Contract Considerations for Day Trading the ES Emini

January 16, 2010 · Posted in futures trading · Comment 

It garners more trading volume than any emini contract on the Chicago Mercantile Exchange, and has run away (in trading volume) from any other futures contract currently traded.  It the pint sized version of the S and P contract that traders have flocked to in recent years.  Better yet, it is specifically designed and priced for the individual trader.  What’s not to like?

I spend a decent amount of time in trade rooms, helping novice day traders develop their trading style.  One thing I have noticed, especially among the novice day traders, is their lack of awareness of exactly what they are trading.  So I thought I would write an article that gives the very basics of the ES contract.  

What is the S and P 500?  You would be surprised at how many traders can’t definitively answer this question.  The S and P 500 is a capitalization-weighted index of the 500 largest, publicly traded, large-cap stocks in the United States.  The index has been around since 1957.  The index is calculated and published by Standard and Poor’s, hence the S and P in the title.  Incidentally, the index reached it’s highest point in March, 2000 at 1552.87.  In 2010, it was trading in the 1100 range, a far cry from it’s apex.

The ES emini contract was established on Sept. 9, 1997, and has grown steadily since that date.  Some specifics on the contract are:

1.  The contract months for the ES are
a.  March         =H
b.  June            =M
c.  September  = U
d.  December   = Z

Notice the contract months are designated by letters, and the contract designation is calculated by combining the letters with the ES designation, the month, and finally the last number of the year.  For example, ESM0= the ES contract for June in 2010.  Once you trade the ES for a period of time this nomenclature becomes second nature.

Many have been confused by the pricing model used for the ES contract.  It is fairly simple.  The ES emini is one fifth the value of the traditional S and P contract, so each point is worth $50 dollars, as oppose to $250 per point on the big contract.  Each point is divided into ticks or one fourth point, or $12.50 per tick.  So, 4 ticks at $12.50= $50.

The contract expires at 8:30 a.m. on the third Friday of contract month. (March, June, Sept. Dec.)  It is fairly normal for traders to have abandoned trading the contract about two weeks before the expiration.  Most futures brokerages  announce the date of switch over to their clients, so there is generally not the confusion that you might expect at contract expiration.  If you are a day trader, it is imperative that you switch to the new contract prior (preferably the above mentioned two weeks) and not trade the ES emini right up to expiration.  Most of the volume evaporates from the contract on the switch date, and you could run into having make good delivery of the full delivery requirement of the contract.

The clear advantage of the ES emini contract is the tremendous liquidity, and thus you should never see slippage as a result of the contract trading thin.  More than a million contracts are traded on an average day, which is astounding volume when taken against some of the thinner emini contracts offered.

The ES emini contract on the Chicago Mercantile Exchange, which has been a true innovator in the emini arena.  The CME Globex is the actual home of the contract, and it trades during regular trading hours, takes a short break, and then trades all night until the opening of the next days cycle.  The actual hours of trading are:

Monday-Thurs  5:00 p.m.-3:15 p.m. & 3:30 p.m.-4:30 p.m.
Sunday              5:00 p.m.-3:15 p.m.

Margins requirements vary by firm and whether you are trading intraday or holding contracts overnight.  For inraday traders, you can find margin requirements as low as $400/contract and as high as $3000/contract.  Of course, the lower contract margin requirement may tempt some traders into over trading their futures account, and this can be a real problem.  In any event, the contract margin requirements vary greatly.

As you can see, the ES emini contract is a versatile and popular equity trading instrument.  We have reviewed the monetary basis for the contract, as well as the calender specifics for trading.  We have pointed out the margin requirements and trading hours, now all that is left is for you to perfect your trading style and enjoy trading this flat-out-fun trading instrument.

I endorse a state of the art trading program for beginners at Trading Concepts, Inc It’s an awesome product that will have you well on your way to success. Plus, it has a money back guarantee…you have nothing to lose and thousands to gain.

Article Source:http://www.articlesbase.com/day-trading-articles/contract-considerations-for-day-trading-the-es-emini-1734824.html

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Big-Game Hunting for Maximum Profits with Options

December 19, 2009 · Posted in futures trading · Comment 

Even if you just started to research options as a potential addition to your portfolio, you’ve probably seen some the advertisements that talk about how options allow investors to “control” hundreds or even thousands of shares of a company’s stock for just a fraction of the price of buying the shares directly. That bit of information may have you scratching your head and wondering how is it possible to play with the big boys for just a small slice of the normal cost. Well, that’s a reasonable question and the answer is why so many investors have found their way to options in recent years. Let’s take a look at why options investing is the place for giant returns.

Leverage, Leverage, Leverage

Leverage has become a four-letter word of sorts as its abuse had a hand in the collapse of a few major financial institutions, but leverage is not a bad thing when investors understand it and know how to limit their risk. Here’s how leverage works with options. Let’s say you want to buy the August 25 calls in Microsoft. Remember that each equity options contract grants you control of 100 shares of stock. Microsoft is trading at $23 a share and the calls are trading for $1. That means that when you purchase one contract of the August 25 calls, your costs AND your risk is $100. (The price of the contract is $1 x 100 shares). If you had bought 100 shares of Microsoft in the market, your cost and risk would’ve been $2,300.

Now you’re starting to see one of the biggest attractions of options investing. If your Microsoft shares go up $1, you make $100. Great, but you’ve also exposed $2,300. If your calls leap to $2, your investment has doubled with very little risk. This is how leverage works in the options investor’s favor. Lots of profit potential, at a more rapid pace than with stocks, all with a very low risk profile. The worst thing that can happen when buying puts or calls is that the contract expires worthless and you lose the premium paid to enter the trade. You’d lose a lot more if a stock you owned directly fell to zero.

More Options Advantages

As you can see, options are far more cost-efficient than stocks. If you have $20,000 to invest and you are interested in a $50 dollar stock, buying just 400 shares would eat up all of your funds. On the other hand, you could buy three $10 calls for $3,000 ($10 X 100 shares = $1,000) and still have plenty of funds left over to diversify your investments with.

Options are also superior to stocks in that once you graduate to more advanced options strategies you’ll see the versatility of this asset class cannot be beat. When we trade stocks, we really only have two choices: Go long, which means we buy a stock in the hope that it will go up, or sell short, which means we want the stock to decline.

Sure, we can go do that with options, too, but we can also profit with options during range-bound markets. We can also use options to generate income by selling covered calls on stocks we already own. More advanced options traders use strategies like spreads, collars, straddles and others to profit from a variety of market conditions. It’s even possible to add a new options position to an existing one to bolster your chances of profitability. Try doing that with stocks!

Don’t Forget Higher Potential Returns

Obviously, investors love options because the chance exists to make more money faster than with many other asset classes. Hence the beauty of leverage. Evaluating an options contract’s profit potential means we have to look at its delta. Delta is the measure of how much the contract will move in relation to the underlying stock. Let’s say that we’re looking at buying some Pepsi calls that have a delta of 0.8. This means that for every dollar Pepsi stock goes up or down, our calls will increase or decrease by 80 cents. That’s a high delta contract. We buy those calls at $5 a contract ($5 x 100 = $500) when Pepsi is trading at $50 in the open market. Then the stock shoots to $55, so while the stock investors made 10%, our options with a delta of 0.8 went up $4 in value, or 80%. We made $400 on a $500 investment. That’s a tough return to beat.

Versatility, Profits and More

We’re not saying that you should completely pass on other investment vehicles because options are so wonderful. Yes, they’re great tools, but at the end of the day, you want your portfolio to be diversified. That said, the versatility options offer combined with profit potential that is impossible to ignore make this asset class worth learning about. Take the first step into the world of options. Your portfolio will thank you.

Article Source:http://www.articlesbase.com/day-trading-articles/biggame-hunting-for-maximum-profits-with-options-1599950.html

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How Futures Contracts Give You Powerful Trading Advantages

December 12, 2009 · Posted in commodity trading · Comment 

There is a great deal of misunderstanding in the general
populace about futures trading. Those who know about
futures trading are in an excellent position to reap
tremendous returns, while those who are under misleading
information miss out on this opportunity.

Granted, futures trading is not for everyone. But, it would
be of great benefit for anyone to learn more about this
investment vehicle than to dismiss it offhand.

If you wanted to invest in a commodity there are several
ways you can do it. Lets take gold as an example.

One way to invest in the commodity gold is to own
shares of a gold mining company. That way, if the price
of gold increases there may be a rise in the share price
of that company.

Then again, the price of that companys share may not
increase, or only increase a portion of the actual increase
in the gold price. There are many other variables at play
that may prevent those share prices from increasing.

Another way to invest in the commodity gold is to actually
buy gold, such as coins or wafers, and if the price increases
you can sell it for a profit. But, there may be all sorts of fees
and charges in addition to the price you pay for the gold,
which means you are really paying more than fair market
value.

In these two instances we are predicting an increase in the
price of gold. But, what if the price goes down. Then, you
have taken a loss on these transactions.

Of course, you have taken a loss only if you sell your shares
in the gold mining company, or sell the actual gold you are
holding, otherwise it is just a loss on paper. Naturally you
would like to hold on to the shares, or the gold, in the hopes
that the price will eventually increase and you can at least
recoup your initial investment, if not come away with a small
profit. But, that could take some time.

Another way to invest in the commodity gold is to purchase
a gold futures contract. This is very easy to do, and you can
go long a contract, or short, depending on where you see the
price of gold heading.

Trading futures contracts gives you powerful trading
advantages not found in any other type of investment.
Futures contracts, regardless of the underlying commodity,
provide you with a very powerful trading advantage in
several ways.

1) Almost anyone can do this.

Trading futures contracts is not rocket science. It doesnt
matter about your age, gender, level of education, or present
circumstances. Almost anyone can learn how to trade futures
contracts.

The futures trading community is made up of stay-at-home
moms, retirees, students, couples or individuals trading part
time, and many others too numerous to mention in this brief
report.

Like any other skill you start by learning the basics, and once
you have mastered them you can go on to more advanced
techniques. The great thing about futures trading is that
simple trading basics are really all you need to take advantage
of the opportunities to reap tremendous profits. The basics
will provide you with a solid foundation should you wish to
try out other trading systems in the future.

2) Efficiency.

Futures markets trade massive volumes and attract global
involvement. This makes these markets extremely liquid, which
in turn allows traders to enter and exit the markets easily and
efficiently. Traders are able to buy and sell very large, or very small, orders without penalty.

Also, most electronically traded futures markets are open
nearly 24 hours a day, allowing traders to enter and exit
markets without having to wait for the exchange trading
floors to open.

3) Transparency.

The massive trading volumes and global public input in futures
trading creates actual price discovery. This means the trading
price, at that moment, is aggregate of the opinions of all the
traders buying and selling that commodity. It is like a global
auction, with people bidding from around the world.

And, the prices listed on the commodity markets throughout
the world and instantly transmitted all over the world. These
prices are available immediately, and help every trader, and
others interested in the price movements, make better-
informed decisions.

4) Pure play.

A pure play means that if you want to buy a commodity such
as gold, then buy gold futures, not shares in a gold company
or bullion. The shares may not increase, for any number of
reasons, as the price of gold increases. Buying bullion may
not be cost effective.

Buying gold futures contracts is the most efficient and cost
effective way to play the gold market. This goes for all the
other underlying commodity markets as well.

5) Leverage.

When you trade a futures contract you are required by the
Commodity exchange to put up a margin amount. If your
previous investment experience has been in the stock markets
you know the term margin has to do with a cash down payment
and money borrowed from a broker to purchase stocks. In
futures trading, the term margin has an altogether different
meaning and purpose.

Rather than providing a down payment, the margin required for
futures contracts is actually a performance bond, or, a good
faith deposit.

Margins are set for each commodity by the Commodity exchange.
The margin amounts are subject to change by the Commodity
exchanges, and usually depend upon the volatility of the commodity.

Margin amounts are minimal when compared to the overall value of the contract.

Commodity markets offer investors an opportunity to diversify
their holdings, and the potential to earn a higher rate of return. This higher rate of return stems from the fact that futures trading is a highly leveraged form of speculation. In other words, a small initial investment controls contracts worth a great deal more. This is because as a futures contract rises or falls, the unit price is magnified by the degree of leverage.

Lets look at an example to help clarify this.

A futures trader buys one (1) contract for Corn at an entry price of $2.00, and later sells that contract at an exit price of $2.10.
This represents a return of 83%.

Heres how it works: 1 contract of corn represents 5000 bushels. The entry price was $2.00, which is $2.00 a bushel, making the total contract worth $10,000.00.

Lets say the margin requirement for corn is $600.00. So, for
$600.00 you are controlling one corn contract worth $10,000.00.

The contract was sold for $2.10, for a total contract value of
$10,500.00, which means that trader has made a profit, before
commission, of $500.00.

So the trader has basically invested $600.00 and has made a
return on that investment of $500.00. The return on investment
of $500, divided by the margin of $600 = an 83% return on that
investment.

This trader has made a profit of $500.00,less commissions, and of course, still has the margin amount of $600.00,.

Leverage is a two-edged sword. It can create tremendous gains
or losses, so must be used wisely.

6) Transaction costs

Transaction costs in the futures markets are small compared to
most other markets. Commissions are usually $50.00 or less to buy and sell a contract which can easily have an underlying value of $50,000.00 or more.

7) Variety.

Futures markets provide a tremendous variety of investment
opportunities. There are the traditional markets like grains,
metals and food. There are financial futures markets that trade
contracts on all sorts of interest rates, stock indices, and
currencies. Then there are the energy futures markets that
provide opportunities in crude oil, natural gas, heating oil, and gasoline.

The incredible variety of futures contracts allows traders to
take trading positions for nearly any opinion one can have
about the developments in the markets.

8) The Ultimate Home Business.

Can you think of any other business where you have an
opportunity to earn unlimited income, spend more quality time
with your family, have more free time for your other interests,
and live the lifestyle you want?

A home business where:

Returns of 200%, and more, are very common, and those
returns are often made within a few days.

It doesn’t require a big outlay of cash to get started.
(One trader, who became legendary, started with about $400.00
and turned that into about $20,000,000.00. yes, that is twenty
million dollars).

As you can see from the above point, your profit potential is
virtually unlimited.

Your income is not limited to your personal output. You do not
have to work harder or longer to make more money.

You are in full control of your business. You make all of the
decisions, and answer to no one.

There’s no marketing or advertising expenses (in any other
business these are major expenses).

Your business is global in scope.

This is a cash business; you don’t have to worry about
any credit terms.

Your business is recession proof, so it doesn’t matter what
the economy is doing.

You don’t have to worry about payrolls, employee benefits,
absenteeism, or any staffing related problems, because your
business does not need employees.

Because there are no employees you do not have any labor
costs, which are usually a very substantial expense in any
organization.

Your start-up costs are up to you.

Running your commodity trading business doesn’t take up
much of your time so you can have ample free time for your
family and other interests.

Your overhead expenses are low.

You determine how much time to spend on your business.
You can start small and grow at your own pace.

Your business can be operated from just about anywhere in
the world.

Your business involves products that are in constant demand
by people and businesses all over the world, yet you do not
handle these products. Therefore, you won’t have to worry
about selling anything, storing inventory, or having merchandise returned.

There are no customer complaints, or outstanding accounts to
try to collect, because your business does not need customers.

Your business has nothing to do with Multi Level Marketing, or
Network Marketing. You do not have to try and recruit others,
then help them to recruit others, and so on, and so on. There’s no down-line or up-line to worry about.

Your business satisfies your intellectual (and often emotional) needs, as well as your financial needs. There’s nothing like being fascinated with what you’re doing. When that happens you’re not working, you’re having fun.

Futures markets represent a wide and diverse cross section of
the global economy. This diversification and the energetic nature of futures speculation make these markets attractive to many investors, whether they want to diversify their holdings or, are seeking a higher risk/return investment.

All serious investors should allocate some portion of their portfolio to futures trading.

Author: Rob Hall
Article Source: EzineArticles.com
Provided by: Pressure cooker

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Commodities – How to Trade Futures Contracts

November 29, 2009 · Posted in futures contract · Comment 

More and more individuals want to learn how to invest in commodities but one must understand that these investments are highly leveraged. In order for an investor to own a futures contract, only a small fraction of the value of the contract is needed to invest in it. If the investor correctly forecasts the price movement of the commodity traded, the investor has a great chance of profiting ten-fold for an initial investment of ten percent of the actual futures contracts value. That is how leverage works to the advantage of the investor in commodity trading. Of course leverage can work against the investor if he predicts wrong.

In this article we will cover the basics of how to trade commodities.

What Are Commodities?

Commodities are the essential things that people make use of everyday and are the basic essentials needed by a modern society. Read more

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Future Contract Trading Concept You Do Not Want to Miss

November 29, 2009 · Posted in contract · Comment 

Future Contract is a standardized contract that traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price.

The future date is called the delivery date or final settlement date. The preset price is called the futures price. A futures contract gives the holder the obligation to buy or sell. Both parties of a “futures contract” must fulfill the contract on the settlement date.

The seller delivers the commodity to the buyer then cash is transferred from the futures trader who sustained a loss to the one who made a profit such as when the price of the commodities is brought at a preset price US$ 1000 and when the settlement date it has become US$ 800, but they still need to fulfill the contract preset amount that is US$ 1000. Read more

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