0– 83Before You Say Yes, 260Blind-bid portfolio-level trading package,45, 46Blind-blind-bid portfolio-level tradingpackage, 45Bloomberg, 207Board orders, 60Boars, 77Bodie, Zvi, 228Box formation, technical analysis, 149Breakeven calculation, 190BridgeNews, 207Brokers:commissions, 45– 46, 50communication with, 263–264contract creation through, 20full service vs. discount, 50and National Futures Association(NFA), 260–261online services, 209–210opening account with, 55– 59, 254 –255selection of ‘good,’ 49– 55trading system, personal, 209–210[See also Commodity trading advisor(CTA)]Brorsen, B. Wade, 228Bull calf, 80Bull market:anatomy of (defined), 29– 31management of, 26option spreads, 182, 184 –185prediction of, 43technical analysis, 135Buy plus and buy minus order formulas,47, 48Buy-stop limit orders, 61
Copyright 2001 The McGraw-Hill Companies, Inc. Click Here for Terms of Use.
269
MD6988.269-279
9/28/01
10:58 AM
Page 270
270
CAC 40 stock index, 209Call option:defined, 164double option, 217–219hedging, 217options vs. futures strategy, 216overview, 174, 175 –176Call-up information, 206Capital, determination of amount to use,199Carrying cost, 22Cash and futures market intersection,24 –25Cattle cycle, 82Cattle market overview, 80– 83Cattle on Feed Reports (USDA), 82CBOT [see Chicago Board of Trade (CBOT)]CCC (Commodity Credit Corporation), 100CFTC [see Commodity Futures TradingCommission (CFTC)]Chance, viiiCharacter-of-market analysis, 127–128,156 –158Chart formations and analysis, 127–151Chase Manhattan Bank, 125Chicago, IL, commodities market in, 14–16Chicago Board of Trade (CBOT):establishment, 18Market if touched (MIT) orders, 61night markets, 222precious metals, 102Project A, 209standardization of contracts, 21Trade Order Processing System (TOPS),208Chicago Mercantile Exchange (CME):foreign currency markets, 119Globex, 203 –204, 208 –209Market if touched (MIT) orders, 61night markets, 222Trade Order Processing System (TOPS),208Universal Broker Stations (CUBSII), 208Chief Inspector of the United States PostalService, 267Chocolate (see Cocoa)Chocolate liquor, cocoa beans, 92Churning, 200, 265 –266Circuit breakers, NYSE, 47Clearinghouses, 63– 64, 89
INDEX
Client:communication with broker, 263–264suitability for futures trading, 1–11, 36–38(See also Brokers; specific topics)CME [see Chicago Mercantile Exchange(CME)]Cocoa butter, 92Cocoa market overview, 90– 94Coffee market overview, 86– 90Coil formation, technical analysis, 147–149Coincident Indicators, Index of, 117Collar levels, NYSE, 47COMEX (New York Commodity Exchange),102, 110Commerce, U.S. Department of, 117Commissions, 45– 46, 50Commodities:inventory manager role, 22–29principle of elasticity, 23(See also specific topics)Commodity Account Letter and CustomerAgreement, 57Commodity Credit Corporation (CCC), 100Commodity Futures Trading Commission(CFTC):account opening, 56, 58additions and withdrawals, 243broker selection, 54– 55, 261client suitability, 1complaint management, 267–268due diligence, 247–248industry structure, 57as information source, 169–170market orders, 59and National Futures Association(NFA), 254Regulation 4.41(b)(1), 257third-party controller, 230Commodity market overviews:cattle, 80 – 83cocoa, 90 – 94coffee, 86– 90copper, 107–110corn, 68 –71cotton, 97–100debt management, 116–118energy, 110–113food and fiber, 83–100foreign currency, 118–122gold, 103 –107
MD6988.269-279
9/28/01
10:58 AM
Page 271
INDEX
Commodity market overviews (Cont.):hogs and pork bellies, 76–77interest rates, 116–118meats, 76 – 83metals, 100 –110oats, 73–76orange juice, 94– 97petroleum, 110–113silver, 100–103soybeans, 66 – 68stock index futures, 113 –116sugar, 83– 84wheat, 71–73Commodity pool operator (CPO), 231Commodity Research Bureau (CRB) index,235Commodity Traders Consumer Reports, 258Commodity trading advisor (CTA):batting average (BA), 239 –240discretionary accounts, 229–231due diligence, 246–249fundamental analysis, 125–126left- and right-brain trading, 33– 34modern portfolio theory, 227–228negative corrrelation, 228 –229performance measure, 235 –236, 241–244prospectus information, 232–233selection summary, 249 –252Sharpe Ratio, 236 –237, 239 –240Sterling Ratio, 237–238Communication, importance of brokercustomer, 263–264Complaint management, 266–268Compliance, regulatory, 210–211, 254 –259Compliance Rule 2–30, NFA, 56 – 57Congestion management by inventorymanager, 26–27Consensus Index of Bullish MarketOpinion, 160Consistency, 234Consolidation formation, technical analysis,136Continent reversal formation, technicalanalysis, 142–143Continuation chart formation, technicalanalysis, 147Contracts (see Futures contracts)Contrary trading, option, 168 –171Copper market overview, 107–110Corporate accounts, 56
271
Costs:arbitrage, 215commissions, 45– 46, 50limited partnerships, 248–249National Futures Association (NFA)requirements, 258per trade, 50Cotton market overview, 97–100Countercyclical technical analysis, 159–160Countertrend technical analysis, 158–159,160Covered options, 175Cow, 80Cowcalf operation, 80, 81CPO (commodity pool operator), 231CRB (Commodity Research Bureau) index,235Crude oil, 111–112Crush spread, 182CTA [see Commodity trading advisor(CTA)]CUBSII (Universal Broker Stations), 208Currency (see Foreign currency)Customers:communication with broker, 263–264suitability for futures trading, 1–11,36 – 38(See also Brokers; specific topics)Cycles in structural analysis, 154–155
Day trading, 223 –225Debt management market overview,116 –118Delta factor, 179 –181Demand:cattle, 81– 82cocoa, 92coffee, 88copper, 108corn, 70cotton, 98 – 99as fundamental, 23in fundamental analysis, 123–124gold, 105hogs and pork bellies, 78oats, 74–75orange juice, 95– 96petroleum, 111silver, 101–102
MD6988.269-279
9/28/01
10:58 AM
Page 272
INDEX
272
Demand (Cont.):soybean, 67sugar, 84– 85wheat, 72–73Descending triangle formation, 148–149Deutsche Bank A.G., 102, 105Dial-up information, 206Diamond formation, technical analysis,149 –150Discipline:broker selection, 54day trading, 224trading success, 5, 202Disclosure document, examination of,232–233Discretionary accounts, 229–231Dismal Scientist website, 117Diversification, 41, 198, 199, 227–228, 249DJIA (Dow Jones Industrial Average) indexfutures, 42, 43, 46, 47, 113, 115Double option, 217–219Dow Jones, 207Dow Jones Industrial Average (DJIA) indexfutures, 42, 43, 46, 47, 113, 115Downtrend (see Bear market)DTN / AgDayta, 207Due diligence, 246–249
ECB (European Central Bank), 106, 120Econometric modeling and fundamentalanalysis, 125Efficient frontier, 234Elasticity, principle of, 23Electronic trading, 203–204Elliott, Ralph, 155Elliott Waves in structural analysis, 154, 155Energy market overview, 110–113ERISA law, 45Eurex of Frankfort, 222European Central Bank (ECB), 106, 120European Monetary Union, 106, 120Exchanges:contract standardization, 21exchange-traded options, 254industry structure, 57margin-setting requirements, 39, 41online services, 208–209(See also Chicago Board of Trade(CBOT); Chicago Mercantile Exchange(CME); specific exchanges)
Experience and broker selection, 54Exports (see Price determinants)
Fan trend-line formation, 133Farrowing, 77Farrow-to-finish operation, hogs, 77Fat cattle, 80, 81FBI (Federal Bureau of Investigation), 267FCM [see Futures commission merchant(FCM)]FCOJ (frozen concentrated orange juice),94 – 96, 97Fear and success, 6–11Federal Bureau of Investigation (FBI), 267Federal Reserve Board (FRB), 117–118Feeder cattle, 80, 81Feedlot sector, cattle, 81Fees, 258Fiber:market overview, 83–100Filtering techniques, 150–154Financial futures (see Stock index futures)Financial psychological worksheet, 9– 11Flag formation, technical analysis, 149–150Flat formation, technical analysis, 136Floor trading, 254Food and fiber market overview, 83–100Foreign currency:as basic trading strategy, 14Globex, 208 –209market overview, 118–122single- and multiple-currencyaccounting, 211–212Foreign Futures Exchange (Forex), 119Forex (Foreign Futures Exchange), 119Forward contracts:vs. futures contracts, 19–20inadequacies of, 16–17as a marketing tool, 15 –16Foundation for the Study of Cycles, 68FRB (Federal Reserve Board), 117–118Frozen concentrated orange juice (FCOJ),94 – 96, 97Fundamental analysis:cattle, 82coffee futures, 86–90corn, 69defined, 123–126gold, 106hogs and pork bellies, 78
MD6988.269-279
9/28/01
10:58 AM
Page 273
INDEX
Fundamental anlaysis (Cont.):silver, 102–103soybean, 66Futures brokers (see Brokers)Futures commission merchant (FCM):account papers, 56, 57, 57, 58, 59client suitability, 2, 3order entry, 254, 262–263volatility control, 41Futures contracts:defined, 20–21development of futures market, viiforward, inadequacies of, 16–17vs. forward contracts, 19 –20vs. options, 3, 171–172, 174, 176,215 –216standardization, 18–22Futures Magazine, 207, 242
Gann, W. D., 155–156, 198 –202Gann numbers in structural analysis, 154,155 –156General partnership accounts, 55Gilts, 77Givers, options, 174Globex, 203 –204, 208 –209Glossary of Futures Terms, 219Goals, setting realistic, 35– 36Gold market overview, 103–107Good-till-canceled (GTC) order, 49, 62– 63Grade, cotton, 98Grain market overview, 63, 66–76Greed and success, 6–11GTC (good-till-canceled) order, 49, 62– 63
Head and shoulders formation, technicalanalysis, 143 –147Hedging:contract standardization, 22foreign currency, 120 –121strategies, 219 –221Heifer, 80Herd psychology, 130–131, 169HFCS (high fructose corn sweetener), 84, 85High fructose corn sweetener (HFCS), 84,85Historical data, 206 –207Historical patterns, 126–128Hoarding, precious metals, 101
273
Hogs and pork bellies, market overview,76 –77Holders, 173Honesty of broker, 52Hope and success, 6–11Horizontal channel formation, technicalanalysis, 136How to Make Profits Trading Commodities(Gann), 155HSBC Bank plc, 102, 105Hubris and success, 6
IB (introducing broker) level, 2, 57, 254IC (International Coffee Organization(ICO), 89ICCO (International Cocoa Organization),91, 93ICO (International Coffee Organization), 89IMF (International Monetary Fund), 106IMM (International Monetary Market), 119Incentive portfolio-level trading package,45Independence and success, 5Index of Coincident Indicators, 117Index of Lagging Indicators, 117Index of Leading Indicators, 117Index-based futures, 41– 43, 113 –116,222–223Individual accounts, 55Individual traders vs. institutional, 42– 43Industry structure, 57Information:evaluation of, 51– 52management and trading, 204 –207online, 205–206Initiating position, 20Institutional vs. individual traders, 42– 43Intercontract spreads, 181Interest rates:interrelationship with volume and price,162market overview, 116–118option premiums, 177–178International Coffee Agreement, 89International Coffee Organization (ICO), 89International Monetary Fund (IMF), 106International Monetary Market (IMM), 119Internet, the (see Online services)In-the-money options, 168, 172, 176, 189,215
MD6988.269-279
9/28/01
10:58 AM
Page 274
INDEX
274
Intracommodity spreads, 181Intrinsic value, options, 176Introducing broker (IB) level, 2, 57, 254Inventory manager:bear (downtrend) management, 26bull (uptrend) management, 25–26congestion management, 26–27open interest, 28 –29role of, 22–25, 27–28Inverted triangle formation, 148–149Irwin, Scott, 228Island reversal formation, technicalanalysis, 142–143Joint accounts, 55Journal-keeping and outcomes, 37– 39Kansas City Board of Trade, 113Key reversal formation, technical analysis,142–143Kill or fill (KOF) orders, 62Knowledge and broker selection, 54KOF (kill or fill) orders, 62Lagging Indicators, Index of, 117Large vs. small traders, 42– 43Law of price-trend inertia, 132Leading Indicators, Index of, 117Lending Agreement, 57–58LIFFE (London International FinancialFutures and Options Exchange), 204, 222Limit orders, 62Limited partnership (LP), 56, 231–234Limited power of attorney, 229, 230Limited risk, 258Limit-price orders, 62Lintner, John K., 227, 228Lipsky, Phil, 228Liquidity:contract standardization, 22dangers of, 172–173, 196 –197standardization, 21–22trading in liquid markets, 199LME (London Metal Exchange), 102, 110London Coffee Terminal Market, 90London International Financial Futures andOptions Exchange (LIFFE), 204, 222London Metal Exchange (LME), 102, 110Long position, 13, 14, 134, 173
Long straddle, 186 –187Long strangle straddle, 190–191Longs, 173Losses, 54, 200, 253LP (limited partnership), 56, 231–234
Major Market Index (MMI), 42, 43 – 44, 113,115Managed Accounts Report, 231–232, 242Manager (see Inventory manager)Mandela, Nelson, 105Marche a Terme International de France(MATIF), 204, 209, 222Margin money and portfolio choice, 29Market if touched (MIT) orders, 60– 61Market orders, 59, 62, 199Market overviews (see Commodity marketoverviews)Market risk (stocks), 114Market-on-close orders, 62Market-on-open orders, 62Markowitz, Harry, 227MATIF (Marche a Terme International deFrance), 204, 209, 222MCE (MidAmerica Commodity Exchange),63Meats market overview, 76– 83Megatrends (Naisbitt), 32Metals market overview, 100–110Micronaire (mike), cotton, 98MidAmerica Commodity Exchange (MCE),63Milking stool analogy, 244–245Mini contracts, MidAmerica CommodityExchange (MCE), 63Misrepresentation, 264MIT (Market if touched) orders, 60– 61MMI (Major Market Index), 42, 43 – 44, 113,115Modern portfolio theory (MPT), 227–228Money management and analysis, 197–202Moving averages, 151–154MPT (modern portfolio theory), 227–228Multiple top and bottom formation,technical analysis, 137–139Multiple-currency accounting, 211–212
Naisbitt, John, 32Nasdaq exchange, 204
MD6988.269-279
9/28/01
10:58 AM
Page 275
INDEX
National Cotton Council, 99National Futures Association InformationCenter, 251National Futures Association (NFA):churning, 265–266client suitability, 1, 3complaint management, 266–268CTA selection, 251, 260 –263due diligence, 248hedging, 219industry structure, 57misrepresentation, 264public communication prohibitions,255 –259regulation by, 254–255required client information, 56– 58third-party controllers, 230track record and commissions, 264–265Near-the-money options, 168, 215Negative correlation of assets, 228–229Net liquid asset (NLA), 198New crop spread, 182New York Coffee, Sugar and Cocoa(NYCSC) Exchange, 90New York Commodity Exchange (COMEX),102, 110New York Cotton Exchange (NYCE), 100New York Mercantile Exchange (NYMEX),209, 222New York Stock Exchange Composite(NYSE Comp), 42, 43, 44, 113New York Stock Exchange (NYSE), 44, 46, 47NFA [see National Futures Association(NFA)]NFA Manual, 262Nibs, cocoa beans, 92Night market strategies, 221–223Nikkei 225 index, 221–222, 223NLA (net liquid assets), 198N.M. Rothschild & Sons Ltd., 105Non-Cash Margin Disclosure Statement, 57Nonnutritive sweetners, 84NYCE (New York Cotton Exchange), 100NYCSC (New York Coffee, Sugar andCocoa) Exchange, 90NYMEX (New York Mercantile Exchange),209, 222NYSE Comp (New York Stock ExchangeComposite), 42, 43, 44, 113NYSE (New York Stock Exchange), 44, 46,47
275
Oat market overview, 73–76Objective calculation in technical analysis,146 –147OCO (one-cancels-other) order, 62Offsets to a position, 20Oil and oil products market overview,110 –113Oilseeds market overview, 66 –76Old crop spread, 182One-cancels-other (OCO) orders, 62Online services:brokers, 209 –210data available, 205 –207Dismal Scientist website, 117electronic trading, 203–204exchanges, 208–209information transparency, 203professional brokers vs. order takers, 50trends in, 210–212OPEC (Organization of PetroleumExporting Countries), 105, 110Open interest:activity benchmark, 160 –162herd psychology, 130–131and inventory manager, 28–29pyramid position, 201as trend indicator, 146Open-hand portfolio-level trading package,45Options:basic concepts, 173 –174in bull market, 168–171covered and uncovered, 175delta factor, 179–181vs. futures, 3, 171–172, 174, 176, 215 –216premium on, 176–178price influencers, 183price spreads, 184 –185puts and calls, 174rights vs. writers, 174 –175as risk strategy, 163–168spreading strategies, 181–183strategies, 173system development, 171time options, 183Options Disclosure Statement, 58Orange juice market overview, 94– 97Orders:clearinghouses, 63– 64market orders, 59, 62, 199priority of, 62– 63
MD6988.269-279
9/28/01
10:58 AM
Page 276
276
Orders (Cont.):puts as stop-loss orders, 221routing, 208 –209types of, 59 – 64Organization of Petroleum ExportingCountries (OPEC), 105, 110Oscillator systems, 156–157OTC (over the counter) stocks, 42Out-of-range order, 49, 63Out-of-the-money options, 167, 176–177, 189Over the counter (OTC) stocks, 42Overtrading, 199
Packer operations, cattle, 81Patience and trading success, 5Pennant formation, technical analysis,149 –150%R analysis, 156 –157Performance:of Commodity Trading Advisor (CTA),235 –236, 241–244milking stool analogy, 244–245Permission to Cross Agreement, 58Persistence and trading success, 5Petroleum and petroleum products marketoverview, 110 –113Pigs, market overview, 76–77Pipeline method in meat production, 82Planning, 36– 39, 180 –181Political issues and futures consideration,27–28Pork bellies and hogs, market overview,76 –77Portfolio, selection of, 39– 43Portfolio-level trading packages, 45– 46Power of attorney, limited, 229, 230Pre-dispute Arbitration Agreement, 58Premium on options, 165, 174, 176 –179Prentice-Hall Information Services, 262Price:arbitrage strategy, 215discovery of, 21, 32forecasting, 70–71, 85 – 86, 118influencers, 183interrelationship with volume andinterest rates, 162law of price-trend inertia, 132option spreads, 184 –185price chart analysis, 127–134price orders, 61
INDEX
Price (Cont.):smoothing techniques, 150–154standardization, 21, 22(See also Volatility)Price determinants:cattle, 83cocoa, 92– 93coffee, 89– 90copper, 108–109cotton, 99 –100foreign currency, 121–122hogs and pork bellies, 79oats, 75–76option premium, 176–179orange juice, 96– 97petroleum, 112stock index futures, 115wheat, 73Price-trend inertia, law of, 132Pride and success, 6–11, 202Principle of elasticity, 23Private commodity funds, 231Pro Farmer, 207Production cycle (see Seasonality)Profits, 200, 214, viii–ixProgram trading, 44– 48Project A, Chicago Board of Trade (CBOT),209Promotional material, NFA, 2