beginners guide
futures trading and short-term day trading



a beginners guide to the world of trading


Most activities have a clearly defined access path.
Need an education, there are schools. Want a degree, go to a university.
Need an ambulance, call an ambulance. Need legal advice, see a lawyer.
Need medical advice, see a doctor. Car needs servicing, take it to a mechanic.

Not so with futures. There is no clear access path. Where can you go?.


learning to trade

Want to learn how the markets work?.
If you wish to achieve success in trading, you need to know how the markets work.
Success is proportionate to screen-time. There is no short-cut.

For those who wish to know. More, for those who need to know.
For the information starved trader who wants to know.

To travel this maze you need a good guide, a tour map, or,
A lot of time to browse the Internet and research your destination.
Then a lifetime to try it all.



starting out - where to begin

Where do you start. ?


no-one can be taught how to trade

a bold statement .. but, as always, dont take our word for it, check it out for yourself.
Many organisations offer to teach you "how to trade". It's an impossibility. You can't teach someone how to play football, or tennis, or to be an athlete. Only techniques and skills (ie the components) that make up the game, can be taught. Not all will have the natural talent to become top athletes. Excellence is achieved by learning, then combining and applying the component techniques and skills that have been taught. The student must do that themselves. By practice. And Coaching. The components are practiced and perfected. Repetitive drills. The best adidas T-shirt with 3 stripes, or Nike running shoes, do not create a top class athlete. For further explanation learn the components of trading


education

education is obtaining know-how
The best way to start is to get a job in a treasury-dealing department of a bank
The next best way is to get a job with a Forex trader or futures broker.
Elegibility for these will probably be just starting your career with a degree in finance.

Treasury-Dealing courses are ideal for learning how to trade.
They deal with underlying instruments, interest rates, bonds, long bonds, yields, yield curves, spreads etc.

Note: It is not necessary to undertake a degree to attend a "one subject" course offered by universities. While the subject itself will be a part of a degree, most universities will accept enrolments for the one paper. In the case of treasury-dealing courses they will usually be covered in one semester.

on campus learning
Some universities have hands on real-time treasury-dealing education centres.

off campus - distance learning
Some universities offer Treasury-Dealing courses via distance education.


  university treasury courses
  North Western University   Chicago
  Lincoln University   New Zealand
  Reading University   UK - distance
  Northeastern University   Boston - distance
  Wharton University   Pennsylvania
  Monash University   Melbourne
  Curtin University   Perth - distance

Curtin University - Syllabus: Theoretical foundations of derivative securities, financial forwards and futures, FRAs and interest rate swaps, introduction to options, Black-Scholes Greeks, Black-Scholes European option pricing, binomial American option pricing, other Greeks, term structure of volatility, strike structure of volatility, exotic options and structured products. The course is structured into three main modules - futures, swaps and options.

Treasury dealing courses are highly recommended sources of education and training for
underlying physical - futures - curves - spreads - yields etc.
The above selection is a small sample of what is available.

courses

Groups of professional educators offer promotional courses on trading .. carefully packaged, presented as lifestyle opportunities to make big money, business opportunities, work from home, be your own boss, secure your financial future, with certainty, security and safety in the markets.

Many courses are introductory. Come-ons to sell add-ons. Software, data services, consulting. Slow Broking.

Courses: Beginners $5000, intermediate $8000, advanced $10,000, finally the Masters course $15,000. Then there are refresher courses for all levels. Almost forgot the Platinum course at $20,000

seminars
Broker sponsored seminars will never divulge their know-how, their internal house-account trading methods. Believe it. You will be snow-flaked with basic support and resistance and moving averages.

courses, books, forums, videos, CD's
Online training courses are now appearing on the internet. No prices given. If they can't publish their price list it is most likely a boiler room come-on. The bench mark standards are university/college web sites where full details of course schedules and fees are given.

training

training is exercising know-how - practice - testing the know-how

practicing

Dry run, using a play account, with monopoly money. A practice account.


cross training - for day traders

For day-traders who day-trade stocks and shares.

For best results, one piece of advice we can give - learn futures trading, first.
Don't need real money. Find a Forex broker with practice accounts, and practice.


Cross training is commonly accepted in many elite sports. Highly recommended. eg. racquet squash can be used to cross-train for any sport requiring high speed visual and physical reaction times. A squash ball travels 8 metres, at speeds of 200+ kph with any combination of speed, direction, angle, and height.

Trading futures will develop the skills to read an ever-changing, high volume, high speed market.
One trading day in futures, is equivalent to 10 days in one stock compressed into one day.
By comparison, action in a stock will then be seen in slow-time suspended animation.
You will see it coming, like a slow freight train coming round the bend, in slow motion.


trading

trading is the final application of know-how

trading styles
(a) short and long term, position trading
(b) intraday trading, scalping, and jobbing

decision making trading methods
(a) toss a coin, throw a dart, roll a dice
(b) reading the market, observation, judgement
(c) discretionary
(d) mechanical and system trading
(e) technical analysis, indicators, and charting

where do traders come from

Treasury Departments of banks.
Trading departments of Superannuation funds, Fund managers, and Hedge Funds.
Finance graduates who move on from banks, and financial institutions
Large insurance companies and investment funds
Brokers, floor traders, locals.
Screen operators from broking houses who decide to chance their arm.
Investors who migrate from investing in stocks, to daytrading, and then to futures.

who makes them

Superannuation Funds and large Fund Managers hire finance graduates at the end of each year, train them, give them experience over the new year break. Those with aptitude survive. Those without move on.

Bank Treasury departments hire an annual intake of finance graduates, train them for six months before allowing them to trade unsupervised. Those without aptitude move on.

who takes them

Broking Houses and Hedge funds head-hunt the top guns from banks, fund manager and institutions.

the opposition

Then there is the opposition, who they are, what they will do, and what they will do to you. Their sole purpose is to take your money off you. They are bigger and better. They have been doing it for a long time. They are very large.

the market

The market is created by, occupied by, and operated by the opposition. Learn about them.

markets

There are several markets within a single market
Outright market. Custom Market. Options Market. Strip Market. Upstairs market.
Options on Futures can be traded in the normal way of options.

futures - simple

Simple futures have a single underlying instrument representing a single product or commodity.
ie a currency, interest rates, energy, oil, wheat, corn, cattle, etc and individual stock futures. A force that impacts on the price of oil and energy is unlikely to impact on the price of corn or cattle. To keep this simple, individual products tend to be isolated from one another unless they are bracketed in the same sphere of influence such as energy and oil or interest rates and an associated currency and interest rate sensitive stocks.

futures - complex

Complex futures are index futures those with a complex underlying index. Indexes are complex-compounds that are impacted by many more influences compared to single commodity based future.

services - 15 years ago

Fifteen years ago online trading comprised a number of components. A phone broker, data vendor, computer, software. Traders had to assemble the package themselves. It was possible to go to the public gallery at the exchange and watch the floor. Several specialist software suppliers provided trading rooms and cubicles for rent. Brokers provided viewing rooms. Now brokers offer the lot in a single one-stop package. The independent data vendor has gone. The independent specialist software is going or gone. A premier US software vendor developer exitted the software business and went into the broking business.

services today - 2005

Life is harder for the course providers because broker packages are cheaper than education courses. The problem still exists. Brokers are not providing education. The education seminar industry is being squeezed by brokers low cost no-frills offerings. Leaving course providers to rely on course quality, as the money making add-ons are taken over by the broking industry.

The broking industry is gun-shy now. SEC cases against the industry for making statements with reckless disregard as to their accuracy, or knowing them to be false, has slowed them down. It could be dangerous to present education material they didn't believe in, or don't use themselves.

As a general rule brokers do not and should not provide trading education. There is an ethics-conflict issue while brokers trade large house-accounts. Preferably the industry should establish chairs, fund scholarships and courses at universities and colleges.

Footnote 2007
It is necessary to understand the distinction between retail-brokers and "prime-brokers". While providing retail services, prime-brokers are also "proprietary traders" in their own right. See proprietary trading for a definition of prime-broking, and a list of prime-brokers. Novices attending seminars conducted by the stock exchange or prime-brokers will receive a general grounding in charting, technical analysis, and moving averages. Since 2003 the prime-broking industry has increasingly used algorithm trading systems for their trading activities. The links to published articles on algorithmic trading lead to the following statement. "One reason prime-brokers don't publish details of how their algorithms work is the fear of reverse engineering. Approximately 80 percent of algorithms use VWAP. It seems unlikely many developers devote much time on reverse engineering other strategies". Which leads to the paradox - prime-brokers not disclosing their trading methods, while at the same time offering charting and technical analysis seminars to retail customers.


up-side effect

Services are becoming cheaper and more standardised as brokers add-value to their services.

down-side effect

Services are becoming commoditised. Less distinguishing features, variety, choice. More people using the same products. Pulling the same levers. Looking at the same indicators. All at the same time. The problem? All together now .. Simon says .. do this.

One size fits all. One color suits all.
One hundred years ago, Henry Ford said you can have any colour, so long as its black.
And thats the way it was. The Model-T Ford came in one take-it or leave-it colour. Black

wildfire

The Magic Method Seminar. An educator presents seminars at which the method is disclosed. Word of its success spreads like wildfire. If it's any good it will be standing room only, attendance by invitation only. Bookings will be essential - 6 months ahead. Be wary if seats available immediately. Something is wrong.

surefire

industry cliche - those that know, don't tell, and those that tell, don't know.

final solution

The final solution is to do it yourself. Use the grey box. Train it yourself

solutions

Detailed explanations, and self-help solutions can be seen on this site.


  topics dealt with in depth
  market components 3 main components explained  
  electronic markets market depth, market queues
  supply and demand in a futures market - theory
  supply and demand in a futures market - measurement  
  self education and training in a futures market
  consulting know-how and knowledge-base





charismatics

missionaries and fanatics
In the deep south a revivalist meeting is in progress. A charismatic evangelist fires up the congregation with fire and brimstone. Many see the "light" and become immediate devotees. In a state of heightened fervour, the congregation contribute generously as the collection plate is passed around.

chartists and fanatics
In the far north, a charting seminar is in progress. A charismatic presenter fires up the congregation with promises of untold wealth and riches. Novices learn charting is the light and the way. Convinced they have found salvation and the holy grail. In a state of heightened expectation the congregation contribute generously. Signing on for the never-ending journey to "el-dorado" and "valhalla".



First Published 2002
Last updated November 2007