Futures Help

[atlas1212]

Been learning a little about futures but was hoping someone could help me out.

So with stock, I buy at 25 and if it goes up, I can sell and make profit. If it goes down, I can sell but can't lose more than my initial investment.

With futures, let's say I buy a contract for 1000 at 85cents for whatever..let's say sugar. If it goes up, I make money. If I stop loss it at 81. I lose my thousand but do I also have to pay the other few hundred I lost? if so, how does that work?

 

[haha]

Been learning a little about futures but was hoping someone could help me out.

So with stock, I buy at 25 and if it goes up, I can sell and make profit. If it goes down, I can sell but can't lose more than my initial investment.

With futures, let's say I buy a contract for 1000 at 85cents for whatever..let's say sugar. If it goes up, I make money. If I stop loss it at 81. I lose my thousand but do I also have to pay the other few hundred I lost? if so, how does that work?

Please, stand back from your computer, do not go near futures until you are very familiar with all you can become familiar with. This is not a forgiving avocation for non experts.

Ha

 

[atlas1212]

Yes. thank you. But do you have an answer to my question?

 

[haha]

Yes. thank you. But do you have an answer to my question?

You have it. When you don't need to ask these kinds of questions on an internet board, do a little trading if you want to. The leverage is certainly there. But I nor any other experienced person would give trading advice to such an obvious tenderfoot. Get a book, set up a dummy trading account account, or better yet, forget the whole idea.

Ha

 

[atlas1212]

Listen, I'm not going to start trading them today. I'm simply asking the question so I can learn. So, once again, if you buy a contract at 1000 and it slips below where you bought it, are you responsible for more than the loss of your initial investment? Also, how does that work as far as paying that additional amount if that is the case? Ie. who do you pay etc?

If you dont' want to answer the question, just skip this thread and move on to another topic. Don't need smart ass replies. thanks.

 

[FinanceDude]

If you dont' want to answer the question, just skip this thread and move on to another topic. Don't need smart ass replies. thanks.

Google it. This is a forum composed of conservative investors, many of whom would never play the futures market. I doubt you will get many replies. I am sure there are many blogs and websites that go into detail, along with a community of folks who are experts........

Oh, and dissing a long-term poster with 14,000+ posts when you have FIVE, is probably not a good thing.........

 

[atlas1212]

I didn't diss him. Just said his reply wasn't helpful and he was being a smartass. Was I wrong?

 

[FinanceDude]

I didn't diss him. Just said his reply wasn't helpful and he was being a smartass. Was I wrong?

Yes, you were wrong. You probably don't know this because you're new, but we frequently get folks that join the forum and start firing questions around and get impatient when they don't get the answers. This board is chock full of people who retired early by scrimping and saving for decades, and most of them never had a margin account, traded options or futures, etc.

So the long answer is, most people on here are not familiar with futures, and the ones that could answer don't feel the need to............

 

[DblDoc]

I didn't diss him. Just said his reply wasn't helpful and he was being a smartass. Was I wrong?

Yes. He gave you very sage advice.
As did FD.

DD

 

[Bestwifeever]

Here you go, only $16.49 at Amazon (I've found many Dummies books to be very helpful):

 

[rescueme]

I agree with the comments made by others, concerning the makeup of many/most of the contributors to this forum.

Maybe this site would suit you better, or at least get the info you are seeking:

Investment Basics

 

[haha]

As an aside, I have in fact traded futures, I only finally closed my account after 20 years last year.

I studied a lot before trying it, and I have reasonable instincts. In the mid 80s I traveled to KC, thinking of buying a grains seat and trying my hand in the minors. I passed on this opportunity, though it was an attractive working environment a lot like a locker room. Nevertheless, I think overall I netted no more than $10,000, on all straight trades, spreads, and commodity options. And it took a lot of attention. One thing that did tend to work when it (infrequently) presented itself was putting on the TED spread when it had narrowed almost to parity, a very low risk trade.

I did not tell newby that he shouldn't do it, just that a person who is so ignorant of what it takes to succeed, that he is asking such very basic questions about how you lose more than your bet, should likely take another pathway. I then put him on ignore which I have found to be good practice with demanding, impolite posters.

I just looked back at my above posts to him- he really could not get better advice, even if he was paying for it. In case the term is not well known, a dummy trading account does not imply stupidity. It is an account which allows one to trade make-believe contracts with make-believe money. This does not address what happens to you emotionally when you realize that you could lose your house, your daughter's college account and perhaps your wife, but it is better than no experience at all.

Ha

 

[Alan]

...This does not address what happens to you when you realize that you could lose your house, your daughter's college account and perhaps your wife ...

In a bazaar in a town in Tunisia I was once offered 3 camels for my wife, who was 5 months pregnant at the time. I wouldn't have had much of a future if I'd made that trade

 

[FIRE'd@51]

Been learning a little about futures but was hoping someone could help me out.

So with stock, I buy at 25 and if it goes up, I can sell and make profit. If it goes down, I can sell but can't lose more than my initial investment.

With futures, let's say I buy a contract for 1000 at 85cents for whatever..let's say sugar. If it goes up, I make money. If I stop loss it at 81. I lose my thousand but do I also have to pay the other few hundred I lost? if so, how does that work?

The answer to your question is when you buy a futures contract, and the futures price drops, you lose (the futures price change) x (the number of units of the underlying per contract) x (the number of contracts you bought). This number may be bigger than the margin you post, which is typically just a few % of the value of the underlying represented by the contracts. Even if you have a stop, the price can blow through it in a volatile market, and you are responsible for where it actually sells.

If you fully collateralize the futures position (rather than just posting the initial margin required), you can't lose more than you post, since there would be no leverage, and it would be equivalent to purchasing the underlying with full payment up front.

 

[brewer12345]

OP, do yourself a favor and stay away from futures. If you have to scratch the itch, trade options (long only, with no margin). That way you know exactly what is at risk (the money you pay to buy the options).

 

[Sandhog]

Can I trade my future with one you lucky FIRE members?

 

[rescueme]

Can I trade my future with one you lucky FIRE members?

Nope. That why we're (at least me) are here, and you are "there". Your future is unknown; mine is not.

Be patient, grasshopper....

BTW, IMHO "luck" was only part of the "solution"....

Heck, your (unknown) future may be much better than us "old pharts" who post on this board, when you reflect upon it - many years in the future...

 

[eridanus]

You don't really "buy" a future. You post a margin (or "performance bond") on it. What you post depends on the broker and the futures authority. In times of high volatility, the broker might increase the margin at inopportune times.

If you go long the ES (e-mini S&P future), you'd have a multiplier of 50. It's currently at 1312. If you went long at 1312 and it dropped 5% overnight, you'd be out $3280 (1312 * .05 * $50). The maximum you could lose would be $65600 if it dropped to -0-.

A stop can be blown through during certain market events such as the 2008 crisis (or the flash crash). If your account can't handle it, the broker will close your positions and then close your account and then send you a bill.

You'd be surprised at how quickly a 6 figure account can drop to the low 5 figures by trading futures.

 

[JOHNNIE36]

I know nothing of what y'all are talking about except this story. Some years back we were in Naples, FL with our RV. Friends of ours were also down there in their motor home. They asked us to visit them at their son's home, also in Naples. Met them all at McMansion, were introduced to their son and wife and had a nice visit and dip in megapool, drinks at bar built into megapool, dinner, etc. During the visit it came out that everything was due to futures trading. Long story short; two years later it was all gone. So much for futures trading.

 

[travelover]

In a bazaar in a town in Tunisia I was once offered 3 camels for my wife, who was 5 months pregnant at the time. I wouldn't have had much of a future if I'd made that trade

Are you going to share your counter offer?

 

[steelyman]

In a bazaar in a town in Tunisia I was once offered 3 camels for my wife, who was 5 months pregnant at the time. I wouldn't have had much of a future if I'd made that trade

Hopefully you said, "Thank you, but I don't smoke".

 

[haha]

I had an interesting experience today that bears on futures trading. I was having a glass of wine and some oysters at a hotel bar when in comes this middle aged, very outgoing guy who introduced himself as Mike. He is a Merrill stockbroker. He had many, many good stories to tell, but the one that bears on this is that in the early 70s all Merrill brokers were also required to have commodities certification. There were a lot of ticket writing errors, and Merrill was having to eat these losses. So Mike's boss gave him the job of doing a profitability study on their Seattle retail commodity business. Ten years, zero profit! Then he got the job of analyzing client turnover to see if it might be worthwhile continuing just as business development. Huge client turnover- they came in, got wiped out, and left forever.

So the office shut down it's commodity business, and fired the brokers who didn't want to become stock brokers.

Ha

 

[clifp]

With futures, let's say I buy a contract for 1000 at 85cents for whatever..let's say sugar. If it goes up, I make money. If I stop loss it at 81. I lose my thousand but do I also have to pay the other few hundred I lost? if so, how does that work?

Nothing wrong with advice given Atlas, but folks would really be hard to answer his question with?

"Yes because futures are almost always bought on margin you can easily lose more than your investment because stop loss don't always work"

Then follow with sage advice of don't do this stuff without becoming a lot smarter.

 

[NW-Bound]

In a bazaar in a town in Tunisia I was once offered 3 camels for my wife, who was 5 months pregnant at the time. I wouldn't have had much of a future if I'd made that trade

Oh, I would not blame your wife if she got furious.

I thought a minimum deal for a fair trade was 5 camels and 50 goats.

 

[Nords]

How are you getting on with your trading Atlas1212? Hope you have taken the advice on here to heart.

Nothing wrong with advice given Atlas, but folks would really be hard to answer his question with?
"Yes because futures are almost always bought on margin you can easily lose more than your investment because stop loss don't always work"
Then follow with sage advice of don't do this stuff without becoming a lot smarter.

I'm with Clif. Because, golly, we wouldn't want to make those new users feel unwelcome, would we?

Atlas has only six posts, four on this thread and two on gold. I think the result was predictable, and he's probably moved on to more fertile tutorials over at Yahoo! finance...