| Futures Trading, Is It The Best High Yield Investment? Yes And Heres Why |
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| Written by Eric Christensen |
| Sunday, 20 June 2010 09:37 |
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In my opinion the best high yield investment is futures, there's no doubt in my mind. But trading futures on your own with very little experience or without a long term strategy or a strategy that hasn't been tested is like running onto a battle field with a rifle and thinking "hey I have a rifle, I should be ok as long as I don't get shot at". This analogy sounds stupid but its what so many new traders do on a routine basis, and it's a routine bound for inevitable disaster. Futures have long held the stigma as one of the highest risk investments available, and understandably so with almost 95% of new traders entering the market losing most of their investment within 6 months of the day they started. But let me ask you this, if investing in futures were a guaranteed loser then why would there be any investors at all? The obvious answer is because that other 5% makes money and a lot of it! So the next thing you're probably thinking is aren't those 5% making money at the expense of the other 95%? In partial this is true. But mostly it has nothing to do with those other 95%, they just add more buyers and sellers to the market thus creating more liquidity and being able to get out of the market, this is similar to selling a house with numerous offers on it and having a market filled with buyers and sellers at the same time. The bulk of the futures market movement consists of hedgers and fundamental events that drive the majority of investors or hedgers to buy or sell, it's not so much about what newbie speculators do.
In my opinion the best high yield investment is futures, there's no doubt in my mind. But trading futures on your own with very little experience or without a long term strategy or a strategy that hasn't been tested is like running onto a battle field with a rifle and thinking "hey I have a rifle, I should be ok as long as I don't get shot at". This analogy sounds stupid but its what so many new traders do on a routine basis, and it's a routine bound for inevitable disaster. Futures have long held the stigma as one of the highest risk investments available, and understandably so with almost 95% of new traders entering the market losing most of their investment within 6 months of the day they started. But let me ask you this, if investing in futures were a guaranteed loser then why would there be any investors at all? The obvious answer is because that other 5% makes money and a lot of it! So the next thing you're probably thinking is aren't those 5% making money at the expense of the other 95%? In partial this is true. But mostly it has nothing to do with those other 95%, they just add more buyers and sellers to the market thus creating more liquidity and being able to get out of the market, this is similar to selling a house with numerous offers on it and having a market filled with buyers and sellers at the same time. The bulk of the futures market movement consists of hedgers and fundamental events that drive the majority of investors or hedgers to buy or sell, it's not so much about what newbie speculators do. So now the question is: where are the successful traders making money? Simple: all they do differently is use back tested trading systems to execute precise trades when entering and exiting the market. Automated trading systems have grown in popularity over the last 8 years and now make up the bulk of most trading on the exchanges. But trading systems are a small part of the big picture; you still need to find one that can withstand an ever changing market and not just the current market pattern. A trading system isn't a person, it's not counter intuitive and it won't recognize changing patterns in the market. For this reason it's important to find a system that will flow with the large market moves and not fight operate to the contrary. I've traded many systems over the years and found that this type of system is the only one that will produce a good long-term result. This type of system uses as simple formula to tell whether a large move in one direction is likely for the day, it will then get out at the end of the day whether it was a long or short position. Futures' trading has advantages that traditional investments don't. Your success won't be affected by a recession because you can take advantage of both directions the market may be moving at any given time. A general misunderstanding about futures is that you're not actually investing in anything. A futures strategy is basically just an equity machine that's not committed to any long-term stay in the market. You don't have to wait more than a day to get your capital out and your able to leverage a large volume commodity or currency to your advantage. For example: When you trade futures your using a small amount of money to control something that has much more value than you are using to control it. The money that's in your trading account is margin or the equivalent of earnest money on a house. The earnest money doesn't obligate you to buy the house but allows you to control if for a period of time. When you enter into the futures market you are hoping to take advantage of a price difference just like the way you would with equity in a home, then turning around and selling the rights to the contract for a profit. But what separates futures from a home or any other asset class is the fact that you can quickly take advantage of the loss in value of the commodity. The value change and turn around time will also occur much much faster in the commodity market unlike with real-estate and the Futures market is many times more liquid with plenty of buyers and sellers at any given moment. This is why good futures traders and Commodity Trading Advisers tend to always make high returns because its not an appreciating asset that you buy and hold for a long period of time, your just taking advantage of price differences either multiple times a day or multiple times per month. Even a good trading strategy will always lose once in a while, there's no getting around that, but in turn it should make 2 to 3 times in profit what it does in loses on an on going average. When you view the long term chart of a system don't focus so much on how much it makes but how consistently it makes it. I would take a strategy that earns half of one that produces double, as long as its equity gain curve was extremely straight and climbing steadily with out dropping too much. So in essence you're not really investing in anything, you're just investing in a method of taking small amounts of money out of the market on a daily basis. My recommendation to beginning traders is this, if your going to begin trading futures the best place to start is by finding a good CTA (commodity trading adviser) and having them manage your futures account. There are plenty of CTA's with good track records. Many CTA's use automated trading systems that they monitor and adjust themselves on an on a daily basis. Good CTA's know what trends to look for and adjust trading for your risk tolerance. A commodity-trading adviser has power of attorney on your account he does not have access to your funds. A third party clearing firm connected with the brokerage your using insures and holds the funds. Generally you have access to the funds within 1 business day. Are Futures extremely risky? I'll let you decide. Most financial advisers will discourage you from futures and for very good reasons as I stated above. But when you do your homework and find a good strategy using common sense principals as I've discussed in this article you will have the best high yield investment you can find that performs ten fold to what your regular investment portfolio can produce, and the best part of all is that the state of the economy will have nothing to do with how well it performs. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. If your looking for the best high yield investments, then visit www.phgfutures.com to find the best information on high yield investment accounts for your portfolio |