Your Questions About Paper Trading Futures

Mandy asks…

Futures, i am trying to get started with futures but i want to paper trade a bit any good places?

I really would like to go for S&P emini

John answers:

I trade with 2 dealers. Go-Futures – http://www.gofutures.com/ as well as ATC Brokers – http://www.atcbrokers.com/ .

Both offer ‘demo trading platforms’ that you can try. Most all brokers have a demo available for 2 weeks or so. Often you can ask for an extension and get more time to paper trade.

I deal with these two because they have some of the lowest rates in the business and their fills are fast with little if any slippage.

Good luck and Hope this Helps

Lizzie asks…

How can you explain commodities , futures and the link to farming to a child?

I’ve tried a lot of websites and books but none of them break it down fully for someone just getting familiar with this. I basically understand the idea of hedging, but I get a bit lost when people talk about spreads and basis and most of all, I don’t understand the link between physical commodities and all these bits of paper that are apparently traded on futures exchanges.

John answers:

If a corn farmer looked in the paper and seen corn trading at 6$ a bushel and said to himself if only it was november and I had my corn harvested I could sell it and make a profit and be happy, but every year when I sell my corn the price is so low I loose money. Futures give the opportunity to the farmer to sell in Febuary and make a profit. He then would be hedged against the spot price of corn. So when November comes and the spot is 3$ a bushel his 5000 bushel harvest would be down by 15,000$ dam!! But then he would he would buy back his futures contracts that he was allready paid for 15,000$ less meaning he made a profit of 15000(30,000 he originally received-15,000 to close out) The point here to understand as a true hedger he can never loose on the decrease in the price of the commodity whats the catch, he can never gain on an increase in the price. If the price of corn was 9$ a bushel in November he would be up 15,000$ on the spot price but to close out his futures hedge he would have to buy back his contracts for 15,000 more than he originally received. So whats the moral of this story he darn well better be happy with 6$ a bushel.

Donald asks…

when people say they are trading S&P, they trade the S&P future right? do you know a web paper acct for it?

do you know where can i learn more about how to trade it??

John answers:

Well, this simply means they have put their money into the S&P500 index…which is pretty stupid really.
To invest in it you can either put all your money into the Index itself, which there is a ticker symbol for and therefore you can put money on it….
Or, you can invest in an ETF or an iShare that is an Index fund, as they would then be investing in more than one Index…of course, you would need to look into whether they are investing in the S&P500 though…but that is obvious.
….
Let me just make a quick, very important, comment about what an index is.
It is a compiling of several key business within a sector or the market, in order to display the overall market’s performance. THEY ARE NEVER DESIGNED TO BEAT THE MARKET. So many people miss this. Its just a thermometer of the markets temp, so why would you expect it to do anything more than that. And, more specificly, all indices perform less than the market actually performs. You will make more money investing in individual stocks yourself than doing it through an Index…for example:
the Russell 2000 is an index which is made up of 2000 small cap stocks. The index is below 10% year-to-date. In May, I purchased shares of Taser stock. In July, I sold those shares.
Purchase price: $9.80/share. Price sold: $19.10/share. Taser is a small cap stock, and it would have taken me about 8-10 years in the Russell 2000 index to yield what I got from Taser in 3-4 months with one stock.

James asks…

How different will my tax liabilities be if I become self-employed day trading?

I’m in a different scenario relative to most people here. I am a sophomore in college and have been practicing day trading futures and currencies for the last 6 months. I have done fine with only 7 days worth of losses 4 of which were my first 4 days practicing. Daily profits ranged from $700 – $1,500 a day in using 1 contract (primarily CL, GC, EUR/USD). I have limited capital, under 10K but I am confident in my abilities and have ample risk management skills/strategies. The issue is now that I am about to do this using real capital I am worried about tax liabilities/record keeping. I am cognizant that I will have to pay the regular tax rates on my income but I am not sure what will happen regarding my payroll tax if I do this full time while in school and during the summer. I believe I have to pay a 13.3% payroll tax and possibly other taxes. Can someone give me a list of what to expect as far as tax liabilities are concerned and any other advice before I venture into this? Also does this even count as being self-employed? In case it matters I make about 15 – 20 trades a day. Once again all those statistics are from a TOS paper trading account. I will be slightly more risk averse initially, but once I get comfortable hopefully I start seeing significant profits.

John answers:

Your net gains would be taxed as short term capital gains, which are taxed at the same rate as what ever your marginal tax rate is for salary.

However you only have $10K, and you need 25K to do any significant day trading. Your day trading career is dead in the water unless you can find another 15K.

If you make more than 4 day trades in a 5 day period, you will be labelled a “pattern day trader” and will not be allowed to make anymore day trades unless you have at least $25,000 in total equity in your account. Your account will be frozen for 90 days. All brokers are required to do this by Federal laws. Even overseas brokers are required to do this if they trade U.S. Stocks.

Quoting from the first link below:
“If a trader is classified as a pattern day trader according to the SEC definition, and the trader does not have the required $25,000 deposit, their trading account will be frozen for 90 days. Once this happens, the trader will either have to deposit enough equity to bring their trading account up to the $25,000 limit, or wait until the 90 day hold has expired.”

Chris asks…

How Did The Future Trade commodity Raise Oil Prices So High?

I watched the 60 minute report on it recently and im just confused how a bunch of future commodity trading made oil so expensive. Im writing a paper on high oil prices so im trying to understand why it got so high.

Thanks

John answers:

The future market of communities reflects the value of the US dollar for the most part, since most trades are done in dollar term. The dollar has been in the downward trend since the Bush’s first term. Obama was elected with hope that why the oil prices were down for a while. Now the hope is gone, hedgers and speculants are active to trade dollar for gold, oil and commodities again.

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