Let’s look at the entire process, starting with the irrepressible desire of investing in commodity-specific assets and terminating the transaction, the example of one of the most actively traded futures contracts. For example, we assume that the newcomer has decided to invest in gold, but the following considerations and algorithms will be relevant for other instruments and futures market, whether it be oil, platinum, beef, wheat, timber, coffee and so on.
So the first thing we find out the ticker tool. To do this, go to the website of the Exchange — with 99% probability exists right tool or the CME (www.cmegroup.com), or on the ICE (www.theice.com), the two largest stock holding. See the section or menu item «Products». The site CME in the right menu, find the section «Metals», in the column «Precious» see gold futures «GC Gold». On the next page devoted to futures on gold, we find a reference to the contract specifications — «Contract Specifications», which we will need more than one occasion. This table summarizes all the main purpose of these futures, including the ticker, it is in the line «Product Symbol» — GC.
Next, we need to know, futures for delivery in what month is now the most liquid — in fact, as can be seen in the line of the specification «Listed Contracts», parallel trading for more than 20 contracts for gold with a different delivery date. In order to find the most actively traded, go to «futures» on the site BarChart. This site is good because it shows just months apart from their quoted designation. From left to right we find the section «Metals», select a table opens, first line «Gold». After that we will see all the 20 «gold» of contracts traded for 5 years. We need a column «Volume», where we find the largest volume. If the volumes of two adjacent months are almost equal, then we choose the long-range, because it means that the process of transition from near month to the next. As a rule, the most liquid futures contract traded for delivery in 1-2 months from the current date. In our case, is most active in April 2011. The full ticker, as seen in the first column, GCJ11. That is, the exchange ticker GC, found in the preceding paragraph shall be added J11 — Code month and year. Month is always denoted by one letter (the full list of the 12 characters in calendar order: F, G, H — J, K, M — N, Q, U — V, X, Z). Year of the code denoted by the last two digits.
Next, you need to know — the last day of trading and the day of the delivery of futures. Especially if the delivery would not be in 2-3 months, but already in the current. Knowing these dates are necessary in order not to stay with the contract on his hands in the last hours of his existence. In this scenario, at best, will have to close it in an illiquid market with huge spreads, and the worst — to run to supply and to think, than to pay for the box with gold bullion, and which they then sell. It is recommended to move from one contract to another for at least a few days before delivery, if futures are traded every month and a half to two weeks if they are traded in every quarter. In order to see the auction end date and the beginning of the delivery requirements (LTD, Last Trading Day and FND, First Notice day), return to the site of the Exchange, to the page specification. We find there a link «Product Calendar», which gives us another table. In it we look at the row corresponding to our financial instrument — APR2011 GCJ11 — and we see that the last day of trading for him 4/27/11 and requests for home delivery — is 31/03/11. Thus, the need to close this contract and open the next couple of days before the end of March.
We turn to financial matters. It is necessary to determine how many contracts can we buy based on the amount of funds on our trading account, and will there be enough money in case the market suddenly, after a deal goes wrong in our direction. Such calculations are carried out on the futures market on the basis of margin collateral. When opening a position in any contract on account of fixed amount, the amount of which is determined by the exchange and changes rarely. This amount will be available for use on all the time, we are the owner of fixed-term contract, and released immediately after its closure. At the site of the Exchange collateral huge table is not very pleasant to read, so go to the site of RJ O’Brien, which houses a convenient summary table of margin collateral for the most popular contracts (in the format of pdf). Our gold futures GC listed under CMX — COMEX (a part of the CME, has historically engaged in precious metals). Look in the column «Spec Init», is the Initial Margin — the initial margin. For gold, it is now equal to $ 6.751. This means that when the score was $ 10,000, we can operate with only one contract, when the score was $ 25,000 — no more than three. The next column «Spec Mnt» — Maintenance Margin (Maintenance Margin), in this case $ 5,001. If the score falls below this amount (multiplied by the number of existing contracts), it rings angry broker («Margin Call!»), And will either have to close a position (ie, fix the damage), or to make quick money at the expense of additional (to the level of not below the initial margin).
Despite the fact that electronic trading of futures are almost around the clock, they have a break at work. Also, do not at any time they are active. The specifications on this site Exchange trading hours should look (line «Hours»), do not forget to transfer them to local time. The contract is traded for gold GC with a 45-minute break (16:15 — 17:00 in Chicago to Moscow difference -9 hours). The most active electronic trading nearly coincide with the classical auction in the hall of the Exchange, which are conducted in an open auction. For gold trading «floor» of the Chicago Stock Exchange are held on weekdays from 7:20 to 12:30 or from 16:20 to 21:30 Moscow time.
What more could you need? From the data published in the specification (by the way, see the summary translation of the specification for gold on this blog), we can calculate the value of the minimum price tick, the full value of the contract and leverage. For this we use the lines «Contract Size» and the «Minimum Fluctuation». Volume 1 of the contract for gold GC — 100 troy ounces (about 3.1 kg). The minimum price movement — $ 0.10 per ounce. This means that at the minimum price movement of gold in any direction, our account will be «quantum» change for $ 10 (100 oz x 10 cents). From personal experience, the majority of financial instruments on the futures market, «walks» on the $ 5 — $ 15 for a tick. Next, look at the dimension of the quotes — in the line «Price Quotation» we see that is published on the stock exchange quotation — this is the price of one ounce of gold in dollars and cents. Currently, one ounce, based on recent exchange transactions GCJ11, estimated at $ 1429.7 — we can see this and other quotes on the page «Quotes». Gross value of the contract is equal to its volume multiplied by the quotation. This means that the total cost of a «gold» in your futures account is $ 142.970 — over 140 thousand dollars. By comparing the margin deposit required for the transaction with the contract, and its full value, we calculate the shoulder — $ 6.751 to $ 142.970 — it is approximately equal to 1: 21. For comparison, the U.S. stock market’s shoulder, at best, 1: 4.
So now we know how to designated futures, deliverable on what month of being the most active auction and when they end, what time of day is best to participate in stock trading and how much you need to do to keep the money in the account. On the example of futures trading in gold, we dismantled the whole algorithm is almost the start of trading. In principle, this knowledge is enough to buy or sell any futures contracts in electronic trading in the U.S.. The questions «because, after all, to buy or sell? and when? «meets the fundamental and technical analysis, which is the main theme of hundreds of trading books. One last tip for beginners — do not forget to have your broker «emergency» phone of Trading Desk, in which it will be possible to put an emergency order to close the deal, or if you suddenly lost the internet or the computer goes down with the trading platform.
Good luck to you trading!
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