The futures market comprises mainly of two players, namely, the hedgers and the speculators. While the former use futures as a safety or protection blanket, the latter is a group of traders who handle the trading accounts of those investing in the futures.
Futures trading can be arisky business that can require guidance and consultancy. Whether you are an individual or a firm, you need to be well-versed with the rules of the game. Futures brokers are always there to help you with advice and help you in matters related to futures trading. A rule of futures trading is that one canonly use those funds that have been termed as risk capital.
We at Cannon Trading help your understanding of the big and small things about futures brokers and trading. Apart from that, we also aid you in making the most out of the market; and, no matter how volatile and risky it is we offer the best advice we possibly can on trading. Under this category of futures broker, we write about the latest and informative articles that you should read to get equipped on the recent events in the futures markets.
Listen to our podcast: Subscribe on Apple, Spotify, Amazon, or wherever you listen to podcasts!
Movers and Shakers
By John Thorpe, Senior Broker
Oil took another $3 .40 nosedive when OPEC announced a smaller than expected demand growth forecast for 2025 for the Third time!
Updated: October 14, 2024 8:43 am
For the third time OPEC slashed its 2024 and 2025 worldwide crude oil demand growth rate. This year’s demand was lowered to 1.93 mln bpd, down from last month’s projection at 2.03 mln mt. Analysts noted much the downgrade came from lower expected Chinese demand. Next year’s demand growth is seen at 1.64 mln bpd down from 1.74 mln bpd previously forecast.
Flirting with the low end of the 25 month old range, November crude held it’s ground around $69.75/bbl level , a mere 3 dollars from the springtime 2023 lows.
Equity markets were upset by poor United healthcare Group end of year Guidance although they beat EPS estimates, Buy the rumor sell the fact? UNH shares down 48.25 per share or nearly 8%.
Metals cruised higher today with the CME FedWatch tool reflecting a solid 90% chance the FED will lower rates .25-50 in its November meeting is again fueling speculative buying in the Yellow Metal.
The All time high in the December contract is 2708.70 , are we flirting with that number?, yes, as of this writing GCZ24 is @ 2678.00 can we take that out? Stay tuned…
Sympathetic Silver is recouping it’s bullish stance, 1.80 away from it’s contract high @ 31.70 /oz +.37 for the day
Watch Tomorrow’s Movers and Shakers:
No Fed Speakers, No Economic Data, very few ,if any earnings that would make headlines.
About: Cannon Trading is an independent futures brokerage firm established in 1988 in Los Angeles. Our mission is to provide reliable service along with the latest technological advances and choices while keeping our clients informed and educated in the field of futures and commodities trading.
Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.
Broker’s Trading System of the Week – Unleaded Swing Trading System
Trading Levels for Next Week
Trading Reports for Next Week
Important Notices – Next Week Highlights:
The Week Ahead
By John Thorpe, Senior Broker
A relatively Quiet Data week next week, Geopolitics may be the only driver of volatility. One Caveat: the Fed Speakers dialogue may be given much more weight by investors as there will be a lot less noise in the form of Economic Data and earnings from prominent “Magnificent Seven” stocks to drive market volatility.
Prominent Earnings this Week:
Tues, pre-open United Healthcare, B Of A, Goldman Sachs, Citi Group, Johns and Johnson
Wed. Abbott Labs,
Thu. NetFlix Post-Close
FED SPEECHES:
Mon. Kashkari, Waller, 2nd Kashkari.
Tue. Kugler, Bostic
Wed. QUIET
Thu. QUIET
Fri. Bostic, Waller, Kashkari, Bostic
Big Economic Data week:
Mon. BANKS CLOSED-Columbus Day National Holiday
Tues. Quiet
Wed. Quiet
Thur. Bus. Inventories, Jobless Claims.
Fri. Housing Starts, Building Permits
Futures 101: Crude Oil – What’s in Store for the next 2 Weeks?
Hot market of the week is provided by QT Market Center, A Swiss army knife charting package that’s not just for Hedgers, Cooperatives and Farmers alike but also for Spread traders, Swing traders and shorter time frame application for intraday traders with a unique proprietary indicator that can be applied to your specific trading needs.
December heating oil Rallied to its second upside PriceCount objective before correcting. At this point if the chart can resume its rally with new sustained highs, the 3rd count would project a possible run into the 2.59 area
PriceCounts – Not about where we’ve been , but where we might be going next!
The PriceCount study is a tool that can help to project the distance of a move in price. The counts are not intended to be an ‘exact’ science but rather offer a target area for the four objectives which are based off the first leg of a move with each subsequent count having a smaller percentage of being achieved. It is normal for the chart to react by correcting or consolidating at an objective and then either resuming its move or reversing trend. Best utilized in conjunction with other technical tools, PriceCounts offer one more way to analyze charts and help to manage your positions and risk. Learn more at www.qtchartoftheday.com
Trading in futures, options, securities, derivatives or OTC products entails significant risks which must be understood prior to trading and may not be appropriate for all investors. Past performance of actual trades or strategies is not necessarily indicative of future results.
Broker’s Trading System of the Week
With algorithmic trading systems becoming more prevalent in portfolio diversification, the following system has been selected as the broker’s choice for this month.
The performance shown above is hypothetical in that the chart represents returns in a model account. The model account rises or falls by the average single contract profit and loss achieved by clients trading actual money pursuant to the listed system’s trading signals on the appropriate dates (client fills), or if no actual client profit or loss available – by the hypothetical single contract profit and loss of trades generated by the system’s trading signals on that day in real time (real‐time) less slippage, or if no real time profit or loss available – by the hypothetical single contract profit and loss of trades generated by running the system logic backwards on back adjusted data. Please read full disclaimer HERE.
Would you like to receive daily support & resistance levels?
* This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts here in contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgement in trading.
Economic Reports
provided by:ForexFactory.com
All times are Eastern Time ( New York)
Improve Your Trading Skills
Get access to proprietary indicators and trading methods, consult with an experienced broker at 1-800-454-9572.
Explore trading methods. Register Here* This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts here in contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgement in trading.
#Equities, #Consolidation phase, #Interest rates, #Precious metals, #Gold, #Silver, #US Dollar, #Crude oil prices, #HurricaneHelene, #Middle East tensions, #Chinese stimulus, #Redbook US Retail Sales, #Case Schiller US Metro-Area Home Prices, #Richmond Fed Manufacturing Index, #Service Sector Index, #Consumer Confidence, #New Home Sales, #Micron Technology
By John Thorpe, Senior Broker With Equities quietly trading in a consolidation phase, Interest rates following, the precious metals ,once again found footing and surprised many traders with their mid-day upside move, Gold higher by $36.00 @ 2689.00, Silver up $1.50 into the $32.50 /Troy OZ range.. The US Dollar @ 100.10 continuing it’s 2.5 month long slide, flirting with 14 month lows of 99.22. Metals should gain additional strength if the dollar falls below that number on a closing basis. Todays Headlines Updated: September 24, 2024 6:12 am Churning hurricane threatening US production, continued Middle East tensions, and Chinese stimulus measures have helped crude oil prices trade higher on Tuesday. Updated: September 24, 2024 7:00 am China’s central bank announced its largest stimulus measures since the pandemic. The bank will lower interest rates and additional funding. However, analysts say very week consumer and business demand for credit will have little response to lower interest rates, and the lack of fiscal stimulus measures will leave the central bank’s response to fall short of jump starting the economy and beating back deflationary environment. Updated: September 24, 2024 7:55 am Redbook Weekly US Retail Sales Headline Recap **Redbook Weekly US Retail Sales were +5.2% in the first three weeks of September 2024 vs September 2023 **Redbook Weekly US Retail Sales were +4.4% in the week ending September 21 vs yr ago week Updated: September 24, 2024 8:00 am Case Schiller 20 US Metro-Area Home Prices Recap **Case Schiller 20 US metro area home prices for July Y/Y: +5.9% from the year ago month **Case Schiller 20 US metro area home prices for July M/M: +0.01% vs prior month Updated: September 24, 2024 9:02 am Richmond Fed Manufacturing Index Headline Recap **Richmond Fed September Manufacturing Index: -21.0 ; prior -19.0 **Richmond Fed September Manufacturing Shipments Index: -18.0 ; prior -15.0 **Richmond Fed September Manufacturing New Orders: -23.0 ; prior -26.0 **Richmond Fed September Manufacturing Employees: -22.0 ; prior -15.0 **Richmond Fed September Manufacturing Prices Paid: +3.36 ; prior +2.45 **Richmond Fed September Manufacturing Prices Received: +1.57 ; prior +1.87 **Richmond Fed September Service Sector Index:-1.0 ; prior -11.0 Updated: September 24, 2024 9:09 am Conference Board Consumer Confidence, Present Situation, Expectations Index Headline Recap **Conference Board September Consumer Confidence Index: 98.7 ; prior revised to 105.6 from 103.3 ; expected 102.8 **Conference Board September Consumer Present Situation Index: 124.3 ; prior revised to 134.6 from 134.4 **Conference Board September Consumer Expectations Index: 81.7 ; prior revised to 86.3 from 82.5 Tomorrows Movers and Shakers New Home Sales Released On 9/25/2024 10:00:00 AM For Aug, 2024 US new home sales data for June will be updated Wednesday morning at 9:00 am CT. Analysts expect new home sales month-to-month at a 0.640 mln unit annualized pace, up +3.4%. The prior month’s sales were -11.3% at 0.619 mln unit annual rate. Micron Technology reports after the close
* This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts here in contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgement in trading.
#Equities, #Consolidation phase, #Interest rates, #Precious metals, #Gold, #Silver, #US Dollar, #Crude oil prices, #HurricaneHelene, #Middle East tensions, #Chinese stimulus, #Redbook US Retail Sales, #Case Schiller US Metro-Area Home Prices, #Richmond Fed Manufacturing Index, #Service Sector Index, #Consumer Confidence, #New Home Sales, #Micron Technology
September 23, 2024 by GalTrades.com
Powel said at the Jackson hole meeting, “The time has come for policy to adjust,” The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”
It didn’t matter if we got a .25 or .50 basis point rate cut, earnings growth will determine if the market can keep going up.
The market made new all-time highs, but only one MAG7 stock made new all-time high, META. That means the rally is broadening, a positive point for the market.
The S&P is currently trading at a forward P/E of 21 which suggests that a lot has been priced regarding the bull thesis. Valuations are high and that should be noted. How much higher can the market go up? remains to be seen.
“don’t fight the Fed” or “don’t fight the trend” are statements to sustain near-term bullish momentum. Aside from the FED cutting rates, the economy still appears to be on firm footing.
Next week the earnings and economic calendar is relatively light, outside of next Friday’s PCE report, but perhaps this can be conducive for recent bullish momentum. In the absence of news, the path of least resistance is higher. Yes, we are still in the midst of bearish seasonality, but the technicals look encouraging.
Going forward bad news is good news because the FED will need to lower rates on bad news, unless the news is disastrous.
As long as the SPX can remain above July’s prior all-time closing high 5,667, we should see continuation. An SPX close below 5,667 could introduce concerns of a false breakout to all-time highs, which would likely introduce some additional selling pressure
A positive point: 76% of the S&P 500 stocks are above there 50 Day Moving Averages and 76% are above their 200 Day MA.
Year to date the two top performing factors were momentum and growth which were up 29/27 % respectively. The two worst preforming groups were yield and value stocks. In the last 3 month that flipped. Dividend and value stocks get an uptick when rates come down.
I see analysts calling for the small caps to go up with rate cuts. The action on Wednesday didn’t show that. It may be wise to react as opposed to jumping in now. It would make more sense for mid-caps to go up prior to small caps as there are more profitable companies in mid-cap sectors.
Statistics show post-election the markets usually end higher. And in the past when the FED has cut rates in a soft landing, or no landing markets ended up higher for the next 6 to 12 months almost 100% of the time.
Cyclical, mortgage, auto loan rates and small cap stand to benefit from rate cuts.
Rate cuts can ignite small caps and value stocks. The IJR index contains a higher % of companies which are profitable as opposed to the IWM Russell 2000.
Bull market indicators usually benefit capital market plays, stocks such as; CBOE, IBKR, BLK, GS. Rate cuts should help the homebuilders XHB ETF.
If Fed rate cuts can bring short-end bond yields down to more normal rates, then banks wouldn’t have to overcompensate at the long end and longer-term loans like mortgages could come down. That would put more money in the pockets of everyday Americans and help fuel all sectors of the stock market — not to mention the benefit lower rates have on valuations.
Commodities and oil prices are down, rates are coming down. That’s all good for companies and the consumer.
Energy companies as opposed to the price of oil. historically this sector has been one of the best sectors going into a rate cut. What we didn’t have in the past is a slowdown in China, that narrative should put a lid on appreciation. There may be some individual names that are exceptions.
FINISH ARTICLE HERE
Daily Levels for September 23, 2024
Economic Reports
provided by:ForexFactory.com
All times are Eastern Time ( New York)
Improve Your Trading Skills
Get access to proprietary indicators and trading methods, consult with an experienced broker at 1-800-454-9572.
Explore trading methods. Register Here* This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts here in contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgement in trading.
Important Notices – Heavy Fed Speaking, Active Data, Few Earnings
Futures 101 – Tick Size & Minimum Fluctuations
Hot Market of the Week – March Sugar
Broker’s Trading System of the Week – Copper Swing Trading System
Trading Levels for Next Week
Trading Reports for Next Week
Important Notices – Next Week Highlights:
The Week Ahead
Heavy Fed Speak Week, active data and a few earnings highlight the week ahead.
Light Earnings, by largest Market Cap
Wed, Micron Technologies After the close
Thursday, Accenture pre-open, Costco after the close
Fed Speak schedule
Mon. Goolsbee 9:15am CDT, Kashkari Noon CDT
Tues. Bowman 8:00am CDT
Wed. Kugler 3:00pm CDT
Thu. Collins 8:10amCDT, Powell 8:20am CDT, Williams 8:25 CDT, Treasury Sec. Yellen 10:15am CDT
Big Economic Data week:
Mon. S&P PMI Flash
Tues. Case-Shiller Home prices, CB Consumer Confidence, Redbook, Richmond Fed.
Wed. Building Permits, New Home Sales
Thur. Jobless Claims, Core PCE Final, GDP Final, Durable goods, Pending Home sales
Fri. Personal Income, Retail and Wholesale Inventories, Michigan consumer sentiment
How to Rollover on the E-Futures Platform video below
Futures 101: Tick Movements: Understanding How They Work
Minimum Price Fluctuation
All futures contracts have a minimum price fluctuation also known as a tick. Tick sizes are set by the exchange and vary by contract instrument.
E-min S&P 500 tick
For example, the tick size of an E-Mini S&P 500 Futures Contract is equal to one quarter of an index point. Since an index point is valued at $50 for the E-Mini S&P 500, a movement of one tick would be
.25 x $50 = $12.50
NYMEX WTI Crude Oil
The tick size of the NYMEX WTI Crude Oil contract is equal to 1 cent and the WTI contract size is 1,000 barrels. Therefore, the value of a one tick move is $10.
Summary
Tick sizes are defined by the exchange and vary depending on the size of the financial instrument and requirements of the marketplace. Tick sizes are set to provide optimal liquidity and tight bid-ask spreads.
The minimum price fluctuation for any CME Group contract can be found on the product specification pages.
Hot market of the week is provided by QT Market Center, A Swiss army knife charting package that’s not just for Hedgers, Cooperatives and Farmers alike but also for Spread traders, Swing traders and shorter time frame application for intraday traders with a unique proprietary indicator that can be applied to your specific trading needs.
March sugar has shifted its formation back to the topisde and activated upside PriceCount objectives in the process. The chart accelerated to its first upside count to the 21.85 area. It would be normal to get a near term reaction form theis level in the form of a consolidation or corrective trdae. IF you can sustain further strength, the second count projects a possible run to the 23.26 area.
PriceCounts – Not about where we’ve been, but where we might be going next!
The PriceCount study is a tool that can help to project the distance of a move in price. The counts are not intended to be an ‘exact’ science but rather offer a target area for the four objectives which are based off the first leg of a move with each subsequent count having a smaller percentage of being achieved. It is normal for the chart to react by correcting or consolidating at an objective and then either resuming its move or reversing trend. Best utilized in conjunction with other technical tools, PriceCounts offer one more way to analyze charts and help to manage your positions and risk. Learn more at www.qtchartoftheday.com
Trading in futures, options, securities, derivatives or OTC products entails significant risks which must be understood prior to trading and may not be appropriate for all investors. Past performance of actual trades or strategies is not necessarily indicative of future results.
Broker’s Trading System of the Week
With algorithmic trading systems becoming more prevalent in portfolio diversification, the following system has been selected as the broker’s choice for this month.
The performance shown above is hypothetical in that the chart represents returns in a model account. The model account rises or falls by the average single contract profit and loss achieved by clients trading actual money pursuant to the listed system’s trading signals on the appropriate dates (client fills), or if no actual client profit or loss available – by the hypothetical single contract profit and loss of trades generated by the system’s trading signals on that day in real time (real‐time) less slippage, or if no real time profit or loss available – by the hypothetical single contract profit and loss of trades generated by running the system logic backwards on back adjusted data. Please read full disclaimer HERE.
Would you like to receive daily support & resistance levels?
* This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts here in contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgement in trading.
Futures trading is a powerful financial mechanism that plays a crucial role in global markets. It provides market participants with tools to manage risks and seize opportunities in volatile market conditions. The two primary strategies employed by market participants in futures trading are hedging and speculating. Understanding these strategies and their application in the context of futures trading is essential for anyone involved in or considering involvement in the financial markets.
What is Futures Trading?
Before delving into the specifics of hedging and speculating, it’s important to understand what futures trading entails. A futures contract is a standardized legal agreement to buy or sell a specific commodity or financial instrument at a predetermined price at a specified time in the future. These contracts are traded on futures exchanges and cover a wide range of underlying assets, including commodities (like oil, gold, and wheat), financial instruments (such as interest rates and currencies), and stock indices.
Futures trading involves both the buyer and the seller agreeing to the terms of the contract. However, unlike traditional buying and selling of assets, futures trading often does not result in the physical delivery of the underlying asset. Instead, many traders close their positions before the contract’s expiration, settling the difference between the purchase and sale prices.
Hedging with Futures
Definition and Purpose of Hedging
Hedging with futures is a risk management strategy used by individuals and businesses to protect themselves against adverse price movements in the market. The primary goal of hedging is not to make a profit but to reduce or eliminate the risk of price fluctuations that could negatively impact a company’s financial performance or an investor’s portfolio.
How Hedging Works
Hedging with futures involves taking a position in the futures market that is opposite to one’s current position in the cash market. For example, a wheat farmer expecting to harvest 10,000 bushels of wheat in six months may be concerned about the possibility of falling wheat prices. To hedge this risk, the farmer can sell wheat futures contracts now. If the price of wheat declines, the loss in the cash market (selling the harvested wheat) is offset by gains in the futures market (selling futures contracts at a higher price than the eventual market price).
Types of Hedging Strategies
Short Hedge: This strategy is used by producers or sellers of a commodity who want to protect against the risk of falling prices. They sell futures contracts to lock in a future selling price for their commodity. If prices drop, the losses from selling the actual commodity are offset by the gains in the futures market.
Long Hedge: This is used by buyers who want to protect against rising prices. For instance, a company that needs to purchase raw materials in the future might buy futures contracts now to lock in the current price. If the market price rises, the company benefits from the futures contracts, offsetting the increased cost of purchasing the raw materials.
Advantages of Hedging with Futures
Price Protection: Hedging allows businesses to lock in prices, providing certainty and stability in their financial planning.
Cost Control: By fixing future costs, companies can better manage their budgets and financial forecasts.
Risk Management: Hedging reduces the risk of unfavorable price movements, protecting profit margins.
Disadvantages of Hedging with Futures
Opportunity Cost: If the market moves in favor of the hedger, they miss out on potential profits because their position in the futures market offsets gains.
Complexity: Hedging requires a good understanding of the market and the ability to accurately predict future price movements. Improper hedging can lead to increased losses.
Margin Requirements: Hedging with futures involves margin calls, which require maintaining a certain amount of capital in the trading account. This can tie up funds that could be used elsewhere.
Real-World Examples of Hedging with Futures
Agricultural Hedging: A corn farmer concerned about falling corn prices might sell corn futures contracts to hedge against this risk. If corn prices drop, the loss from selling the corn at a lower price is offset by the profit from the futures contracts.
Currency Hedging: A U.S. company that expects to receive payment in euros in six months might hedge against the risk of the euro depreciating against the dollar by selling euro futures contracts. If the euro’s value drops, the loss from the currency exchange is offset by the gain in the futures market.
Speculating with Futures
Definition and Purpose of Speculating
Speculating with futures involves buying or selling futures contracts with the goal of making a profit from changes in the price of the underlying asset. Unlike hedging, where the primary objective is risk management, speculating is about taking on risk in the hopes of earning a return. Speculators have no intention of taking delivery of the underlying asset; they are only interested in profiting from price movements.
How Speculating Works
Speculators analyze the market and make predictions about the direction of future price movements. Based on their analysis, they take positions in the futures market:
Going Long: A speculator buys futures contracts if they believe the price of the underlying asset will increase. If the price does rise, the speculator can sell the contract at a higher price and profit from the difference.
Going Short: Conversely, if a speculator believes the price will decline, they sell futures contracts. If the price falls, they can buy back the contract at a lower price and profit from the difference.
Types of Speculators
Day Traders: These are speculators who hold positions for a very short period, often just minutes or hours. They aim to profit from small price movements and typically close all positions by the end of the trading day.
Swing Traders: These speculators hold positions for several days or weeks, aiming to profit from short-term price trends.
Position Traders: Position traders take longer-term positions, holding contracts for months, based on broader economic or market trends.
Advantages of Speculating with Futures
High Leverage: Futures trading offers high leverage, allowing speculators to control large positions with a relatively small amount of capital.
Liquidity: Futures markets are highly liquid, meaning that speculators can enter and exit positions easily without significantly impacting the market price.
Potential for High Returns: Due to leverage and market volatility, speculators can potentially earn significant returns in a short period.
Disadvantages of Speculating with Futures
High Risk: The same leverage that allows for high returns also amplifies losses. Speculators can lose more than their initial investment.
Market Volatility: Futures markets can be highly volatile, and prices can change rapidly. This volatility can lead to significant losses if the market moves against a speculator’s position.
Complexity and Expertise: Successful speculation requires a deep understanding of the market, technical analysis, and economic factors. It is not suitable for inexperienced traders.
Real-World Examples of Speculating with Futures
Commodity Speculation: A speculator might buy crude oil futures if they believe a geopolitical event will cause oil prices to rise. If their prediction is correct, they can sell the contracts at a higher price and make a profit.
Stock Index Futures: A speculator who expects the stock market to decline might sell S&P 500 futures contracts. If the market falls, they can buy back the contracts at a lower price and profit from the difference.
Hedging vs. Speculating
Objectives
The primary objective of hedging is risk management. Hedgers use futures contracts to protect themselves from unfavorable price movements in the cash market. In contrast, the main objective of speculating is to profit from price changes. Speculators are willing to take on risk in hopes of earning a return.
Market Participants
Hedgers are typically producers, manufacturers, exporters, or importers who have a direct interest in the underlying asset. For example, a farmer, oil company, or multinational corporation might hedge their exposure to price changes in commodities or currencies. Speculators, on the other hand, include individual traders, hedge funds, and proprietary trading firms that have no interest in the underlying asset but are looking to profit from price fluctuations.
Risk Tolerance
Hedgers are generally risk-averse. Their goal is to reduce risk, not take it on. They use futures contracts to lock in prices and ensure stability in their financial performance. Speculators, however, are risk-takers. They seek out risk because they believe they can profit from it. The potential for high returns comes with the acceptance of high risk.
Time Horizon
Hedging is typically done with a longer-term perspective, as the goal is to protect against price changes that could impact the business or investment over time. For example, a company might hedge its currency exposure for the next six months. Speculators, however, often operate with shorter time horizons, ranging from a few minutes to several months, depending on their trading strategy.
Outcome Expectations
For hedgers, the best outcome is that the hedge effectively reduces or eliminates the risk of adverse price movements. They are not seeking to profit from the hedge itself, but rather to maintain financial stability. Speculators, on the other hand, expect to make a profit from their trades. Their success is measured by the accuracy of their market predictions and their ability to execute trades at the right time.
Hedging with futures and speculating with futures are two fundamental strategies in futures trading, each serving distinct purposes. Hedging is a vital tool for managing risk and ensuring financial stability, particularly for businesses and investors who have direct exposure to the underlying asset. It allows them to protect against adverse price movements and secure predictable financial outcomes. On the other hand, speculating with futures is about taking on risk in pursuit of profit. Speculators play a crucial role in the market by providing liquidity and helping to discover prices, but their activities are driven by the potential for high returns, which also comes with the possibility of significant losses.
Both strategies require a deep understanding of the futures markets, as well as the underlying assets, and they involve careful analysis and decision-making. For those involved in futures trading, whether they are hedging or speculating, the key to success lies in their ability to accurately assess market conditions, manage risk, and execute trades effectively. Futures trading, with its potential for both risk management and profit generation, continues to be an essential component of the global financial system, offering opportunities for a wide range of market participants.
For more information, click here. Ready to start trading futures? Call us at 1(800)454-9572 (US) or (310)859-9572 (International), or email info@cannontrading.com to speak with one of our experienced, Series-3 licensed futures brokers and begin your futures trading journey with E-Futures.com today.
Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involve substantial risk of loss and are not suitable for all investors. Past performance is not indicative of future results. Carefully consider if trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.
Important: Trading commodity futures and options involves a substantial risk of loss. The recommendations contained in this article are opinions only and do not guarantee any profits. This article is for educational purposes. Past performances are not necessarily indicative of future results.
This article has been generated with the help of AI Technology and modified for accuracy and compliance.
Futures trading is a dynamic and complex field that offers numerous strategies to accommodate different trading styles and objectives. Futures traders must understand the various approaches and tools available to them to make informed decisions and optimize their trading performance. This article provides a detailed exploration of several key trading strategies and concepts in futures trading, including swing trading, momentum trading, calendar spread futures trading, butterfly spread, high-frequency futures trading, crack spread, statistical arbitrage, and the impact of low margin rates on futures trading.
1. Swing Trading in Futures
Definition and Overview
Swing trading is a popular trading strategy in the futures market that involves holding positions for several days or even weeks to capitalize on short- to medium-term price movements. Unlike day trading, where positions are closed within the same trading day, swing traders aim to capture the “swings” in the market—short-term price fluctuations caused by market volatility.
How Swing Trading Works
Swing traders typically use technical analysis to identify potential entry and exit points. They look for patterns such as head and shoulders, flags, and triangles to predict price movements. Swing traders may also use indicators like moving averages, RSI (Relative Strength Index), and MACD (Moving Average Convergence Divergence) to confirm their predictions.
The key to successful swing trading lies in timing. Traders must be able to accurately predict when a trend will start and end, which requires a deep understanding of market dynamics and the ability to interpret chart patterns.
Advantages of Swing Trading
Flexibility: Swing trading allows traders to maintain a regular job or pursue other interests because it does not require constant monitoring of the markets.
Lower Transaction Costs: Since positions are held for longer periods compared to day trading, swing traders incur fewer transaction costs.
Potential for High Returns: By capturing significant price movements, swing traders can achieve substantial returns over time.
Disadvantages of Swing Trading
Overnight Risk: Holding positions overnight exposes swing traders to risks from unexpected market events, such as geopolitical developments or economic announcements, that can lead to significant price gaps.
Requires Patience: Swing trading requires patience, as traders must wait for the right market conditions to enter and exit trades.
Best Practices for Swing Trading
Use Stop-Loss Orders: To manage risk, swing traders should always use stop-loss orders to limit potential losses.
Stay Informed: Swing traders must stay informed about market news and events that could impact their positions.
Focus on Liquid Markets: Trading in highly liquid futures markets ensures that positions can be easily entered and exited without significant price slippage.
2. Momentum Trading in Futures
Definition and Overview
Momentum trading is a strategy based on the idea that assets that have been performing well will continue to do so in the near future, while assets that have been underperforming will continue to decline. Momentum traders aim to capitalize on the continuation of existing trends by entering trades in the direction of the momentum.
How Momentum Trading Works
Momentum traders use technical indicators like the Moving Average Convergence Divergence (MACD), Relative Strength Index (RSI), and the Momentum Indicator to identify trends and assess their strength. Once a trend is identified, momentum traders enter positions in the direction of the trend, holding the position until signs of a reversal or a slowdown in momentum appear.
Advantages of Momentum Trading
Potential for Quick Profits: Momentum trading can generate quick profits if the trader accurately identifies and capitalizes on strong trends.
Clear Entry and Exit Signals: Momentum indicators provide clear signals for entering and exiting trades, making the strategy easier to implement for traders who are skilled in technical analysis.
Disadvantages of Momentum Trading
High Risk of Reversals: Momentum trading carries the risk of sudden trend reversals, which can result in significant losses if the trader is not quick to react.
Requires Constant Monitoring: Momentum traders need to closely monitor the market to act swiftly when trends begin to reverse.
Best Practices for Momentum Trading
Trade in Active Markets: Momentum trading works best in highly active markets where trends are strong and persistent.
Use Multiple Indicators: Relying on a combination of momentum indicators can help traders confirm trends and reduce the risk of false signals.
Set Tight Stop-Losses: To manage risk, momentum traders should set tight stop-losses to protect against sudden reversals.
3. Calendar Spread Futures Trading
Definition and Overview
Calendar spread futures trading, also known as a time spread or horizontal spread, involves simultaneously buying and selling futures contracts on the same underlying asset but with different expiration dates. This strategy is used to profit from changes in the price difference (spread) between the two contracts.
How Calendar Spread Trading Works
In a calendar spread, the trader typically buys a futures contract with a longer expiration date and sells a futures contract with a shorter expiration date, or vice versa. The idea is to profit from the change in the spread between the two contracts as market conditions evolve. The spread can widen or narrow based on factors such as supply and demand, seasonality, or changes in market sentiment.
Advantages of Calendar Spread Trading
Reduced Risk: Calendar spreads generally have lower risk compared to outright futures positions because the trader is exposed to the price difference between the two contracts rather than the full price movement of the underlying asset.
Lower Margin Requirements: Because the risk is lower, margin requirements for calendar spreads are typically lower than for outright futures positions.
Disadvantages of Calendar Spread Trading
Complexity: Calendar spreads can be more complex to manage than simple long or short futures positions, as traders need to understand the factors that influence the spread.
Limited Profit Potential: The profit potential in calendar spread trading is generally lower than in outright futures trading because the price movement of the spread is typically smaller than the movement of the underlying asset.
Best Practices for Calendar Spread Trading
Monitor Market Conditions: Traders need to stay informed about market conditions that can affect the spread, such as changes in supply and demand or seasonal trends.
Use Technical Analysis: Technical analysis can help traders identify opportunities in calendar spreads by analyzing historical spread patterns.
4. Butterfly Spread in Futures Trading
Definition and Overview
A butterfly spread is a neutral options strategy that combines a bull spread and a bear spread. It involves buying and selling options with three different strike prices but with the same expiration date. In futures trading, a similar strategy can be applied using futures contracts.
How Butterfly Spread Trading Works
A typical butterfly spread in futures trading might involve buying one futures contract at a lower price, selling two contracts at a middle price, and buying one contract at a higher price. The goal is to profit from the price of the underlying asset remaining close to the middle strike price at expiration. The strategy profits if the underlying asset’s price is close to the middle strike price and losses are minimized if the price moves significantly in either direction.
Advantages of Butterfly Spread Trading
Limited Risk: The maximum loss is limited to the initial cost of setting up the spread.
Potential for High Reward: If the market price ends up near the middle strike price, the potential reward can be high relative to the risk.
Disadvantages of Butterfly Spread Trading
Limited Profit Potential: While the risk is limited, so is the profit potential, which is capped by the distance between the middle and outer strike prices.
Requires Precise Market Prediction: To profit from a butterfly spread, the trader must accurately predict that the market will remain within a narrow price range.
Best Practices for Butterfly Spread Trading
Use in Low Volatility Markets: Butterfly spreads work best in markets where volatility is low and prices are expected to remain stable.
Monitor Implied Volatility: Changes in implied volatility can affect the pricing of the options or futures contracts used in the butterfly spread, so traders should keep an eye on volatility levels.
5. High-Frequency Futures Trading
Definition and Overview
High-frequency trading (HFT) is a type of algorithmic trading characterized by the use of powerful computers to execute a large number of orders at extremely high speeds. In futures trading, HFT involves placing and executing orders within fractions of a second to take advantage of small price discrepancies in the market.
How High-Frequency Trading Works
HFT firms use sophisticated algorithms to analyze market data and execute trades at lightning speeds. These algorithms are designed to identify and exploit inefficiencies in the market, such as temporary price discrepancies between different exchanges or financial instruments. The profits per trade are usually very small, but the high volume of trades can result in significant overall profits.
Advantages of High-Frequency Trading
High Profit Potential: HFT can generate significant profits due to the sheer volume of trades executed.
Market Efficiency: HFT contributes to market efficiency by quickly correcting price discrepancies.
Disadvantages of High-Frequency Trading
Requires Advanced Technology: HFT requires significant investment in technology and infrastructure, including powerful computers and high-speed internet connections.
High Risk: The high speed and volume of trades mean that small errors in the algorithm can lead to substantial losses.
Best Practices for High-Frequency Trading
Develop Robust Algorithms: The success of HFT depends on the quality of the algorithms used, so it’s essential to invest in the development and testing of robust trading algorithms.
Monitor Latency: In HFT, even milliseconds can make a difference, so traders need to minimize latency in their trading systems.
6. Crack Spread in Futures Trading
Definition and Overview
The crack spread is a trading strategy used in the energy markets, particularly in oil and gas futures. It involves taking positions in the futures of crude oil and refined products like gasoline and heating oil to profit from the price difference (spread) between crude oil and its refined products.
How Crack Spread Trading Works
A typical crack spread trade involves buying or selling crude oil futures while simultaneously selling or buying futures contracts for refined products. The trader profits from changes in the spread between the price of crude oil and the prices of its refined products. For example, if the price of gasoline increases relative to crude oil, the spread widens, and a trader holding a long crack spread position would profit.
Advantages of Crack Spread Trading
Hedge Against Refining Margins: For companies involved in refining, the crack spread can serve as a hedge against fluctuations in refining margins.
Speculative Opportunities: Traders can speculate on the future direction of the spread based on factors such as seasonal demand, refinery outages, and changes in crude oil supply.
Disadvantages of Crack Spread Trading
Complexity: Understanding the relationship between crude oil and its refined products requires specialized knowledge of the energy markets.
Volatility: The crack spread can be highly volatile, leading to significant risks if not managed properly.
Best Practices for Crack Spread Trading
Stay Informed About the Energy Markets: Traders need to be aware of factors that can affect the supply and demand for crude oil and refined products, such as geopolitical events, weather patterns, and refinery capacity.
Use Risk Management Tools: Given the volatility of the crack spread, it’s essential to use risk management tools like stop-loss orders to protect against adverse price movements.
7. Statistical Arbitrage in Futures Trading
Definition and Overview
Statistical arbitrage (stat arb) is a trading strategy that uses mathematical models to identify and exploit price inefficiencies in the market. In futures trading, statistical arbitrage involves trading pairs or groups of futures contracts that have historically shown a statistical relationship, with the expectation that any deviations from this relationship will eventually revert to the mean.
How Statistical Arbitrage Works
Stat arb traders use historical price data and statistical models to identify pairs of futures contracts that are expected to move together. When the price of one contract deviates from its expected relationship with the other, the trader takes a long position in the undervalued contract and a short position in the overvalued contract. The positions are then held until the prices converge, at which point the trader closes the positions for a profit.
Advantages of Statistical Arbitrage
Market Neutrality: Because statistical arbitrage involves taking both long and short positions, it is generally market-neutral, meaning it is less affected by overall market direction.
Diversification: Statistical arbitrage strategies can be applied across multiple asset classes, providing opportunities for diversification.
Disadvantages of Statistical Arbitrage
Requires Advanced Analytical Skills: Implementing a statistical arbitrage strategy requires a deep understanding of statistical methods and access to large datasets.
Execution Risk: The success of statistical arbitrage depends on the accurate execution of trades, and small delays or errors can lead to losses.
Best Practices for Statistical Arbitrage
Use Robust Statistical Models: The key to successful stat arb trading is the accuracy of the statistical models used to identify trading opportunities.
Continuously Monitor Positions: Market conditions can change rapidly, so it’s important to continuously monitor positions and adjust the strategy as needed.
8. What Low Margin Rates on Futures Means for Your Trading
Definition and Overview
Margin is the amount of money required to open and maintain a futures position. It acts as a good faith deposit to ensure that the trader can cover potential losses. Low margin rates mean that traders need to put up less capital to control a larger position in the futures market.
Impact of Low Margin Rates on Futures Trading
Low margin rates can have a significant impact on futures trading by increasing leverage. With lower margins, traders can control larger positions with a smaller initial investment, which can amplify both potential profits and potential losses.
Advantages of Low Margin Rates
Increased Leverage: Lower margin requirements allow traders to leverage their capital more effectively, potentially leading to higher returns on investment.
Greater Market Access: Lower margins make futures trading accessible to a wider range of traders, including those with smaller account balances.
Disadvantages of Low Margin Rates
Higher Risk: While low margin rates increase potential profits, they also increase the risk of substantial losses. Traders need to be careful not to over-leverage their positions.
Margin Calls: If the market moves against a highly leveraged position, traders may face margin calls, requiring them to deposit additional funds or liquidate positions at a loss.
Best Practices for Trading with Low Margin Rates
Manage Leverage Carefully: Traders should be cautious about over-leveraging their positions and should always have a clear risk management plan in place.
Use Stop-Loss Orders: To protect against large losses, traders should use stop-loss orders to automatically close positions if the market moves against them.
Futures trading offers a wide array of strategies and approaches, each with its own set of advantages and challenges. Whether you are engaging in swing trading, momentum trading, calendar spread trading, or any of the other strategies discussed, it is crucial to have a deep understanding of the market dynamics and to implement effective risk management practices. Additionally, the impact of low margin rates cannot be overstated, as they can significantly influence the risk and return profile of your trading activities.
By mastering these strategies and understanding the underlying concepts, futures traders can better navigate the complexities of the market and increase their chances of success. Each strategy requires a unique set of skills and knowledge, and the choice of strategy should align with the trader’s individual goals, risk tolerance, and market outlook.
Ready to start trading futures? Call us at 1(800)454-9572 (US) or (310)859-9572 (International), or email info@cannontrading.com to speak with one of our experienced, Series-3 licensed futures brokers and begin your futures trading journey with E-Futures.com today.
Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involve substantial risk of loss and are not suitable for all investors. Past performance is not indicative of future results. Carefully consider if trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.
Important: Trading commodity futures and options involves a substantial risk of loss. The recommendations contained in this article are opinions only and do not guarantee any profits. This article is for educational purposes. Past performances are not necessarily indicative of future results.
This article has been generated with the help of AI Technology and modified for accuracy and compliance.
Standard and Poor’s 500 futures, commonly referred to as S&P 500 futures, are financial derivatives that derive their value from the S&P 500 Index. The S&P 500 Index itself is a benchmark index composed of 500 of the largest publicly traded companies in the United States, representing a broad spectrum of industries. The S&P 500 futures contract is a key tool for investors, traders, and institutions, allowing them to speculate on or hedge against future price movements of the S&P 500 Index.
These futures contracts are traded on the Chicago Mercantile Exchange (CME) and are among the most actively traded futures contracts in the world. The importance of S&P 500 futures cannot be overstated; they serve as a barometer of market sentiment and are often used to gauge the market’s reaction to economic data, corporate earnings, and geopolitical events.
The Mechanics of S&P 500 Futures
Contract Specifications
The S&P 500 futures contract (mini) has specific characteristics that traders must understand:
Contract Size: The value of the contract is derived by multiplying the S&P 500 Index value by $50. For instance, if the S&P 500 Index is trading at 4,000, the notional value of one futures contract is $200,000 (4,000 x $50).
Tick Size: The minimum price movement is 0.25 index points, equivalent to $12.50 per contract.
Expiration: S&P 500 futures contracts expire quarterly, on the third Friday of March, June, September, and December.
Settlement: The contracts are settled in cash, meaning no physical delivery of assets occurs. Instead, the difference between the contract price and the index level at expiration is paid in cash.
Types of S&P 500 Futures
There are various types of S&P 500 futures contracts:
Standard E-Mini S&P 500 Futures: These are the most commonly traded contracts and are often used by institutional investors.
Micro E-mini S&P 500 Futures: An even smaller contract, at one-tenth the size of the E-mini, introduced to provide an affordable option for individual traders.
Role of S&P 500 Futures in the Financial Markets
Hedging and Speculation
S&P 500 futures play a critical role in the financial markets by allowing participants to hedge their positions or speculate on future price movements:
Hedging: Investors with significant exposure to U.S. equities use S&P 500 futures to hedge against potential losses. For example, a portfolio manager holding a large position in U.S. stocks might short S&P 500 futures to offset potential declines in the market.
Speculation: Traders speculate on the direction of the S&P 500 Index by taking long or short positions in futures contracts. This speculative activity provides liquidity to the market and helps in price discovery.
Market Sentiment Indicator
S&P 500 futures are often seen as a proxy for market sentiment. The futures market operates nearly 24 hours a day, allowing investors to react to events outside of regular trading hours. For example, if S&P 500 futures are trading lower overnight, it might indicate that the market will open down the next day, reflecting negative sentiment.
Geopolitical Events and S&P 500 Futures
The Iranian-Israeli Conflict: A Case Study
The recent escalation in the Iranian-Israeli conflict serves as a pertinent example of how geopolitical events can impact S&P 500 futures. On April 1, Iranian military commanders were killed in an airstrike on its embassy in Damascus, Syria. In retaliation, Iran launched a series of missile and drone attacks on Israel on April 14. Despite the severity of the situation, the initial market reaction was relatively measured, with S&P 500 futures trading up 0.3%.
Historical Context of Geopolitical Events
Historically, geopolitical events have led to modest selloffs in equity markets, followed by a quick recovery. This pattern suggests that while markets react to geopolitical uncertainties, the long-term impact is often limited unless the event significantly disrupts global economic conditions. For instance, during the Yom Kippur War in 1973, the subsequent OPEC oil embargo caused a severe market downturn, but such instances are rare.
Initial Market Reaction
The initial 0.3% uptick in S&P 500 futures following Iran’s attack on Israel could be seen as a relief rally. Investors may have anticipated a more severe escalation, but the measured response from both Iran and Israel, including Iran’s advance warning and Israel’s successful defense, likely mitigated immediate concerns. This reaction underscores the importance of market psychology and investor sentiment in shaping short-term price movements.
Positioning and Portfolio Strategy
In response to the conflict, investment strategy teams have advocated for a slightly defensive posture across portfolios. This approach reflects a cautious stance, acknowledging the potential for further volatility without overreacting to the initial shock. Maintaining such a posture allows investors to manage risk while remaining flexible to adjust their positions as the situation evolves.
The Broader Implications of Geopolitical Risks
Energy Markets and Inflation
One of the critical concerns during geopolitical conflicts, especially in the Middle East, is the impact on energy markets. The Straits of Hormuz, a vital chokepoint for global oil shipments, could become a flashpoint in the conflict, potentially disrupting global energy supplies. Such a disruption would likely lead to higher oil prices, contributing to inflationary pressures worldwide.
However, the U.S. is better positioned to withstand energy shocks today than it was during the 1970s. The U.S. has become the world’s largest producer of oil and natural gas, reducing its dependence on foreign energy. As a result, while a significant escalation in the conflict could drive up energy prices, the systemic risk to the U.S. economy may be lower than in previous decades.
Interest Rates and Fixed Income Markets
Geopolitical events also affect fixed income markets, particularly U.S. Treasury yields. In times of crisis, investors often seek the safety of U.S. Treasuries, leading to lower yields. However, this dynamic can be complicated by inflationary pressures stemming from higher energy prices, which might push yields higher. The outcome depends on the balance between risk aversion and inflation expectations.
S&P 500 Futures in a Full-Blown War Scenario
If the Iranian-Israeli conflict were to escalate into a full-blown war, the implications for S&P 500 futures would be significant. The immediate reaction would likely be a sharp selloff in equity markets as investors flee to safety. The extent of the selloff would depend on various factors, including the duration of the conflict, its impact on global energy supplies, and the broader economic ramifications.
Potential Market Scenarios
Short-Term Volatility: In the early stages of a full-blown conflict, S&P 500 futures could experience extreme volatility. Investors might react to each new development, with futures swinging widely based on news flow. This environment would be challenging for both traders and long-term investors, requiring a nimble approach to managing positions.
Flight to Safety: As uncertainty grows, there would likely be a significant shift towards safe-haven assets, including U.S. Treasuries and gold. S&P 500 futures might see sustained pressure as investors reduce their exposure to riskier assets.
Energy Shock and Inflation: A prolonged conflict that disrupts oil shipments through the Straits of Hormuz could lead to an energy shock, driving up oil prices and fueling inflation. This scenario could force central banks to reconsider their monetary policies, potentially leading to higher interest rates, which would further weigh on equity markets.
Recovery and Repositioning: If the conflict de-escalates or concludes, markets may begin to recover as uncertainty diminishes. However, the speed and extent of the recovery would depend on the lasting economic impact of the conflict. Investors might reposition their portfolios, gradually increasing exposure to equities as confidence returns.
Strategic Considerations for Investors
In a full-blown war scenario, maintaining a defensive posture would be prudent. Investors should focus on preserving capital and managing risk rather than chasing returns. Diversification across asset classes, including exposure to safe-haven assets, would be essential. Additionally, staying informed and agile would allow investors to adjust their positions as the situation evolves.
S&P 500 futures are a critical component of the global financial markets, offering investors a tool to hedge against or speculate on future market movements. The recent Iranian-Israeli conflict highlights the sensitivity of these futures to geopolitical events. While the initial market reaction was relatively muted, the situation underscores the importance of understanding the broader implications of such conflicts on markets.
Geopolitical risks can lead to short-term volatility, but history suggests that markets often recover quickly once the situation stabilizes. However, in a scenario where the conflict escalates into a full-blown war, the impact on S&P 500 futures could be severe, with potential repercussions for global energy markets, inflation, and interest rates.
For investors, navigating these uncertain times requires a balanced approach, combining a defensive posture with the flexibility to adapt as circumstances change. By staying informed and maintaining a diversified portfolio, investors can manage risk and position themselves for long-term success in the face of geopolitical challenges.
Ready to start trading futures? Call us at 1(800)454-9572 (US) or (310)859-9572 (International), or email info@cannontrading.com to speak with one of our experienced, Series-3 licensed futures brokers and begin your futures trading journey with E-Futures.com today.
Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involve substantial risk of loss and are not suitable for all investors. Past performance is not indicative of future results. Carefully consider if trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.
Important: Trading commodity futures and options involves a substantial risk of loss. The recommendations contained in this article are opinions only and do not guarantee any profits. This article is for educational purposes. Past performances are not necessarily indicative of future results.
This article has been generated with the help of AI Technology and modified for accuracy and compliance.
Volume is reported for all futures contracts. It is calculated by counting the number of contracts that have been bought and sold over a given time. You can track volume using different time intervals like daily or intraday.
When a futures contract is traded, whether bought or sold, it counts towards volume for that contract.
For example, a trader closes a short position in the E-mini S&P 500 (ES) futures contract by buying one contract in the ES, so volume will increase by 1.
Traders often use and interpret the rise or decline of volume in a futures contract to help make trading decisions.
Volume can give important information to traders such as:
Indicate the price levels at which traders are more or less interested in trading a futures contract
During the roll, indicate to traders when to switch to trading the front month futures contract as volume decreases in the expiring contract
Identify the times of day when a futures contract is most liquid
Price Levels
When volume changes as price of a futures contract moves towards certain levels, this can indicate to a trader that a change in direction may occur. Some traders may use this information to indicate whether to buy or sell at those key levels.
Contract Roll
During the futures rollover, traders pay attention to the contract that is taking the higher levels of volume. Traders use this information to determine when to start trading the next month contract. As volume decreases in the expiring contract, trading will shift to the next available month contract.
For example, say the June ES (E-mini S&P 500) futures contract is about to expire and September will become the new front month. On the Thursday of rollover week, watch how the June contract starts to lose volume and the September contract begins to pick up volume. When the September contract has more volume than the June contract, it is time to switch to the September contract.
Active Periods
Traders typically prefer higher volume times to trade, as it means that more traders are actively interested in buying and selling. When volume is high, the bid-ask spread is typically smaller, orders are filled faster and less gaps may exist between ticks.
For example, markets can have lower volume between the hours of 12:00 p.m.-2:00 p.m. ET, before major economic releases; conversely, market often see higher volume around the open and close of the trading day.
Traders also can look at average daily volume over a longer time period, such as a few weeks or months, to see if the markets currently are in a lower or higher volume than is typical.
Summary
What volume can’t show however, is whether traders are buying or selling, or opening or closing a position.
For example, if the ES contract is trading at 2375 and suddenly pushes down to 2360 while volume increases, the volume that comes into the market could be from traders opening new long positions at key levels of support. That could indicate a bullish sentiment. Volume also can be generated by liquidation of exiting long positions or opening of new short positions, a possible bearish indication.
A spike in volume at 2360 doesn’t necessarily mean that buyers are coming into the market and that the price will bounce.
Volume data is readily available for each futures contract and for the market as a whole. Although traders may use volume in different ways to interpret how to trade, volume can be an important factor to help inform your trading decisions.
Hot Market of the Week – June Bonds
Hot market of the week is provided by QT Market Center, A Swiss army knife charting package that’s not just for Hedgers, Cooperatives and Farmers alike but also for Spread traders, Swing traders and shorter time frame application for intraday traders with a unique proprietary indicator that can be applied to your specific trading needs.
The June 30 Year T-Bond break found temporary stability at its second downside PriceCount objective recently. Now, the chart has resumed its slide into new lows which, if sustained, would project a run to the third count in the 109^20 area.
PriceCounts – Not about where we’ve been , but where we might be going next!
The PriceCount study is a tool that can help to project the distance of a move in price. The counts are not intended to be an ‘exact’ science but rather offer a target area for the four objectives which are based off the first leg of a move with each subsequent count having a smaller percentage of being achieved. It is normal for the chart to react by correcting or consolidating at an objective and then either resuming its move or reversing trend. Best utilized in conjunction with other technical tools, PriceCounts offer one more way to analyze charts and help to manage your positions and risk. Learn more at www.qtchartoftheday.com
Trading in futures, options, securities, derivatives or OTC products entails significant risks which must be understood prior to trading and may not be appropriate for all investors. Past performance of actual trades or strategies is not necessarily indicative of future results.
Broker’s Trading System of the Week
With algorithmic trading systems becoming more prevalent in portfolio diversification, the following system has been selected as the broker’s choice for this month.
The performance shown above is hypothetical in that the chart represents returns in a model account. The model account rises or falls by the average single contract profit and loss achieved by clients trading actual money pursuant to the listed system’s trading signals on the appropriate dates (client fills), or if no actual client profit or loss available – by the hypothetical single contract profit and loss of trades generated by the system’s trading signals on that day in real time (real‐time) less slippage, or if no real time profit or loss available – by the hypothetical single contract profit and loss of trades generated by running the system logic backwards on back adjusted data. Please read full disclaimer HERE.
Would you like to receive daily support & resistance levels?
* This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts here in contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgement in trading.
RISK DISCLOSURE: Past results are not necessarily indicative of future results. The risk of loss in futures trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.
Economic Reports
provided by: ForexFactory.com
All times are Eastern Time ( New York)
US new home sales data for June will be updated Wednesday morning at 9:00 am CT. Analysts expect new home sales month-to-month at a 0.640 mln unit annualized pace, up +3.4%. The prior month’s sales were -11.3% at 0.619 mln unit annual rate. Micron Technology reports after the close 
