Getting Started with Futures | 9-17-19 | Mike Follett
Hello. There and everybody, this is Mike Follette. You. Can reach me if you're interested, at Mpho let underscore. TDA on twitter and, feel. Free to like and subscribe to this webcast if you want to make it easier to get back to these webcasts, in the future it's. Just an easy way to keep. Track of that channel and view all the archives, and, the current live sessions, that are being. Taught. Okay so welcome, though we're talking about futures, today the. Class is. Part of a series, so this is going to be session number two in, a, series about getting, started with futures. And we've got a few specific points, that we wanted to cover today and, I'll. Tell you it's important to understand these points because I remember, when I got started with futures, initially. Just. The confusion, about some of these simple basic, things right. Where we're, very intimidating. And kind of ruined, confidence, so. Hopefully we can clear up some of those nuances, that that. Could be a point, to trip people up and give you some more confidence in getting started with with, futures, now as we get started though, let's. Make sure you understand, that this, class is for educational. Purposes when you're dealing with futures, and futures options these. Products, are leveraged, and they are speculative. And it's so therefore it's not suitable for all investors, make. Sure you read the risk disclosures. And you understand. Those also, in order to trade futures you need to have approval. To, trade futures and just so, if, you seek the approval just make sure there's suitable products, for. You this. Webcast, will discuss, those important. You. Know kind, of basics, of those futures, contracts, I trades. Involving minimum profit been a, benefit, can be significantly. Impacted. By Commission, so be aware of Commission. Impact, and any, investment, decision you make and your self-directed account, is solely responsibility. Just, remember that this class is not meant, to provide investment. Advice or any kind of recommendation. Past, performance, does not guarantee future results, or, success, probability. Analysis. Such as probability. Of an option being in the money that is, not a guarantee. It's, just basically, looking at theoretical. Models also. Paper. Money that's an application that we use for educational, purposes, back, testing, is looking at historical, data but. Remember. That's going to be a hypothetical. Because what's happened, in the past is not guaranteed, to happen in the future, remember. All investing, involves risk including the risk of loss no soliciting. No recording, and no taking pictures, without. The prior written consent of TD. Ameritrade. Okay so now I'm, gonna switch over to my. Paper. Money account because I've outlined, the. Agenda, sort of the specific, things that we want to cover in this, class, today. We want to look at the futures ticker symbol, make, sure you understand. How the expiration. Works, and what those symbols mean in terms. Of the expiration. Involved, with the futures contract, then. We'll talk about some of the things that could happen on, expiration. If. You're trading futures but. Also, I'm going to talk about TD, Ameritrade, Spalla, C in, terms of handling. Expiration. Because you've got sort of a situation, where, futures. They do have an expiration, and a settlement, date right or an expiration, date actually, settlement, technically, takes place every day with, the mark to the market but. They do have an expiration, date and if, you haven't done anything with your future contract, and that expiration, occurs. Effectively. You could wind up taking a position, in, oil. And what I mean by that is having you. Know a truck, full of oil delivered, at your door, or. Have to deliver a truck full. Of oil to somebody else's door. Because. Of that right because of this that's called physical, delivery. You. Know TD, Ameritrade just doesn't allow it to happen so there's a requirement, where. If you do not exit. Before the expiration, TD, Ameritrade, will actually automatically. Liquidate, your future and we'll talk about how. That works and also where you can reference important. Dates for, your specific, future contract, so that you know if liquidation. Might occur so and that's going to be expert. We'll talk about how margin, works sort of the basics, of understanding margin. And then, we'll get into mark-to-market, and how that can affect a futures, position, and when. You're trading futures how that might how you might see that impact when, you're looking at the account so, we got a lot of stuff to cover so let's get right to it first we'll talk about the future symbol, and. To get started well.
I've Got gold on my screen so let's just talk, about gold futures for a second, so, anytime you're dealing with a futures, contract you've, got the primary, root symbol. In the, case of gold and I'm on the trade screen right now the root symbol, here is. /g. C, KGC. Indicates. That it's a gold future, contract. But. Futures. They actually, have, expirations. Associated. With them see these are in and of themselves, contracts. That, have an expiration, it's. A contract, to either buy or sell a. Certain amount of gold or. Or. Oil, or whatever the terms of the contract, are. You. Know it is certain that. A certain date or for, a certain amount of time and, so you've got let's, just look at this and do, me a favor because. When you first log, in and you and you look at a future sticker symbol your screens probably, aren't going to appear, the way mine are probably. The default, you will see is the, active, only, futures. Contract, here just, for fun if, you're following along on your own screens, or when you get a chance to do this maybe. Go to where it says active, only and switch that to all and, what. You can see are the different, expiration. So basically these are the forward, or the out and time, expirations. Out there and know, how these all have the, GC. In front of them but, then they have another letter, behind. The GC, the, letter behind the GC, indicates. The expiration. Month and, so, for example, if we're taking a look at. Those. Contracts. That have a positive, 12. Meaning, days to expiration it's the GC. V19. What. That V read presents is the. Expiration. Code for October now. If we look out 43, days we've got the G C, X, right. The G C X are the first three symbols there well the X indicates. The expiration, for November, Z, and then, G and on down the list so basically every, month has an expiration. Letter. Associated. With it so just get used to that. Primarily. Though when people are trading the futures, themselves. They, trade the active. Contract. And that's kind of why the default. Is the, active, only here because. In, you. Know really I would say it's a traditional, way the active. Contract, is the one that receives, the most liquidity. As the. Name would imply it. Tends to be the contract, that's just the most actively, traded it's the one with the greatest amount of volume right, currently, the active, contract, on gold is the, zebra right, the Z and so, the Z is going to be the one that's expiring, in, December. And if we take a look at that right so note this the. Volume. On. Those, December, contracts, is what. 250,000. Essentially, and when, we take a look at these other expirations. It's not that there's no volume at all in those but certainly the, active contract, is the one with the greatest amount of trading activity now, just this isn't a class on futures options there will be more. Classes, in this. Line up right, in this series that we do that will talk about this but just a quick note when. You look at the options, that, are listed below. Your. Futures, at the top of the page, futures. Options have, expirations. And. The. Based on the expiration, of the option. It might. Obligate. A different, future here. Than what you might be expecting, so notice just when you're looking at the option, ticker symbol, GC. V19. That's, referencing. Which. Future. That. Option, is actually assigned. To, does that make sense and again barb or whoever teaches this class in future, occurrences, will, kind of get into deeper. Steps on that okay. So that's a little bit in terms of the way those expirations. Those. Symbols happen, and some. Things you need to think about in terms of expiration, but since, these symbols, are kind of a natural, lead-in to the expiration. Let's. Talk about the expiration, for just one second, here so, let's. Say just for illustrative purposes let's. Take a look at another, underlying, we'll, take a look at, /c. L okay. So Charlie. Lima. Here this, is going to be oil okay. So this is the light sweet, oil futures, contract. This. Is the one that they call WT, I there's. Also a Brent contract, just for your gee-whiz collection, but this is called the WTI now. If we look at this one same, thing applies ford.
/ CL, the, CL is the root symbol, and then, we've got that letter indicating. The expiration. Month now, if you notice, this, one shows, the active. Right here it's kind of nice when that active. Symbol is noted there that way you can just kind of have that quick heads-up as, to which one is likely the most actively traded but, at some point the active, will actually, switch to, a longer. Dated, expiration. And the reason it does that is because there. Just isn't going to be as much time, remaining, to trade that contract, so. Traders, will adjust, their positions they'll get out of their front. Expiration. Or that near-term expiration. And roll or, reposition. In a longer date now, if somebody, if they if the trader didn't do anything right so let's say somebody had bought. This future, contract, right here so they have this in their account. This, actually, means that they're they're willing to buy. 1000. Barrels of, crude oil, okay, and so if nothing were done with this future and somebody, bought, and held this future through the expiration. Technically. They're going to be buying 1000. Shares of crude, oil now. If somebody sold this. Future. Okay, and they did nothing and they went all the way through the expiration, date technically. They're going to be on the hook to deliver, or to sell. 1000. Shares of excuse, me 1000, barrels of crude oil, to, the futures buyer, now, if you can visualize, that, not. Very many people are going to have the storage capability. For, a thousand, barrels of oil not many people except, for a producer, you, know you. Know whoever, Exxon. Mobil or whatever are. Gonna have the ability to deliver, you, know a thousand, barrels of crude oil, so really when you're talking about expiration. And that's, called, the settlement is when the settle, in that physical commodity. Itself, that's. Kind of a header, and a, producer thing, right. Where, you've got the user of the oil maybe a refiner, actually. Taking possession of the oil from the producer, of the oil which. Is the driller right, or the. You. Know the ExxonMobil, and Holley frontier, for example might be taking. Delivery of that oil from Holly frontier, but that's a market that most you know just normal traders, aren't, going to be participating, in so. To. Avoid that. Situation. From happening right if you buy or sell one of these futures, you're not paying attention, rather. Than letting these go through expiration. And receiving. You know one of those assignments, for delivery there, what, TD Ameritrade does they've got a policy, they've got a policy, that everybody, needs to be out. Before. That actually occurs. Before, the expiration. And. Deliveries. Actually, occur there and one. Way to kind of recognize, how, that works I found it's an easy way to recognize how this all works is to, go to the, market, watch page and, hit. The calendar. On the market, watch page and once, you're in the calendar, market, watch page you can actually set, this thing to futures. Liquidation. Remember the calendar, it's, got a lot of features involved, with it you can check, this thing for dividends. Earnings, all this stuff, if. You've got all your boxes checked, it can be sort, of annoying to see all these different things on that same page if, you wanted to see something called futures, liquidation. This, is going to be the day that TD. Ameritrade, needs you to be out or, they are going to liquidate, your position, for you. That futures liquidation. Will be listed, on this page so it's just a good way to. Keep track of you. Know what's coming down the, road here. So, for example right here if I, click on Thursday. September. 19th. Thursday. September. 19th, down.
Here At the bottom of the page we're, going to see a list of, futures. Liquidation. So the notification. Right or the. Notification. On the calendar, I should say it's, going to appear, the. Day before right. But it's telling you what about an event that's going to happen the following day so, if we click on Thursday, September 19th and. Go down here to the bottom of the page you're actually gonna see light. Sweet, crude oil, crude, oil futures, for. October. Expiration. Right, they. Are due. For a futures. Liquidation. Basically. Right so physically, settled futures, clients, need to be out by. 9:00 19:00. And so, what effectively, this does is it just describes, you. Know the, day you need to be out and also when that, expiration. Date would actually, occur so, look. At it this way right if you just click on the date and then, click on the particular future, symbol. In mind right in this case light sweet crude oil, it'll, give you the description of, what, needs to happen here physically. Settled, futures clients you need to be out. By. The end of business or by, actually. It's. Going to be 11:00 p.m. mountain, time since, I'm in the Mountain Time Zone which I keep screwing up on my dates are. Start times for these classes, because I keep thinking that my notes over here are in Eastern. Time but they're not they're in mountain time anyhow, I this, should be provided, I think it should be in your time. Zone so. Need. To be out of that right by 9:00 19 at 11:00 p.m. mountain time if not TD. Ameritrade, would actually close that contract. And that's the reason is to, avoid that. Settlement, right if you're dealing with. Commodities. The, buyer would have to buy the commodity, if you're dealing with commodities. The seller would have to delay that commodity and that's gonna be a lot of. Responsibility. And storage that would need to be necessary, so TD Ameritrade, chooses. Not to deal with that and so, for any basically. Future you're dealing with you.
Can See the, the. Liquidation, needs. Right here someone, we're dealing with some, of these micros, for example, the, S&P, emini micro, contract, boom. Liquidation, on this upcoming contract. Is going to be nine. Nineteen by 11:00, p.m. mountain. Time okay. So use. The calendar, understand. How those liquidations. Work and basically. It's just a reminder to be out of your position on your own terms before. Those. Dates so that you don't have to deal with these expiration, and assignments, now just so you know when. You're dealing with financial, futures, like for example the, es. Ford slash es the. Way those actually, settle, just. Kind of describing the settlement, you know on the expiration, date. Basically. The buyer would receive, the. Difference, between their buy price and the, closing. Price or, the settlement price of the index times. The multiplier, in cash. If, it's profitable, if it would be a non profitable, trade it would be the difference between, the. Entry price and the settlement. Price if. It was a loss they would actually have to fork over the cash times, the multiplier, just, to just. To give you that difference, between a there's two types of settlement, there's a physical. Commodity. Settlement, and there's a cash settlement and, that's. The difference kind of between a financially. Settled. Future and a physically, settled future just for a kind of for your G was collection. Really okay. Now let's talk a bit about margin. And the, basics, of margin. Here I've, got. A position, here in, my paper account, in the es let. Me just open, up that position so that you can see it I have, a purchase. Of one es, emini, 500. Future contract, now, if you notice, oh hey, this position is actually profitable, today that's nice. But. There's going to be a cost to having these futures, contracts, if we, take a look at all, the way to the far right if, you notice there's actually a margin. Requirement. Associated, with it it shows is a positive, number but, you have to understand, that's a hold, that's. Being kept, by the broker, right now for me to have this, particular. Position. I've, got another section, here that's got regular. Futures and futures options in it and you, can see margin, requirements. When you're looking. At different. Options and, also not, just the underlying future, itself but that's what you're gonna see here with, that margin, requirement, over here now, what it what is the margin requirement. Margin. Requirement, is basically a good-faith hold for. The, trader to actually, enter, that, position, okay, because when we're dealing with these es, futures and. Let me just show you where if you wanted to see the initial. What they call the initial margin requirement on, any. Futures, position, that you could take here if you. Go to the trade screen, and, in. This case I'll just go to /es. Once. You're on that trade, screen you've got that symbol in that field and actually don't even need the symbol in that field but, if you hit the drop down arrow you. Can go to the futures, grid here, so there's a futures, tab if, we go down to the e-mini, S&P 500, future, if you notice it shows us the initial, margin, requirement. To have these futures, so. If I bought one of these initial. Margin would be six, thousand, nine hundred and thirty bucks and that's going to be basically, a good-faith, hold, right. It's a good-faith hold, because. If someone bought these futures. They're. Effectively, worth. 50, bucks a point right so if they bought these and the future moves one, dollar they. Could make or lose 50, bucks right so if I. Bought. And. I'm still on the CL here. Waiting. For data but, if we bought this active, es future. For. Three thousand, dollars and let's say it went to three thousand. Three. Thousand one and we made one point on that that, would be $50, worth of profit, it could also be $50, worth of loss if it goes against, us now. One way to think about that is that that's really a lot of leverage. That's going on here imagine this let's, say the S&P 500 went, up from three. Thousand, to three thousand. Twenty. Points, worth of profitability, and if, you'd work the numbers on that it. Would be twenty, times. 50. It's. Worth $50, a point that'd be a thousand, dollars worth of profit and that's just on a twenty point move in the EES now.
If You can visualize this you, can get days where this EES moves a whole lot just going back in time if, I put my pointer right on the 14th. Of August. The. Range on the future that day was. Was. It really a hundred points is, this a weekly graph the, range on the future that day though was a hundred points 100 points times 50 that's. $5,000. Worth of variation. In that, position does that make sense so. These. Things can really move they, actually have a whole lot of leverage associated. With them in fact there's something called the notional, value of. These and the, notional, value means, what's the what's the full value of stuff if someone were going to trade an equivalent, portfolio, that, had that type of risk and reward benefit, for a one point move you. Take three thousand, dollars the price of that future and times, that by the, multiplier, which is basically, 50 so, these futures, carry, a notional. Of. 150,000. Okay you have, $150,000. Worth of S&P. Value. Right if you were gonna build an equivalent, portfolio, would be a hundred and fifty thousand dollars to do that so. I talked about leverage in futures, so. You can control, that. Much notional. Or that much futures, value, for, this initial. Margin, requirement this, good faith hold that's, only a very small amount compared. To the amount that this. Futures, controler, that this future controls, and so, there's a reason I'm telling you this, what. That means that this money that's set aside to, hold the position if the. Future winds up going up in value for. Example the. Trader could actually make a lot more than. There than, their initial margin requirement and, that initial, margin requirement, can actually change right there's, an initial margin and then a maintenance, margin and that maintenance. Margin if this becomes very very profitable it, can actually be reduced because. You, know your way up your profits, far exceed, basically. The, the margin, that. You would have to hold for this now on the other hand if the, market goes against, you this, initial. Margin right although that's the initial amount there's, a maintenance margin that could actually go up requiring. You to deposit a greater amount of margin or bring more capital, in to. Secure the position because you could lose more than that margin requirement, does that make sense I mean if the S&P dropped a few, hundred points, times $50, a point I mean literally you could lose a lot more than that initial, margin so there's a maintenance margin, and based. On the profit, and loss in, the level of risk in that portfolio that. Can be adjusted, and if you want to get an idea for how that might, adjust once. You've got a position established. You, could go to this explained, margin, just click right on that box where your margin requirement, is and it, can give you an idea of, how those margin, requirements. Could change on the maintenance it. Gives you some, up-and-down. Figures, here which, are basically a certain, amount away from the current price of the future and it, shows you how your margin could change so, if we go up for, example the 3045. The. Maintenance. Margin could go down by twenty, two thousand, three hundred ten. Dollars if the, market went 20 points, or it, shouldn't be down to twenty nine sixty one which, is 40, points basically against. The. Margin requirement, would go up to two thousand, three hundred and ten so, remember, there's an initial, margin that needs to be met then. There's a margin maintenance. That, is ongoing, based. On the assessed levels, of risk in the, underlying and as. The risk of the position, and goes, higher the. Margin, or the amount on hold can, go up as the levels. Of risk assessed seem, to go lower the. Amount of margin being, held to the side can actually go down so, that margin, fluctuates, that. Margin, gives traders a ton, of leverage, when, they're dealing with futures I mean buying or selling one, of these futures, in oil for example. Let's. Just practice, this real quick with oil. /zl. And. We'll. Hit the drop down go. To oil the initial margin on oil is four thousand fifteen dollars, oil is. Worth fifty. Excuse, me a thousand. Dollars per point, if that makes sense right so they're trading, basically. A thousand. Barrels of, crude oil. So, where's. Crude oil right now about sixty, three dollars oh no it's a Wow crude is having a big move down about sixty bucks they're, trading sixty thousand, dollars worth of crude oil for, that initial, margin requirement of. Forty. Or four thousand, dollars so as levels, of risk in that position change, that. Margin, or that maintenance margin can actually change okay, so those are some of the basics, of how that margin, will actually, work and some, things that you can look at so you're prepared to know your initial maintenance, margin and also.
You Can understand, I get, some ideas for how that margin, can change once you've got that position in the portfolio, okay. So now there's one more concept, that we need to talk about here, and this, is called mark to market. Mark the market. Mark. The market is basically this it's a method of accounting, and, what. It does is on a daily, basis, it, takes the settlement, price of the futures futures, actually, settle, and report. By, the exchange, on a daily basis, what the official, closing or. The price that everybody understands. Was the closing price of the future, on a daily. Basis. Right on a daily basis and and. So, once, that's reported, basically. All brokers, are required, to, take, a look at their customers, positions. And if. Those positions, lost, money today, they're, actually. Debited. That money from their account right so if there's a mark to the market, and that futures. Position, is losing money that, money is actually debited. From the account it's held to the side as a loss right, now. It doesn't mean you have to get out of the position it's just that on a daily basis, and this goes that. You know there's, actually schools of thought on whether this is good or bad but. This mark to the market means that on any given day if your position is up you, get cash credited. To, the, position, if the position is down there's, cash debited. From the position, right but it doesn't necessarily mean, that, you've. Made or lost money until, you exit, that position, does that sort, of make sense hopefully, it does this, is this is in place -. In. Theory simplify. Accounting. Measures some, traders might say this actually complicates. The situation it, doesn't matter how you feel about it just to understand on a mark-to-market, basis. You, know they're gonna take the settlement price which happens every day of whatever, future you're trading, and mark. That compared, to the price that you got in and count. That as a profit, or loss and, your, position. Is actually debited. If, it's a loser or credited. Cash, if it's a winner right but you know one way you might not, want to think about this is actually you. Know having your profits locked in until, you close out of the position, either, for a profit, or a loss so, one. Thing I would encourage you to do if you want more work on that, I'm. Just going through a few examples here I get, into, the education. We, do have futures. Education. Here there's actually a course that you can get started with and I would say get that course started, and go. Through some of those futures. Basics. As well this, can help you remind be reminded, of the futures, margin, just click and go through that lesson, and also. If you want more information, on the specs of the contract, and also. Initially, some information, on how to trade, those futures contracts, okay also we've got plenty of classes, where we demonstrate, futures, trading in fact on Thursday, I do more of an act trading, class where we talk about some of these concepts, but apply it to actual trading so, hopefully that gives you an idea though, of how to get started, you. Know with futures or gives you an idea of how some of those basics, work for, the symbols for, expiration. Initial. Basics on margin, and gives you an idea of how that mark the market works, but, I've got to run everybody thank you for your time, here. Is a final. Disclosure, side remember what would slide remember, what we've talked about is not a recommendation, to buy or sell and, be. Aware we do have active. Trading strategies, coming up at. 10:30 my time so I got to remember these, are in my time right here so that's going to be 12:30, Eastern, Time coming, up as our next session, everybody, have a terrific day and we'll, see you again in another class in the near future bye, now.
2019-09-22 03:18
