All TRADING involves high risk and YOU can LOSE a substantial amount of money, no matter what method you use. All trading involves high risk; past performance is not necessarily indicative of future results. Commission Rule 4.41(b)(1)(I) hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE IS RISK OF LOSS IN ALL TRADING. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. ALL RESULTS ARE HYPOTHETICAL. NO IMPLICATION IF BEING MADE THAT ANYONE UTILIZING ANY OF THE SERVICES OF SHADOWTRADERS HAS OR CAN OBTAIN SUCH PROFITS AND RESULTS. THIS INFORMATION IS NOT A RECOMMENDATION TO BUY OR SELL AT THIS TIME, BUT MERELY A PRESENTATION OF TRADES STRATEGIES. THE INFORMATION CONTAINED HEREIN HAS BEEN OBTAINED FROM SOURCES BELIEVED RELIABLE, BUT IS NOT GUARANTEED AS TO THE ACCURACY OR COMPLETENESS. PLEASE CHECK MARKET FUNDAMENTALS AND TECHNICAL CONDITIONS BEFORE CONSIDERING THESE OR ANY TRADES. This is not a prospectus; no offer on our part with respect to the sale or purchase of any securities is intended or implied, and nothing contained herein is to be construed as a recommendation to take a position in any market. It is possible that at this date or some subsequent date the officers, directors and/or shareholders of Shadowtraders and its affiliates own securities, or buy or sell securities mentioned in this publication or those not so mentioned. The intent of the Shadowtraders information supplied to SUBSCRIBER is for instructional purposes only. Shadowtraders information supplied to SUBSCRIBER is intended to be purely educational. The material presented herein has been obtained or derived from sources believed to be accurate, but we do not guarantee its accuracy. There have been no promises, guarantees or warranties suggesting that any trading will result in a profit or will not result in a loss. SUBSCRIBER is responsible for his own actions regarding an trading.
What are Dow Futures?
At Shadowtraders, we have found that traders actively search for financial instruments that they can trade. Opinions differ dramatically about which instruments are good for trading. Should they trade short or stay in for the long haul? Should we trade shares of stock, invest in options, or trade futures?
Individual investors feel most comfortable about buying shares of stock and holding for the long-term. That is the trading sentiment most traders subscribe to -- buy/hold/sell. For those investors unfamiliar with doing their own research and selecting specific stocks, they can buy/hold/sell mutual funds that trade a variety of stocks at once.
Before investing, the important question each investor must ask is, "what are my investment goals?" Am I a conservative trader, worrying about capital preservation? Am I an agressive investor, willing to take more risks with the potential of larger rewards. There are many things to consider when deciding your financial goals, such as age, amount of money available to invest, etc. Having a buy/hold/sell inclination works great when the Market is steadily going up, such as in a Bull Market. But when the Market is downtrending, as in a Bear Market, buy/hold/sell investors sit on the sidelines, unable to capitalize on the Market's direction or transfer their assets to bonds for security.
2008 saw the Market bring in the Bear Market. Most traditional investments lost their value. Pundits on financial news networks talked about "investing for the long haul". Unfortunately, afraid for their portfolio, many investors sold and either sat on the sidelines licking their wounds or did transfer what was left of their assets to more risk-adverse instruments. Many investors were told by their brokers to "Dollar Cost Average". "If you liked it at $50, you will really like it at $25," and you should be buying as it goes down.
While the traditional buy/hold/sell trading strategy certainly has its place, investing with a more diversified philosophy can help you take advantage of financial market movements. For this reason, Shadowtraders recommends taking a look at Dow Futures trading.
The Dow Jones Industrial Average (DJIA) is, by far and away, one of the most heavily monitored stock indexs worldwide. The index consists of a wide variety of top 30 blue chip stocks traded on the New York Stock Exchange (NYSE). The stocks that make up the Dow are the most well recognized companies. Here's the problem, however...you cannot trade an Index.
To resolve this issue, the Chicago Mercantile Exchange (CME), created a "derivative" that you can trade, the Dow Futures Contract. What is a derivative? A derivative is any instrument that gets its name and value from an underlying asset. In the case of the Dow Futures Contract, the underlying asset is the DOW Index, hence the name. The value of the contract goes up or down based upon the value of the DOW Index.
How do you compute the value of the DOW Futures? The DOW futures contract trades at 10 times that of the Dow Index. What does that mean? Say the DOW is trading at 11,000. Then the value of the DOW Futures contract will be $110,000 (11,000 x 10 = $110,000). The DOW Futures contract is traded by the larger institutions and hedge funds. There is also a smaller version of the DOW Futures contract tailor made for individual investors...the Emini DOW Futures. This contract trades at 5 times that of the Dow Index. That means if the Dow is at 11,000, then the value of the contract is $55,000 (10,000 x 5 = $55,000). Each point move in the DJIA equals $10 in the DOW Futures contract and $5 in the Emini DOW Futures contract. When the Dow moves 50 points by the end of the day, that equates to $500 in the $10 DOW futures contract.
DOW Futures have built-in maximum leverage, allowing traders to make more money on price fluctuations than they would by purchasing stocks outright. Were you to buy 100 shares of all 30 DOW stocks outright, even with a 50% margin (the most provided for stocks), you would still need over $50,000. Now compare that to the $500 needed to participate in the same 30 stocks with one DOW futures contract. Mind you, the greater the leverage, the better the potential profit but the greater the risk of loss as well.
DOW futures are NOT suitable for everyone. Trading DOW Futures involves risk of loss that, in some cases, could be substantial. For this reason, Shadowtraders recommends that beginning traders get solid trading training before trading live. You need to know just how the DOW Futures trades and the exact risks involved before you put your money on the table.
The Dow Futures trade pre-Market (before 9:30am EST when the NYSE opens), enabling investors to place their positions long before the stock tprofessionals can get an idea of that day's Market sentiment. Companies report before the Market opens as well. Should a company report well, causing the Dow Futures to rise, early morning Futures traders get to take advantage of the rise instead of having to wait until 9:30.