Future Trading in US market

[josjes]

Hi,

I am newbie in Future trading. Could some guru help me out ? I would like to hold long position in Crude Oil by buying long futures to avoid big roll-over losses that eliminate a major part of the profits. So if I want to buy CLZ0 (Crude Oil Expiry December 08) how do I go about it? This is not a short term trading but more of long term investment.

Thank you so much for your time.

 

[Timmy]

I'm sorry all our gurus are on other calls ... we have a plodder available if that helps...

Hi josjes, if you want to buy that contract it should be no more difficult than opening an account with a US futures broker (some brokers in Australia can also help you out), funding the account (do you know the margin requirements for overnight - as opposed to day-trading - the CLZ8?), then doing the transaction.

You probably know this but if the price moves against you there may be a call for more margin from the broker, so investigate this too.

Now, whether or not there are better ways of taking a long-term crude position I cannot comment on, I am sure someone will soon enough if you want that sort of input?

 

[josjes]

Hi Timmy

I have an account with optionsxpress australia but their website says futures are currently only available for US resident not foreign domicile. Do you know any other online broker that acts as future broker ? So, you said 'doing the transaction', meaning just like placing a buy shares order say 100 lot of $100 each = $10000 ?
Anything I should be aware of ?

Why I want to buy Oil future is because am super bullish on oil, the ETF for Crude Oil USO (United States Oil) does not have leverage and lagging the continuous contract.

 

[professor_frink]

Hi Timmy

I have an account with optionsxpress australia but their website says futures are currently only available for US resident not foreign domicile. Do you know any other online broker that acts as future broker ? So, you said 'doing the transaction', meaning just like placing a buy shares order say 100 lot of $100 each = $10000 ?
Anything I should be aware of ?

Why I want to buy Oil future is because am super bullish on oil, the ETF for Crude Oil USO (United States Oil) does not have leverage and lagging the continuous contract.

umm, the futures contract isn't for 1 barrel of oil, it's for 1000, so when you buy 1 contract(a buy order of 1 with your broker), you have actually punted on the movement of 1000 barrels of the sweet stuff.

Here's a link to the contract specs-

http://www.nymex.com/CL_spec.aspx

Are you sure you should be using leverage? It can be a pretty volatile contract.

 

[Timmy]

Do you know any other online broker that acts as future broker ?

Could try BrokerOne or ManFinancial?

There will be others too, Interactive Brokers is very popular.

Opening an account with a US-based broker is easy too if you want to go that way.

Anything I should be aware of ?

Yes, pardon me if I am telling you something you already know, but there is quite a bit to futures trading. A good starting point for generic information is ASXfutures also this.

What I am trying to get across is futures trading can be very high risk. All the small print will say this, but its not just small print, its true. From the ASX website: "Unlike option contracts, where the buyer of the option can lose no more than the cost of the premium, both the buyer and the seller of a futures contract face potentially unlimited losses. "

Doesn't mean you shouldn't trade futures, not at all, but get yourself up to speed on them and fully understand them before taking a position. For example, what are the contract specifications of the CL contract? How much are risking in buying one, or more, of these contracts? Again, apologies if you know all this already.

Keep us informed of how you are going.

 

[Timmy]

Ahhhh, the prof beat me to it ...good info PF.

 

[josjes]

There is NYMEX miNY™ crude oil futures contract, designed for investment portfolios, is the equivalent of 500 barrels of crude, 50% of the size of a standard futures contract, so of the current quoted price 1 contract = $46000.
Professor, can you highlight the potential risks involved ?
Thanks.

 

[josjes]

Could try BrokerOne or ManFinancial?

There will be others too, Interactive Brokers is very popular.

Opening an account with a US-based broker is easy too if you want to go that way.




Yes, pardon me if I am telling you something you already know, but there is quite a bit to futures trading. A good starting point for generic information is ASXfutures also this.

What I am trying to get across is futures trading can be very high risk. All the small print will say this, but its not just small print, its true. From the ASX website: "Unlike option contracts, where the buyer of the option can lose no more than the cost of the premium, both the buyer and the seller of a futures contract face potentially unlimited losses. "

Doesn't mean you shouldn't trade futures, not at all, but get yourself up to speed on them and fully understand them before taking a position. For example, what are the contract specifications of the CL contract? How much are risking in buying one, or more, of these contracts? Again, apologies if you know all this already.

Keep us informed of how you are going.

Not at all Timmy, thanks for the info, that's the reason why I posted the question on this forum, to get people's experience, do and don'ts. I got a little bit of the gist on Futures, I'll certainly get as much reading info as possible before put my toes in.

 

[professor_frink]

There is NYMEX miNY™ crude oil futures contract, designed for investment portfolios, is the equivalent of 500 barrels of crude, 50% of the size of a standard futures contract, so of the current quoted price 1 contract = $46000.
Professor, can you highlight the potential risks involved ?
Thanks.

As long as you know the overall size of the contract you are trading, and position size accordingly, then the risks aren't too bad. It's only a problem when new traders start talking about being able to trade a 10 lot, because they have enough cash to cover the minimum margin in their account. If you have enough money in your account to be able to trade the way you want to trade, and don't get caught short of cash if there is an adverse move against you and a margin call arrives, then it's all good.

One thing you should also be aware of when trading futures is that the back months don't always behave the same way as the spot does. This is one area where my knowledge is pretty dodgy(or dodgier,depending on who you speak to), so I'll leave that side of futures trading to the longer term position/spread traders to comment on. I'd be checking the volume of a contract that far out before looking at buying it too- not quite sure how liquid it may be.

 

[Nick Radge]

If you want exposure with the same kind of risk as you get with normal shares then you can buy an Exchange Traded Fund (ETF) called USO which tracks the Oil futures. They're trading at about $73 or so. Treat it exactly as you would buying a stock so you can choose to buy it on margin or outright. $1000 worth of whatever you want.

Nick

This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

 

[josjes]

If you want exposure with the same kind of risk as you get with normal shares then you can buy an Exchange Traded Fund (ETF) called USO which tracks the Oil futures. They're trading at about $73 or so. Treat it exactly as you would buying a stock so you can choose to buy it on margin or outright. $1000 worth of whatever you want.

Nick

This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Why I want to buy Oil future is because am super bullish on oil, the ETF for Crude Oil USO (United States Oil) does not have leverage and lagging the continuous contract.

My informer put this other alternative USO ETF, but he said Futures is better if you are bullish, it is 'lagging continous contract and no leverage' , whatever that means, if someone cares to explain ? Margin lending is a good idea, but not sure if you can do that on USO, have to check on that.

 

[wayneL]

My informer put this other alternative USO ETF, but he said Futures is better if you are bullish, it is 'lagging continous contract and no leverage' , whatever that means, if someone cares to explain ? Margin lending is a good idea, but not sure if you can do that on USO, have to check on that.

* you can margin USO - normal 50% available on all stocks

* But USO is roundly criticized... I don't follow it, so DYOR

* Do some research on "backwardation" and "contango". Deferred contracts aren't my bag either, so can't advise.

* Oil is in backwardation right through the whole strip, whatever implications that has... might be positive for you, might be negative.

* The volume is really really really thin out that far, especially on the emiNY. There will be a big bid/ask spread. Not a problem if you intend holding it till the bitter end, but another cost (contest risk) if you trade out of it at some stage.

Just some points

 

[josjes]

Thanks WayneL, would you mind sharing why USO is widely criticised ? Its shares price follows the price of crude oil perfectly. Also, my broker said you cannot margin lend USO.

 

[wayneL]

Thanks WayneL, would you mind sharing why USO is widely criticised ? Its shares price follows the price of crude oil perfectly.

To be honest, I don't know why. I don't trade it (I trade the futures) so didn't really pay attention.

I did pull up a chart to compare and apart from a brief period several months ago where it seriously underperformed the spot, it seemed to be fine... but I didn't spend a lot of time analyzing it TBH.

Also, my broker said you cannot margin lend USO.

Again, I don't trade it, but so long as you have a margin account, I can't see why not.