Everything you need to know about the futures market
Getting Started in Futures, Fourth Edition, covers everything investors need to know about the futures market, including how margins are set, how an order is handled in the trading pit, and the steps a producer or user must take to effectively hedge a cash commodity. Featuring new examples, charts, and timely additions to reflect important changes in the markets, the Fourth Edition also includes a new chapter on trading futures online.
Todd Lofton (Great Falls, VA) is a past member of the Chicago Board Options Exchange and a popular speaker and writer on the subject of futures.
About the Author
TODD LOFTON is a past member of and floor trader on the Chicago Board of Options Exchange and a popular speaker and writer on the subject of futures. He was president of Investor Publications, and the first publisher and editor of Futures magazine. Mr. Lofton received his master's degree in financial management from the U.S. Naval Postgraduate School.
Read an Excerpt
Suppose that you and I lived in rural Iowa. I raise beef cattle. You raise corn 15 miles down the road. Each fall, when your corn comes in, you truck the entire crop to me, and I buy it to feed to my steers. To make things fair, we agree that I will pay you the cash price for corn on the Chicago Board of Trade on the day I take delivery.
Corn is important to both of us. It is your principal crop; it is my main cost in feeding cattle. I hope for low prices. All summer long you are praying that something benign--an unexpected Russian purchase, for example--will send corn prices up.
One spring day you come to me with a suggestion. "Let's set our corn price now for next fall," you say. "Let's pick a price that allows each of us a reasonable profit and agree on it. Then neither of us will have to worry about where prices will be in September. We'll be able to plan better. We can go on about our business, secure in the knowledge of what we will pay and receive for the corn."
I agree, and we settle on a price of $3.00 a bushel. That agreement is called a forward contract--a "contract" because it's an agreement between a buyer (me) and a seller (you); "forward" because we're going to make the actual transaction later, or forward in time.
It's a good idea, but it's not without flaws. Suppose the Russians did announce a huge surprise purchase, and corn prices went to $3.50. You would be looking for ways to get out of the contract. By the same token, I would not be too eager to abide by our agreement if a bumper crop caused corn prices to fall to $2.50 a bushel.
There are other reasons why our forward contract could fail to be met. A hailstorm could wipe out your entire corn crop. I could sell my cattle-feeding operation, and the new owner not feel bound by our agreement. Either one of us could go bankrupt.
Futures contracts were devised to solve these problems with forward contracts, while retaining most of their benefits. A futures contract is simply a forward contract with a few wrinkles added.
Table of Contents
Basic Terms and Concepts.
Futures Markets Today.
The Green Stuff.
What Happens After You Hang Up the Phone.
The Financial Futures.
Money Management for Speculators.
Rules and Regulations.
Contracts in Brief.
Futures on the Internet.
Trading Futures Online.
Appendix A: More Chart Patterns and What They Mean.
Appendix B: More About Point-and-Figure Charts.
Appendix C: More About Moving Averages.
Appendix D: More About Stochastics and Relative Strength.
Appendix E: Move One-Stop Sources for Market Data and Information.
Most Helpful Customer Reviews
I have been involved with futures and commodities for 11 years now. I have been, and still am, a broker and an investor. I have written three books on the subject. My most popular book is Futures For Small Speculators. Mr.Lofton has written a very useful guide. From beginning to end it is chocked full of information. It thoroughly analyzes the function of futures. More importantly this book makes it a point to define the vocabulary of futures, which is the biggest hurdle for those new to the industry. This is a handy reference guide and I recommend all of my brokers keep a copy handy.