arantee that each trade will be honored (see Chapter 14). So, as a trader, you never need to give any thought to the reliability of theperson on the other side of your trade.Contracts, Not Shares The supply of futures contracts is unlimited. A newfutures contract is created every time a buyer and seller make a trade. Unlikeshares of stock, there is no limit to the supply of futures contracts. Every time abuyer and seller make a trade, a new contract is created.Because a futures contract is an obligation to buy or sell at a certain price at acertain future date, there’s no getting around the fact that the obligation must befulfilled. In most cases, the obligation is fulfilled by simply making an offsettingtrade (sell if you bought; buy if you sold). Of course, you can choose to carry theposition all the way to the delivery date, when it is fulfilled either by the exchangeof the physical commodity or by a cash settlement to or from your trading account; but again, that is almost never the case for the speculator. That possibilityhelps to keep futures prices closely aligned to cash prices.Contract Expirations, Not Perpetual Assets Because futures contractsexpire on a specific date in the future, a settlement between the buyer and theseller means the contract ceases to exist after that date. Shares of stocks, on theother hand, continue to exist (unless a company dissolves or a stock buyback orsome other development reduces the number of shares).Because of these contract expirations, futures traders sometimes will maintain a position by rolling from one contract month to the next, taking into consideration the trading liquidity available. Say you have a long position in the MarchE-mini S&P 500 contract, and it is the first week of March with just three weeksuntil the contract expires. If you want to maintain that position, you would roll
Futures: The Investment for the Twenty-First Century
7
into the June contract by selling your March contract and simultaneously buyingthe June contract. Your brokerage firm could assist with that process.Good-Faith Deposit, Not a Down Payment The word margin meanssomething different in futures than it does in stocks. In stocks it means that you’reborrowing money and paying interest. In futures it simply refers to the amount ofmoney that you need to have in your account to enter a transaction.The margin required for a futures contract is better described as a performance bond or good-faith money. The levels are set by the exchanges based onvolatility (market conditions) and can be changed at any time. The Federal Reserve sets the margin level for stocks and has maintained a 50 percent minimumrequired for leveraged stock trades for many years.Generally, futures margins are much less than the 50 percent required forstocks. The performance bond (margin) requirements for most futures contractsrange from 2 percent to 15 percent of the value of the contract with a majority inthe 5 percent area. A brokerage firm may establish or change its own performancebond requirements at any time.Of course, futures margins refer to the exchange’s minimum required balancesto place a trade. A trader is certainly free to maintain a much higher balance, oreven the full contract value (100 percent).Leveraged, Not Paid For in Full Leverage is what futures markets are allabout. As a futures trader, you can access the full value of a futures contract for arelatively small amount of capital, typically 2 percent to 15 percent of the contract’s value. For example, for about $3,500 in margin, you can buy or sell an Emini S&P 500 futures contract covering stocks worth $50,000.Because futures markets are highly leveraged, the effect of price changes ismagnified. With stocks, you typically pay the price in full (i.e., without leverage) oron margin (50 percent leverage). If you speculate in futures and the market movesin your favor, leverage can produce large profits in relation to the amount of yourinitial margin. However, if the market moves against your position, you also couldlose your initial margin and then some.For example, assume that you’ve decided to put $10,000 into a futures account. You buy one E-mini S&P 500 index futures contract when the index is trading at 1000. Your initial margin requirement for that one contract is $3,500.Because the value of the futures contract is $50 times the index, each one-pointchange in the index represents a $50 gain or loss.If the index increases 5 percent, to 1050 from 1000, you could realize a profitof $2,500 (50 points × $50). Conversely, a 50-point decline would produce a $2,500loss. The $2,500 increase represents a 25 percent return on your initial investmentof $10,000 or a 71 percent return on your initial margin deposit of $3,500. Conversely, a decline would eat up 25 percent of your original $10,000 or 71 percent ofyour initial margin. In either case, an increase or decrease of only 5 percent in the
8
THE COMPLETE GUIDE TO FUTURES TRADING
index could result in a substantial gain or loss in your account. That’s the power ofleverage.Leverage can be a beautiful thing. When everything’s going your way, it makesyour money work harder and produce more in a shorter period of time than if youpaid for everything in full, up front. Indeed, leverage is the key, distinctive aspectof futures trading as compared with stock trading.But there is a dark side to leverage, too. For example, assume you use $5,000in your account to buy an E-mini S&P 500 contract worth $50,000. Instead of goingup, however, prices fall by 10 percent and the contract’s value drops to $45,000.Your $5,000 is completely gone. Unless you get out of the position with an offsetting sale when your maintenance margin level is violated, you’ll be obligated to putup even more money if the market keeps moving against you. Leverage is the oneingredient that can produce either horror stories or happy endings. To get thehappy ending, it is extremely important that you fully understand the power ofleverage and how to manage it well.
Futures Are Not OptionsYou might think that futures and options are similar, if not identical. But, in fact,the only thing that looks similar about the two instruments is that they both havean expiration date. Despite its expiration, a futures contract is not a wasting assetlike an options contract.An options contract conveys the right—not the obligation, like a futures contract—for a buyer to assume a position in the underlying instrument at a specific(strike) price at any time before the option expires. When you buy (go long) an option, your risk is limited to the amount you pay for this right. The cost of the option is known as a premium and is based on time, volatility, and the relative valueof your strike price to the underlying market.Futures Always Have Intrinsic Value A futures contract always has value,calculated by multiplying the current price by the contract unit size—unless theprice is zero, of course. Meanwhile, an options contract is a wasting asset, and itsvalue could decline to zero on the expiration date (unless it is in-the-money). Ifyou paid for the right to purchase stock at $50 before the third Friday in June andthe stock is trading at $45 on that third Friday, you will not benefit from all themoney you paid for that call option as it expires worthless.Futures Are a Straight, Market-Direction Play You have to ask only onequestion before making a futures trade: Buy or sell? The futures price is going togo either up or down from today’s price (or stay the same) by the time the contractexpires. All you have to decide is which way you think it’s going to move.You have more decisions to make with options. Besides having to decidewhether to buy or sell, you have to decide whether to buy or sell a put or a call.Then you still have to consider strike price, time to expiration, volatility, and
Futures: The Investment for the Twenty-First Century
9
whether the premium is rich or cheap. And that’s not even mentioning alpha, beta,delta, gamma, vega, or other factors that determine an option’s price.Futures Always Have Unlimited Risk The value of a futures contract is ultimately tied to the underlying product or instrument—the S&P 500 index, gold,crude oil, soybeans, T-bonds—via each contract’s specifications. You can eitherbuy (go long) or sell (go short) any futures contract, and your risk (or potentialprofit) is virtually unlimited.If you purchase a call or put option, you have a clearly defined risk (the premium you paid). However, if you sell (write) uncovered calls or puts, you are exposed to unlimited risk with options, just as you would be with futures.
Futures Are Not Exchange-Traded FundsExchange-traded funds (ETFs) were introduced in 1993 and have become popularinvestment products. ETFs now exist for nearly every major stock index and sector index, allowing you to purchase a piece of an index just like you purchaseshares of individual stocks. Among the best-known ETFs are those on the S&P 500index (SPDRs or SPY), the Dow Jones Industrial Average (DIAmonds), and theNasdaq-100 index (QQQs).Futures and ETFs do have some similarities. For example, they are a liquidmarket, you can use them to hedge a portfolio of stocks or mutual funds, theydon’t require an uptick to sell short, they can be used for efficient cash management, and they may not have heavy tax burdens if the securities are held longterm. In fact, futures offer even greater tax benefits because they are treated underthe 60/40 rule (60 percent of the gain from futures is taxed at long-term favorablerates and 40 percent as ordinary income; see Chapter 13 on taxes).But because they are traded like stocks, ETFs do have some of the same disadvantages as stocks when compared to stock index futures. The most significantis the 50 percent minimum margin requirement for ETFs instead of the low margins required for stock index futures. In addition, many stock index futures aretraded electronically virtually 24 hours a day, whereas ETFs have limited tradinghours; and options are available on leading stock index futures but not on ETFs,giving futures traders more flexibility in establishing and managing positions.
WHO TRADES FUTURES?Futures participants fall into two broad categories: speculators and hedgers. Ifyou trade for your own financial benefit, you’re a speculator. If you trade futuresbecause you have some risk associated with the underlying commodity, you’re ahedger. A basic understanding of each group—who they are and what roles theyplay in the marketplace—will better prepare you to participate in futures markets.
10
THE COMPLETE GUIDE TO FUTURES TRADING
SpeculatorsA speculator’s job is easily defined: Buy low, sell high. Or sell high, buy low.Make money. Speculators come in all shapes and sizes with all sorts of motivations. As any futures exchange will tell you, speculators are the grease thatkeeps the market wheels turning. Even today, all futures markets exist becauseof the economic necessity of providing commercial entities a way to transferrisk, just as they did in the 1800s when grain producers and users needed to buyand sell in Chicago. But speculators play a vital role in the markets’ success.These speculators include:• Professional traders, whether trading on an exchange floor or off a computerscreen.• Investors like you, who see futures as a way to try to make money.• Money managers who invest on behalf of their clients.• Firms that trade with their own money as a business venture.Big, small, individual, or corporate, all speculators try to capitalize on theiropinion of whether the market is going to go up or down. The diversity of opinionamong speculators, and their sheer number, provides the liquidity that hedgersneed to transfer their commercial risks to others. The more speculators there are,the more likely there will be someone who is willing to buy or sell at any particularmoment at any particular price.For the most part, it’s safe to assume that individual speculators trade asmaller number of contracts than hedgers and hold market positions for a shortertime. Exchange rules and federal regulations limit the maximum number of contracts that can be held by any one speculator in any one market. In futures marketlingo, this restriction is known as “spec limits.”
HedgersHedgers transfer cash market risk to the futures markets. Thus, making a futurestrading decision also involves a cash market decision. Like speculators, hedgerscan either buy or sell, depending on their situation.For example, a cereal company that buys corn futures as a hedge has concludedthat cash corn prices will be higher when the company has to purchase corn to makecereal at a later date. When that later date arrives, the company offsets its hedge byselling futures and buys corn in the cash market. If cash prices did rise since the company bought the futures contract, then it is likely that the increased value of the futures contract will reduce the actual net cost of corn to the cereal company.Conversely, a corn producer who sells corn futures as a hedge has decidedthat cash corn prices could be lower than today’s price when it is time to sell thecrop. If the producer is right, the hedge likely will have provided a profit that canbe added to the revenues generated from selling corn in the cash market.
Futures: The Investment for the Twenty-First Century
11
Although a hedge transfers price risk, it should also be noted that locking in aprice does deny the hedger the opportunity to gain from favorable price movements in the cash market.
MAKING YOUR CHOICEThe choice of which vehicle to use is obviously a matter of preference for each investor. The active short-term trader will probably prefer the cheap transactioncosts and the efficient executions offered by futures. Some traders will use stocks,ETFs, or futures as complementary products and may also include options, especially those who want to spread or arbitrage products.When it comes to the bottom line, futures provide the most leverage and asimple, clear-cut view of a market: If prices are going up, buy; if prices are goingdown, sell.
CHAPTER 2
Becoming aFutures Trader
K
nowing about the markets and deciding to invest in them are big steps foran aspiring trader. But then you are faced with an even greater question—one that will help determine whether you meet your investing goals:How do I make a trading decision?This chapter presents an overview of some of the many techniques used today to analyze futures markets so you can make sound trading decisions. Ofcourse, most of these techniques have entire volumes written about them, and adetailed discussion of each topic is beyond the scope of this chapter. Still, withthis chapter, you will gain a broad introduction to the meat and potatoes oftrading.You may be surprised to find that this chapter will be useful to both the independent trader and the investor who takes the less-involved route of managed futures or an auto-execute trading system. The independent trader whochooses either the self-directed or the broker-assisted trading approach willcertainly wish to know how to make trading decisions. Less obvious, though, isthe benefit to the managed or auto-execute investor, who can use the sameknowledge to help choose a program from among the universe of programsavailable for investment.A basic rule for passive investors is: “Know your manager’s investment philosophy.” A recurring theme throughout this book is that, whichever approach to investing you choose, it should be a good match to your personality and comfortlevel. This chapter will help you understand your choices from among the different styles and methods of analysis. So, whether your goal is to choose the rightprogram, to select the best broker, or to learn how to trade on your own, this chapter provides a solid foundation for your decision. Other chapters will go into amore thorough discussion about whether you should be trading on your own orwith the help of a broker, managed account, or auto-execute program.13
14
THE COMPLETE GUIDE TO FUTURES TRADING
Before getting into the nuts and bolts of forecasting prices, we’ll review someissues important to making trading decisions.
TRADING DECISION ISSUESLet’s start with the obvious: For each one of the millions of trades placed everyday, there are both a buyer and a seller. Or, looked at another way, for every person willing to buy, another person is equally convinced it is time to sell.Not surprisingly, you’ll find many opinions on the best way to make this trading decision. One person’s winning formula may go into a losing streak right whensomeone else’s starts a winning period. Does that mean that one person is rightand the other is wrong? Not necessarily. The lesson may be that different strategies succeed at different times—and when applied to different investment timehorizons.Perhaps it’s best to approach this chapter with the understanding that no single answer about how to make a trading decision is right for everyone. Differenttraders will have their own answer to the question posed at the beginning of thischapter. This is the very reason you need to explore the topic individually andchoose the methods that work best for you. In fact, did you know that many believe the best trading decision is to not make one at all? Hmm, read on.
Random Walk and Efficient Markets HypothesisThe academic community teaches that changes in price are “serially independent”—in essence, random and unpredictable. According to the efficient marketshypothesis, the typical investor is unable to beat the market trading actively overtime and would actually be better off with a buy-and-hold strategy because of thelower transaction costs. The theory holds that, although financial assets have anintrinsic value, the actual price will fluctuate randomly around that value. Further,although the intrinsic value will change over time, the direction and extent are essentially unknowable. The marketplace itself is efficient in reflecting all knownfacts at any given moment.Of course, traders dispute this theory. Their very existence is in contradictionto the idea that markets are perfectly efficient. Traders are dedicated to identifyingopportunities to profit from forecasts and mispricings, and they challenge the efficient markets hypothesis on nearly every front. First, they point out that the hypothesis is based on unrealistic assumptions about perfect dissemination of newsand events. In the real world, news can take hours, days, or weeks to be fully understood and absorbed. Also, events can cause overreactions, and markets can react differently on different time frames to the same event. Finally, traders arguethat markets can have extended periods of both directional trends and choppy,sideways action, all of which can be exploited.
Becoming a Futures Trader
15
The point made here is that buy-and-hold is considered by some to be the besttrading decision of all. So you need to be aware of these two opposing viewpointsand decide for yourself whether you believe forecasting prices is worth the effort.You may conclude that being a passive investor is best for you.This is yet another example of the importance of choosing for yourself the investment style that best fits your personality and comfort level. In fact, some arguethat a mismatch between investment style and investor personality is the underlying root of most trading failures. The main thing to remember is that, if you don’tbelieve in the analysis, you won’t stick with it during the down times.Now, academics aside, there is also a category of traders who believe thatforecasting the market is nonproductive. Is this a contradiction? Let’s consider theargument.
Forecasting versus ReactingEven among traders, some argue it’s best to not have an opinion at all about the direction of prices—that it’s better instead to simply react to the market action.Such traders may watch for a trend reversal or a breakout and then jump inquickly in hopes of catching the move. Momentum trading, scalping, and swingtrading can be such methods.But, of course, even a reactive trader is forecasting a price move based on theevents of the moment. The only difference is that the forecast is based on eventshappening in a very short time frame.Regardless, your best method of making a trading decision may be to simply setyourself up for very speedy responses to fast-breaking events and price action. Manytrading arcades and software packages are in place to support just such a style.So the expected time horizon of a trade turns out to be a significant factor inmaking a trading decision. Let’s explore that concept a little further.
Consider Your Time FrameFloor traders can tell you that both parties to a new trade can wind up losing orwinning on that trade; the trade doesn’t necessarily have to be a win-lose situationfor those two traders. The reason, of course, is because each trader has a differenttime frame. The market may rally five minutes into the trade, and the trader whobought gets out with a quick profit. An hour later, the market may fall and thetrader who sold will have gotten out profitably as well. Likewise, both traderscould also lose on the trade.The lesson is that your market forecast can look quite different for differenttime periods. Your final analysis should always keep this in mind. Consider twoother points about differences in time frames:1. In general, shorter time frames will tend to have more random movement,
often called “noise.” Some traders are able to make the noise work to their
16
THE COMPLETE GUIDE TO FUTURES TRADING
advantage, while others would rather focus on the bigger trends. Still othersmay do well considering both the trees and the forest. As mentioned before,one of your tasks early on should be to determine which time frames you aremost comfortable trading.2. Whichever time frame works best for you, you may find value in keeping aneye on other nearby time frames. A buzz phrase in recent years has been the“three-screen method” of trading. This simply refers to a principle of drillingdown the market analysis from broad to specific, looking at weekly, daily, andhourly charts, for instance. Studying multiple time frames can give context tothe events in any particular time frame.
Subjective versus ObjectiveIn addition to the time frame, central to the matter of making a trading decision isthe issue of art versus science. Different analysts will interpret the same information in different ways.We’ve all heard jokes about a roomful of economists not being able to agreeon a reading of certain statistics. So it is with traders. Crop reports and FederalReserve Board actions are subject to a wide range of interpretations. Chart readers may also see and trade the exact same patterns in very different ways. Again,this fact does not necessarily invalidate the usefulness of forecasting; instead, itpoints out the influence of individual subjectivity in analysis.Figure 2.1 shows a basic channel pattern on a price chart. How might differenttrading styles approach that same pattern?• Momentum traders might buy on strength near each new high and suffer a series of small losses until the final actual breakout to new highs.• Range traders, on the other hand, will do just the opposite, selling on rallies tothe upper band because they expect the channel to remain intact.• Breakout traders will buy as the market moves above the channel (or aboveprevious highs), betting an upward move is about to begin.• Others will count waves within the channel in an attempt to predict when themarket will switch from channel to breakout.• Trend followers who bought earlier may remain long the entire time with anexit stop placed below the channel.Is one method better than another? The most that can be said may be that different methods work best at different times.You shouldn’t be too surprised at the abundance of viewpoints on how tomake a trading decision. After all, the wealth of opinions as to the best course ofaction is what makes a market. To get around this subjectiveness, certain traders,called systems traders, quantify the buy/sell rules and back-test the results. Theyseek an objective set of rules that profit over time. (See Chapter 5 for more detailson systems trading.)
Becoming a Futures Trader
17
FIGURE 2.1 Price channel. Different traders approach the same data in different ways.(Source: eSignal, www.esignal.com)
While the methods for making a trading decision can be labeled in manyways—systems trading, volatility trading, swing trading, range trading—the underlying analysis typically falls into the category of either fundamental analysis ortechnical analysis.
Fundamental Analysis versus Technical AnalysisThe classic description of fundamental analysis is that it examines the supply anddemand factors influencing a market’s price. But those factors differ wildly frommarket to market. You know this intuitively: The factors affecting sugar are quitedifferent from those affecting wheat, crude oil, Swiss francs, or gold. So, as a practical matter, the fundamental trader becomes an expert in a particular market. Forthis reason, fundamental analysis is sometimes considered to be old-school, perhaps because the most learned experts on a given market are those who havestudied it the longest.Weather is considered a fundamental event and plays an important role, evenin markets you may not suspect would be influenced by weather. For instance, bad
18
THE COMPLETE GUIDE TO FUTURES TRADING
weather can depress consumer spending, and in turn, corporate earnings andstock index prices. Some traders become mini-experts in the severity and timingof weather events affecting their chosen markets.Like weather, other dominant macro fundamentals can affect multiple markets—for example, economic conditions may dampen overall demand, or thevalue of the dollar may influence the pricing of unrelated markets. For the mostpart, however, fundamental analysis is concerned with the news and eventsunique to each market.In contrast, technical analysis is the study of price action, with no regard givento the news and events that lead to that movement. The idea is that the best interpretation of underlying news is already reflected in the price. Unlike fundamentalanalysis, charting techniques can be applied across many different markets andtend to be more widely used by traders. Even fundamental traders will often consider the technicals to determine the timing of their trades.So don’t worry about choosing the right label to assign to your work; youmight find you have a knack for interpreting certain macro events (fundamental) and use that skill to provide a context for your chart reading and indicators(technical).Some traders find themselves drawn to a market because they started with anunderstanding of the fundamentals for that particular market. For instance, someone who enjoyed tracking the stock indexes on the nightly news can most easilybegin investing in those markets. That same trader may not have the same initialcomfort level with agricultural markets or even other financial markets such as interest rates or currencies. Although it’s true that different markets can exhibitunique sets of characteristics, your decision about which markets to follow is apersonal one and will dictate which reports you watch and what style of tradingyou implement.The remainder of this chapter introduces you to some of the general conceptsof these two categories of analysis and explores a little more deeply the most important elements of each.
FUNDAMENTAL ANALYSIS HIGHLIGHTSFundamental analysts examine a variety of reports to evaluate changes in demandfor a product or availability of that product to the marketplace. With experience,an analyst can develop strong instincts on how price will respond to variouschanges in the minutiae of supply and demand.Although the effects of supply/demand may seem less evident in markets suchas financials, they are the foundation of pricing for most physical commodities, especially in the agricultural markets where the supply is renewable each year andwhere limits exist as to how long the products can be stored.Supply is rather straightforward, although it can be subject to frequent revi-
Becoming a Futures Trader
19
sions. It is the quantity of a commodity available calculated by combining thestocks carried over from one season (or one week/month) to the next with newproduction and, in some cases, imports from overseas.Demand is generally more difficult to quantify. In fact, the term used to indicate demand really should be usage or consumption. Demand may be greater orless than actual consumption. To complicate the matter, demand depends onprice: How badly do consumers or the marketplace want the available quantity ofthis product at this price? Demand for some commodities, like in the energy markets, may not respond much to price increases. Demand for other products, likelivestock feed grains, may be very sensitive to price increases because they compete against alternative substitutes.In simple terms, price is determined by a general formula: What is producedthis year, plus carryover stocks from last year, is compared against what is neededthis year. Plug in the various supply and demand data to solve for the variable ofprice. The idea is simple in concept, but difficult in real-world practice.Traders rely on a number of government, corporate, and private events and reports to get a reading on the key factors that influence prices. Some of the reportsare considered to be leading indicators, some coincidental indicators, and somelagging indicators, depending on the data inputs necessary to calculate them andhow they relate to current conditions. For instance, the U.S. employment report,which includes numbers of new jobs, unemployment rate, wage rates, and so on,is generally considered a lagging indicator; in fact, jobs tend to be one of the lastareas of the economy to recover after a recession.Several important facts need to be remembered about many of the reports:• The numbers cited typically are estimates based on surveys or other means ofgathering data that have been used historically but may not be absolutely correct. However, they are usually the best numbers the market has to work with,so traders have to be aware of them.• Expectations for what the estimates should be are often as important as theestimates themselves. Markets tend to build in numbers that are widely perceived to be correct, so what may seem to be a bullish figure vis-à-vis a previous time period may already be priced into the market. Only a surprise maymove the market to any large degree.• Futures markets anticipate. Today’s prices may have already taken into account tomorrow’s conditions. “Buy the rumor, sell the fact” is a market axiomthat describes how prices may react to confirmation of data in a report. Or youmay be totally correct in your analysis, but premature with your positions because other traders haven’t caught up to the “facts” yet.• Market conditions change. What is bearish today may be bullish tomorrow, soyou always have to relate reports to the current investment situation.• Over the years, especially with economic reports, different events can takecenter stage for investors. Sometimes it’s inflation, while other times it’s interest rates, money supply, gross domestic product (GDP), or retail sales.
20
THE COMPLETE GUIDE TO FUTURES TRADING
Recently investors were preoccupied with unemployment, jobless claims,and the price of crude oil. Now it seems the trade deficit and weakeningU.S. dollar are of greatest concern.• Futures traders must always be prepared for events—those social, political,weather, and other surprises that can sabotage the best of conclusions of fundamental analysis.The following pages provide descriptions of just some of the major newsevents and reports watched by fundamental traders, categorized by market. Thesereports deal primarily with U.S. markets, but many countries have equivalent reports for their markets. In addition, the exchanges sometimes offer extensivebackground resources for their respective products or links to web sites whereyou can find more detailed information.
FinancialsStock indexes, interest rates, and currencies are most influenced by reports thathave to do with aspects of the economy and with each other—for example, whathappens to interest rates may have a major effect on the outlook for the U.S. stockmarket or for the U.S. dollar. A report that is positive for one market may be negative for another. Economic reports also have a bearing on prices of some physicalcommodities, notably metals and energy. Here are some major reports that financial traders watch.Consumer Confidence Markets are really just a reflection of mass psychology, so anything that provides clues about investor sentiment can be a good indicator of price direction. The Conference Board, University of Michigan, and otherssurvey consumers regularly and release reports on their attitudes. These readingsmay suggest how much money will be spent by consumers, who account for alarge share of the economy, or how likely they will be to invest in the stock marketor housing.Retail Sales Comparison figures tell economists and traders how well consumers are doing and how the current situation relates to previous periods.Gross Domestic Product This is the broadest measure of all economic activity in a nation and indicates overall economic growth—or lack of it. How vibrantthe economy is will have an effect on almost all markets.ISM Index The Institute of Supply Management (ISM) report indicates the statusof manufacturing conditions. What happens in manufacturing has a major bearingon employment, demand for raw materials, and the like, so economists analyze thisreport and some of its components carefully for clues about future growth.
Becoming a Futures Trader
21
Factory Orders