Your Questions About Paper Trading Futures

Susan asks…

question about Exchange Traded Notes?

I am new to investing and am looking at an Exchange Traded Note. I think I read somewhere that the longer I hold an ETN the more I have to pay for it kinda like a renters fee? For example if I buy the ETN for 100 dollars and i pay 7 dollar commission on the ETN and a year later it is still 100 dollars. Did i only lose the 7 dollars commission or is there also another fee for holding the ETN?

thanks in advance for your time.

John answers:

As I understand it a ETN is an ETF(Exchange Traded Fund). ETF’s can be backed by Physical asset (like gold), or futures (commodities or ETC’s). ETF’s are backed by shares, futures etc. ETN’s are backed by commercial paper (notes).
If an ETC or ETF has the valid amount of physical asset or futures contracts (synthetic) then all is fine. Theses assets are held by an independent institution and valued daily. ETN’s are only as safe as the institution issuing the Notes therefore there is counterparty risk. These are the ETF’s that the authorities seem to be most worried about.
Sorry a bit muddly but hope it helps.

Chris asks…

what actually is the futures and derivatives?

John answers:

I will try to keep this simple:
Derivatives are a way to buy ,sell, or trade a piece of paper which represents a real item at some future date. This is so you don’t actually have to move that item. An example could be wheat.
These would be called Wheat Futures. I can enter into an agreement to deliver 1000lbs of wheat, 6 months in the future.

Note delivery is rarely made because future is closed. But that is a different question.

Helen asks…

What is future and options derivatives?

i am new to future and options. I hav low brokerage of 5paisa bt how to buy it.its august september etc lot. There are call and put option also.what is that, cn u explain me briefly? I wil be so thankful to you.

John answers:

Your question reveals that you know nothing about options yet and is completely not ready to make your first real options trade yet. Before trading options for real, it is best for you to paper trade it using a virtual trading platform so that you can discover your knowledge gaps before going real. Options is complex and there is a lot to understand before you are trading ready.

There are two kinds of options; Call options allow you to buy the underlying stock at the strike price and Put options allow you to sell the underlying stock at the strike price. You must completely understand these two types of options before you can start trading options.

There are many strike prices and expiration dates for each option as well, adding to the complexity.

Different strike prices put an option at a different “Moneyness” level to the price of the underlying stock. Different moneyness will give you different levels of leverage / risk and are used for different purposes. You must understand the purpose behind each options moneyness before you can even decide what option to trade amongst so many.

Options also have many expiration dates. The longer the expiration date, the more expensive it is at the same strike price and the lower the leverage. Which expiration date to take in order to optimise your profits will depend greatly on how soon you think the underlying stock will move and how accurate your prediction is. If you think the underlying stock is going to move explosively within 1 month, you definitely won’t spend more money to buy options that have 6 months to expiration, right?

All these said, the above don’t even cover the basics of options trading. You should read up more in the links below for free:

Jenny asks…

Should I look into Online Commodities Trading?

I am still undecided should I go for forex or online commodities trading

John answers:

I would definately choice the Forex Over Commodities trading.

In these harsh times, many investors have chosen to part with their money to the paper trade. Mainly as traditional markets have been hit hard by the credit crisis and the subsequent economic crisis. Futures and equities, stocks and bonds, have been badly hit and just looking at the recent state of Wall Street, it will be a long while before things get to usual again. The Forex market is a great way to go for investors due to the different forms of trading and also due to its liquid state. Investors have the choice of short term investing in day trading and its very much over the counter which makes it ideal for part time investors. This is one reason why I would chose it over commodities and also for its lenient nature.

Although the Forex has its risks and there are more factors that affect market psychology, it is also very liquid. The Forex permits the end investor to get out if they feel that the trends are going against their investment decisions. Another asset is the fast interface which provides for quick decisions which is vital on the Forex. Within moments the investor can change their currency pairs, change strategies, chose the market, and this active nature allows investors on all levels to get right into investing and see results almost instantly.

These are just some of the reasons why I would chose the Forex

David asks…

Looking for cheapest online stock trade.?

I’m new to stock trading and am looking for help in finding a site to do very cheap online trading. Are tradeking or E*trade the best options? Or can are there places where you can get free accounts?
I’m new to stock trading and am looking for help in finding a site to do very cheap online trading. Are tradeking or E*trade the best options? Or can are there places where you can get free accounts?
– also what is the minimum I am going to need to fund an account with if im just looking to get my feet wet in the system? I am currently a college study so not a very good cashflow right now.

John answers:

The cheapest and probably safest way to online stock trading is to look for a broker that has a demo/paper trading account for free. If you have to trade stock you will not be able to day trade unless you have a minimum of $25,000. If you do not want to day trade (i.e. Swing trade or position trade), then you could get away with a lot less. Lastly, there are other options such as forex and futures which will allow you to day trade for much smaller amounts, but keep in mind these are much riskier.

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