If you want to trade an equity that reflects changes in VIX, what is a good proxy for it?
"There is no good proxy for VIX, because it is a completely made-up value. Most listed options trade on an underlying security.  I can therefore choose to buy either the stock, or a future or option on that stock.  In this way, the future and option are derivatives in that they derive their value (in part) based on something else, in this case the stock price as of now. VIX is a different entity altogether.  It is based on the volatility of the market, using ""market expectation of near term volatility conveyed by stock index option prices"".  But the FAQ goes on to state that they are adding factors into the formula. So right away there is no one equity/stock that you can hold that will necessarily match the VIX in any significant way, because it is not directly based on stocks, but indirectly through other options and computations. In effect, therefore, the VIX in indeed only available through its options, and is not observable (tradable) in and of itself." I'd look at VXX, I believe it closely tracks what you are looking to do. http://www.ipathetn.com/product/VXX/ However, as already noted in other responses, this isn't trading VIX itself (in fact it is impossible to do so).  Instead, this ETF gives exposure to short-term SP500 futures contracts, which in theory should be very correlated to market volatility. If you want to trade to gain from short-term volatility, you can use Derivative-based ETFs that try to track the inverse of a broad index like the S&P 500. Note that these ETFs only track the index over a 1 day period, so you shouldn't hold these. If you're looking for a longer-term investment strategy, look at low-beta stocks, which often do well or produce dividend income during volatile times. Examples include McDonald's Corp and utilities like Consolidated Edison. VXX VZX XVIZ and there are plenty others correlated to market volatility if you want the wildest hedge, use VXX, it is also the most liquid
&gt; Could you discuss why the lack of restrictions on these subjects would make hedge funds more attractive to wealthy investors as opposed to mutual funds?  Well just think about it this way.   You have two soccer players. They both know the game extremely well, they both have similar styles of plan, and similar strategies. They're *very* good players.   Now, you change the rules for one of the players. He has to wear a 20 pound weight vest on him at all times, and can only kick the ball with his right foot when shooting, but his left when passing.   Who do you think would win in a one v. one?  ________________________________________________  Mutual funds are offered to the *general public* (most of them, anyways), which works under certain assumptions about possible investors. While investments with these funds are still considered risky, the restrictions placed on mutual funds are designed to promote safety of principle. For instance, mutual funds are restricted in short selling and trading on margin. Mutual funds must also clearly state what securities they're going to get into, what strategy they'll follow, etc., and deviations from this can get them into trouble.  Hedge funds have no such restrictions. Therefore, they can pursue any type of investment they want. Hedge funds have invested or tried to invest in everything from stocks to private equity to bitcoin to art to rare violins to property to contracts to get boats to and from the statue of liberty to water rights to lawsuit settlements to....   This relative freedom gives them MUCH more flexibility, and thus they can earn above-average returns. These lack of restrictions also makes them MUCH riskier, and additionally the way they're legally set up means only a specific type of investor, called an *accredited investor* in the U.S., can invest.   What does it take to be an accredited investor? Basically, either be rich in income $200k a year if single, $300k if married), or be rich in wealth (net worth of $1MM, not counting primary house). You can't tell for sure.  If there was such a technique then everyone would use it and the price would instantly change to reflect the future price value. However, trade volume does say something.  If you have a lemonade stand and offer a large glass of ice cold lemonade for 1c on a hot summer day I'm pretty sure you'll have high trading volume.  If you offer it for $5000 the trading volume is going to be around zero. Since the supply of lemonade is presumably limited at some point dropping the price further isn't going to increase the number of transactions.   Trade volumes reflect to some degree the difference of valuations between buyers and sellers and the supply and demand.  It's another piece of information that you can try looking at and interpreting.  If you can be more successful at this than the majority of others on the market (not very likely) you may get a small edge.  I'm willing to bet that high frequency trading algorithms factor volume into their trading decisions among multiple other factors. You cannot lose more than what you have in your account (equity). You'll get margin called. No broker will allow you to go negative, at least if they aren't caught off guard like when the Swiss decided to decouple their currency. If you want to understand the basics of forex I suggest you read the following: http://www.babypips.com/school This part explains the basics about leverage and margin. They do a good job so no need in repeating it here: http://www.babypips.com/school/undergraduate/senior-year/the-number-1-cause-of-death-of-forex-traders/leverage-defined.html You you need to keep the following in mind when trading forex: "Is option trading permitted in the account? Most 401(k) do not permit this. 1 - it means none traded today. 2 - there are 50 outstanding contracts. Each one has a guy who is long and a guy who is short.  3 - not really, it might depend on the stock.  4 - no. With commissions so low, and the inherent leverage of options, one contract reflecting 100 shares of the underlying stock, the minimum is what you can sleep soundly with.  5 - because GLD does not reflect precisely 1/10 oz of gold's price. If you look at the prospectus, it reads ""The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the Trust’s expenses."" Since there are no dividends to take expenses from, the GLD price will erode by .4% each year compared to the price of 1/10oz gold." There are lots of good answers on here already.  There are actually lots of answers for this question.  Lots.  I have years of experience on the exchange feed side and there are hundreds and thousands of variables.   All of these variables are funneled into systems owned by large financial institutions (I used to manage these - and only a few companies in the world do this so not hard to guess who I work for).  Their computers then make trades based on all of these variables and equations.  There are variables as whacky as how many times was a company mentioned in an aggregate news feed down to your basic company financials.  But if there is a way to measure a company (or to just guess) there is an equation for it plugged into a super computer at a big bank. Now there are two important factors on why you see this mad dash in the morning: Now most of the rest of the day is also automated trades but by the time you are an hour into market open the computers for the most part have fulfilled their calendar buys.  Everyone else's answer is right too.  There is futures contracts that change, global exchange info changes, options expiring, basic news, whatever but all of these are amplified by the calendar day changing. Since I've been doing this since late 03 I have colo machines in Chicago and NYC, and have direct exchange data feeds etc.  I mentioned in a prior post though, for someone starting out on algorithmic trading, I'd recommend Nanex for tick data and Interactive Brokers for your brokerage account. IB has a robust and easy to use API. It won't let you do the most low latency stuff bc you can't colo at the exchange and have to clear through their order management systems but if you are looking at opportunities that exist in the market in excess of 50ms it's probably a good place to start. If not, go Lightspeed imo, but that'll cost you on the colo/data a lot more. If you are worried about an increase in volatility, then go long volatility. Volatility itself can be traded. Here in the US there is an index VIX that is described as tracking volatility. What VIX actually tracks is the premium of S&P 500 options, which become more expensive when traders want to hedge against volatility. In the US you can trade VIX options or invest in VIX tracking ETFs like VXX. Apparently there are similar ETFs listed in Canada, such as HUV. Volatility itself is quite volatile so it is possible that a small volatility long position would cover the losses of a larger long position in stocks. If you do choose to invest in a volatility ETF, be aware that they experience quite a lot of decay. You will not want to hold it for very long. I've looked into Thinkorswim; my father uses it. Although better than eTrade, it wasn't quite what I was looking for. Interactive Brokers is a name I had heard a long time ago but forgotten. Thank you for that, it seems to be just what I need.