Category Archives: Investing

10 Tips Every Futures Trader Should Know

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This list of tips and pointers may help new traders improve their trading experience in futures markets. Even longtime traders may benefit from revisiting this list from time to time, since we all know how easy it is to form bad habits.

So, whether you’re just beginning to learn how to trade futures – or a sophisticated, experienced veteran – we encourage you to read this list carefully.

These trading suggestions will never go out-of-date and will be just as valid in 10 years as they are today!

Plan in Advance

The number one tip on our list simply can’t be repeated often enough:

Developing a trading plan in advance helps you minimize situations where you’re forced to make important decisions when you’re already in the market, with money at risk, and when natural human emotions (fear and greed, in particular) can influence you. You need to make important trading decisions in a calm, rational way – not under stress and pressure. In a nutshell, plan in advance.

Know When to Exit a Trade

At the risk of being at least partially repetitive, always know the point at which you’ll throw in the towel and exit a trade that’s simply not working as you’d hoped. Of course, we all enter new trades with the hope and expectationn that they’ll be profitable. But the fact is, futures trading involves risk, and not all your trades will be moneymakers. So decide on your bailout plan before entering the market.

Set Triggers to Exit A Position

Always trade with protective stop-loss orders.

Charles Schwab Futures offers One-Triggers-Other orders, which allow you to place your primary order, as well as a protective stop, at the very same time. When the primary order is filled, the stop order will be automatically activated on your behalf. This frees you from having to constantly watch the market, and it relieves you from having to worry about entering your stop order at the right time. We encourage you to take advantage of this powerful feature.

Just remember, though, that stops are not a guarantee against losses – markets can sometimes move quickly through them. But there’s no doubt that picking your bailout point ahead of time, and trading with stop orders, is of vital importance.

Focus on a Limited Number of Markets

Don’t spread yourself thin by trying to follow and trade too many markets. Most traders have their hands full keeping abreast of a few markets. Remember that futures trading is hard work and requires a substantial investment of time and energy. Studying charts, reading market commentary, staying on top of the news – it’s not easy. If you try to follow and trade too many markets, there’s a good chance you won’t give any of them the time and attention they require. For most traders, 6-8 markets is about the maximum they can reasonably track.

Balance

Though you don’t want to try to follow too many markets, the opposite is also true – trading just one market may not be a terrific approach, either. Just as diversification in the stock market has well-known benefits, there might be advantages to diversifying your futures trading, too. For instance, suppose you expected gold prices to decline, but it turns out that you’re wrong. But you also expected the cocoa market to rally, and this proves to be correct. In this case, the gains on your cocoa position make up for (hopefully they more than make up for) your losses in the gold market. If you’d traded only gold futures, you might have been in bad shape. As the old saying goes, don’t put all your eggs in one basket.

Pace

If you’re a new trader, start slowly. There’s no reason to begin trading 5 or 10 contracts at a time when you’re just beginning.

In some cases, exchanges offer mini futures products that are identical to standard futures products – except that they’re smaller. The CME Group, for instance, offers an E-mini S&P 500 futures contract that’s identical to its flagship S&P 500 futures contract, except for the fact that the

Buy or sell

Trading opportunities present themselves in both rising and falling markets. It’s human nature to look for chances to buy, or “go long” the market, but if you’re not also open-minded to “going short” a market, you might be unnecessarily limiting your trading opportunities. Remember that with futures, it’s just as easy to sell (“go short”) the market as it is to buy (“go long”) the market. You can buy first, and then sell a contract to close out your position. Or, you can just as easily sell first, and later buy a contract to offset your position. Whether you buy first and sell later, or sell first and buy later, you’ll have to post the required margin for the market you’re trading – there’s no difference at all. So, don’t overlook opportunities to go short!

Patience

Don’t get so wrapped up in market action that you lose sight of the larger trading picture. As a self-directed, online trader, it’s true that you should conscientiously monitor your working orders, open positions, and money balances. But don’t hang on every uptick and downtick in the market. Not only can you drive yourself crazy, but you can be thrown by little market zigzags and whipsaws that appear formidable and significant at the moment but which, in retrospect, were only small, intraday blips. In other words, try to

Margin

If your account should happen to go on margin call, you’ll have two ways to meet the call.

Going “short” is as easy as going “long”

If you think the price of a commodity market is about to move higher, you can buy (“go long”) a futures contract. However, if you believe a commodity price is going to decline, you can sell (“go short”) a futures contract just as easily, with no special uptick or short-sale rules. It’s just as easy to go short as it is to go long!

Financial futures

Financial futures are based on underlying financial instruments. Financial futures generally fall into three broad categories: Stock indexes (such as S&P 500 futures and Nikkei futures), global currencies (such as the Euro and the Japanese Yen), and interest rates (including U.S. Treasuries and Eurodollars).

Options on futures

You also can trade options on just about every futures contract we offer, with everything from simple outright option trades to complex option spreads. If you’re an equity options trader, you’ll enjoy the fact that your knowledge is largely transferable to futures options. Though the underlying instrument is a futures contract, rather than a stock or index, all the same option fundamentals and strategies still apply.

Americans’ Confidence in Their Finances Keeps Growing

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Americans’ optimism about their personal finances has climbed to levels not seen in more than 16 years, with 69% now saying they expect to be financially better off “at this time next year.”

The 69% saying they expect to be better off is only two percentage points below the all-time high of 71%, recorded in March 1998 at a time when the nation’s economic boom was producing strong economic growth combined with the lowest inflation and unemployment rates in decades.
— Read on news.gallup.com/poll/246602/americans-confidence-finances-keeps-growing.aspx

Sustaining retirement income in a lower-return world | Vanguard Blog

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Retirement spending: 3 strategies

This challenging topic regarding spending rules to help retirees who want to generate a paycheck from their portfolios. Two of the most popular are the “dollar plus inflation” and the “percentage of portfolio” rules. One alternate solution: is the “dynamic spending” strategy.

The dollar plus inflation strategy is just what it sounds like. Upon retirement, you select the initial dollar amount you’d like to spend each year and increase that amount annually by inflation. The well-known “4% rule” follows this approach (Bengen 1994[1]). While this strategy allows for rather stable real spending from year to year, it also requires a trade-off: a higher risk of premature portfolio depletion. The chink in the armor for this strategy is that it’s indifferent to the returns of the portfolio, which can be problematic in both bear and bull markets. The result is you could potentially run out of money (or at least have to substantially reduce your spending since you’re not likely to continue spending down to your last $1) in the event portfolio returns are negative, or you could potentially live well below your means and not enjoy retirement to its fullest if portfolio returns are much better than expected.

The percentage of portfolio strategy, on the other hand, may be too sensitive to returns, creating significant income volatility based on market movements. With this strategy, the annual spending amount is a consistent percentage of the portfolio’s value. This approach ensures that the portfolio won’t be depleted, but as the portfolio’s value rises and falls, the income amount will rise and fall as well—sometimes dramatically. Yes, it’s this last part—income falling in response to negative returns—that people often struggle with.

The dynamic spending strategy is a more flexible approach that moderates the other two strategies’ weaknesses, as summarized in Figure 1.

With dynamic spending, you would calculate each year’s spending in three steps:
Use the percentage of portfolio approach (e.g., 5%) to calculate a spending level based on the portfolio’s value at the prior year-end.
Determine a range of acceptable spending levels based on the prior year’s actual portfolio value. To find the range, increase the prior year’s spending by 5% (the ceiling) and reduce it by –2.5% (the floor).[1]
Finally, compare the results. If this year’s spending amount based on the percentage of portfolio:
Exceeds the ceiling amount, spend the ceiling.
Is less than the floor amount, spend the floor.
As you can see, the dynamic spending strategy is a bit more involved and may require a little more discipline and oversight to follow compared with the other two strategies. Given that, this is certainly one area where working with a financial advisor can make a lot of sense and may even pay for itself.
— Read on vanguardblog.com/2019/08/08/sustaining-retirement-income-in-a-lower-return-world/

Peter Lynch: Secrets to Success | Investing Lessons | Fidelity

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For the 13 years, Peter Lynch ran Fidelity’s Magellan® Fund (1977–1990). During that period, he earned a reputation as a top performer, increasing assets under management from $18 million to $14 billion (as of 1990). Since then, Lynch has mentored virtually every equity analyst at Fidelity. He also authored several top-selling books on investing, including One Up on Wall Street and Beating the Street, and has been a generous contributor to the Boston community, the Catholic Schools Foundation and the Inner City Scholarship Fund.

Whether you enjoy picking individual stocks, aspire to it, or prefer to rely on professional management in the form of mutual funds, ETFs, or managed accounts, his plain-spoken wisdom can help you become a better investor.

“In the stock market, the most important organ is the stomach. It’s not the brain.” — Peter Lynch

“More people have lost money waiting for corrections and anticipating corrections than in actual corrections.” — Peter Lynch

“Stocks aren’t lottery tickets. Behind every stock is a company. If the company does well, over time the stocks do well.” — Peter Lynch

Read on www.fidelity.com/viewpoints/investing-ideas/peter-lynch-investment-strategy

Source: FIDELITY VIEWPOINTS – 09/18/2019

Plan for Retirement by Focusing on Your Life Goals – Barron’s

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Scott Hanson, co-founder and senior partner at $4.5 billion Allworth Financial, sounds more like a life coach. After 27 years in the business, he understands that a big problem many folks have in retirement isn’t that they haven’t saved enough or invested wisely—it’s that they haven’t laid out their life’s goals and are left feeling deflated and unhappy.
— Read on www.barrons.com/articles/plan-for-retirement-by-focusing-on-your-life-goals-51568421815

  • Life is about relationships and meaning. When you leave the workplace, people risk losing relationships and their sense of purpose.
  • Money is just a tool and can help accomplish what’s important to people. Sometimes, people are still trying to get clarity on what’s important. A financial advisor’s goal should be to help people live rich and meaningful lives.
  • The danger of predicting where markets are going to go is that, if things go wrong, there could be dire consequences for life.
  • Taxes can take such a big chunk out of wealth. Paying attention to taxes—whether while selling an investment or taking a withdrawal from an IRA or considering a Roth IRA conversion—can mean the difference between paying 15% [on profits] versus 35%.

Grow Your Retirement Savings to Keep Up With Inflation- Ticker Tape

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Source: TD Ameritrade’s The Ticker Tape

— Read on tickertape.tdameritrade.com/retirement/your-retirement-savings-plan-inflation-15452

Key Takeaways

  • Understand if your assets are keeping pace with inflation and cost of living increases
  • Consider how even an “average” rate of inflation can cut into your retirement savings
  • Take a look at some saving and investing suggestions that might help you combat inflation
  • Most of us probably strived for better-than-average grades at school and better-than-average salaries at work. That being the case, it’s kind of surprising that so many investors seem to be comfortable having “average” retirement savings for their age.

Unfortunately, if your savings are just “average,” they probably aren’t going to account for inflation and cost of living increases both before and during retirement. The hard truth is that even after you retire, your assets will need to grow quicker just to keep up with higher prices.

Retirement Concern: How to Alleviate Four Common Fears for Retirees

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Source: TD Ameritrade’s The Ticker Tape 

https://tickertape.tdameritrade.com/retirement/reduce-common-retirement-concerns-fears-17461

1. Investment Loss

One of the biggest financial fears retirees may have is investment loss. Because the markets move cyclically, there’s a good chance you’ll experience a market downturn during retirement. This can be doubly painful if you’re a retiree, because you have little choice but to sell at a loss for the capital you need. For retirees this is called “sequence of return risk,” because withdrawing investments in a down or declining market may cause you to liquidate too many shares, which then leaves fewer shares to grow when the market bounces back.

2. Running Out of Money

When you’re younger, a market decline can be weathered in multiple ways: perhaps by saving more, working longer, getting a second job, or just waiting it out because you won’t need to use your savings for years. But once you’re close to or in retirement, running out of money becomes a serious concern. Few people would want to go back to work at age 95 because they ran out of money. Fortunately, the flooring strategy helps here too. Lifetime income means just that: an income stream that’ll last no matter how long you live. By deploying annuities and other lifetime income strategically—just to meet your essential expenses—you can cover basic needs and avoid becoming a burden to your kids or others.

3. Major Health Event

As we get older, it’s common to see an increased need for health care. It’s natural, as a retiree, to worry about a major health event that can set you back financially. But it’s possible to prepare to some degree for such events.

4. Inflationary Effects

Inflation is sometimes considered the “quiet killer” of retirement. Over time, prices rise, making your money less valuable. A dollar today is worth more than a dollar tomorrow. Keeping up with inflation is an important part of retirement planning.

Planning Matters

One of the best things you can do for yourself is to plan ahead. Meet with a retirement specialist to create a plan that might help you avoid unpleasant surprises in the future. The earlier you start, the more likely you are to avoid the common fears faced by retirees. Having a plan in place and making consistent contributions to a retirement portfolio can go a long way.

 

A Rich Life – HumbleDollar

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A Rich Life – HumbleDollar
— Read on humbledollar.com/2019/09/a-rich-life/

Frugality is about avoiding spending on things that have little value.

Affluence is about having things that truly matter.

It’s possible to strike a balance, so you’re frugal and affluent at the same time.

Track your expenses, ruthlessly reducing or eliminating spending that has little meaningful value. This will help you spend more on things you find truly rewarding. It doesn’t take a supersized income, financial windfalls, unsustainable self-deprivation, extraordinary luck or investment genius to become affluent.

Even if you have none of these, but you have frugality, financial success is all but inevitable.

Volatility Index (VIX)

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What is volatility?

Volatility measures the frequency and magnitude of price movements, both up and down, that a financial instrument, sich as stocks or options, experiences over a certain period of time. The more dramatic the price swings in that instrument, the higher the level of volatility.

Volatility can be measured using actual historical price changes (realized volatility) or it can be a measure of expected future volatility that is implied by option prices.

Volatility Index, more commonly known as the VIX is an index that measures anticipated volatility in stocks over the next 30 days. It does so by looking at activity in the market for puts and calls — derivatives that allow someone to bet on the direction of a particular stock or index over a given set of time in the future.

The VIX Index is a measure of expected future volatility. The Cboe Volatility Index® (VIX® Index) is a leading measure of market expectations of near-term volatility conveyed by S&P 500 Index® (SPX) option prices. Since its introduction in 1993, the VIX® Index has been considered by many to be the barometer of investor sentiment and market volatility. It gauges market risk based on investor sentiment about stocks listed on the S&P 500.

The lower the VIX, the lower the expected volatility, and vice versa.

The VIX is a measure of the implied volatility from option prices on the stock market.It has been dubbed the “fear gauge” by financial journalists for its famed ability to track market sentiment.

Mis-pricing of Volatility. One flaw with the Black-Scholes pricing model is the assumption that Volatility is known and fixed. Volatility in itself is volatile.

If you think Volatility will rise, you should buy options. If you think Volatility will fall, you should sell options.

The VIX was like the secret sauce that livened up an ordinary dish. The VIX was able to capture the way that risk appetite fluctuated in the financial system. Risk-taking depends on leverage, and if the financial system as a whole goes through a period of ample funding liquidity, even thinly capitalised banks can borrow on easy terms. Since banks borrow in order to lend, easier borrowing conditions translate into easier lending conditions, reinforcing the  already easy financial conditions.

By the nature of the interactions between liquidity conditions and leverage, the boom phase rides an apparent virtuous circle of greater leverage and easier liquidity. The VIX index was capable of capturing such shifts in sentiment.

U.S. Dollar’s Role in the Global Economy

The U.S. Dollar is a better gauge of risk in the global financial system than the so-called “Fear Gauge” – the CBOE Volatility Index (VIX). As long the U.S. Dollar remains stable then the financial markets should remain calm. But if the U.S. Dollar rises, it creates risks to the global economy that are not captured by the VIX index.

To understand the role of the U.S. dollar in the global economy since WWII, the dollar has been at the center of the global economy serving as the “reserve” currency. Reserve currency status is both a burden and a privilege. It means that most currencies, commodities and debt are priced in U.S. dollars. It also serves as a reference currency for the majority of global trade. For a country, company or individual that does not hold U.S. Dollars they must first buy dollars before they can buy the raw materials needed to produce their product.