becoming a successful trader is directly transferable to the various trading vehicles that are out there. From stocks, to options, futures to forex, the ideology remains the same. There is however, one specific vehicle that gives the best opportunity to trade for a living, that vehicle is futures.
History of the Futures Markets
Formed in 1848, the Chicago Board of Trade (CBOT) is the world’s oldest futures exchange, introducing its standardized futures contracts in 1865. Originally, farmers would bring a sample of their crop to the CBOT where prospective buyers could examine the crop and place a value on what they thought the crop would be worth come harvest. This resulted in forward contracts or a future value placed on the commodity limiting the risk to both the producers and the merchants.
Shortly after, the Chicago Butter and Egg Board was founded in 1898, later changing its name to the Chicago Mercantile Exchange (CME) also known as “the Merc.” And in 1997 the CME released its E-mini S&P contract after the existing S&P contract became too large for many traders. The CME and CBOT merged in 2007 to form the CME Group and today over 70% of all futures contracts are traded electronically on the CME Globex exchange.
Why trade Futures vs. Stock or Options?
- Tax Friendly
- Incredibly Technical
- Open 24-hrs (except weekends and brief close of E-mini S&P from 4:15-4:30 EST each day)
Futures are NOT…
- For the average long-term investor
- A way to get rich quick
- For the impatient or undisciplined
- Easy to master quickly
Pro’s and Con’s of Trading Futures
Pro: The E-mini S&P and E-mini Euro markets are the largest futures markets in the world, the E-mini S&P trades over a million contracts a day and the global foreign exchange market trade over 3 trillion dollars a day.
Con: You are up against the best and the most experienced traders in the world.
Pro: Once the hard work has been put in, trading can be done from relatively anywhere with a reliable internet connection.
Con: Nothing bad about trading from your sea side Cabana streaming Wi-Fi sipping a cocktail.
Pro: Leverage. You have the ability to make a lot of money with relatively low risk.
Con: Leverage. If used incorrectly you have the ability to lose more than you put in.
Con: Deciphering the quality information versus the crap can become difficult and downright annoying. Keep it simple.Not fully understanding the market you are trading is like flushing your money down the toilet. The risks associated with futures markets are enormous, but if managed correctly these risks can be turned around into rewards in your favor. Only after assessing both sides of the coin can you be sure that futures trading is right for you.