Futures Trading Pack

Introduction to Futures Trading

Introduction to Options on
Futures Trading
Top 20 Dos and Donts of
Trading Futures

rjofutures.rjobrien.com 800-441-1616

A division of R.J. OBrien

Important Information About

Trading Futures and
Options on Futures
Futures trading involves risk of loss. Trading advice is based on information taken from trades and
statistical services and other sources which RJ OBrien believes are reliable. We do not guarantee
that such information is accurate or complete and it should be relied upon as such. Trading advice
reflects our good faith judgment at a specific time and is subject to change without notice. There
is no guarantee that the advice we give will result in profitable trades. All trading decisions will
be made by the account holder. Past performance is not necessarily indicative of future trading
results.

Introduction to
Futures Trading
A basic understanding to
start trading the futures markets.

rjofutures.rjobrien.com 800-441-1616

A division of R.J. OBrien

Important Information About

Trading Futures and
Options on Futures
This communication is intended as a solicitation. Futures trading involves the substantial risk of loss
and is not suitable for all investors. Trading advice is based on information taken from trades and
statistical services and other sources which RJ OBrien believes are reliable. We do not guarantee
that such information is accurate or complete and it should be relied upon as such. Trading advice
reflects our good faith judgment at a specific time and is subject to change without notice. There
is no guarantee that the advice we give will result in profitable trades. All trading decisions will be
made by the account holder. Past performance is not necessarily indicative of future trading results.
When analyzing option strategies, it is important to take into account the commission and fees
associated with making a trade. Similar to trading futures, each contract executed in an option
strategy is charged commission and fees. Commissions and fees from brokerage firms can be up
to $99 per round turn with the vast majority of people paying significantly less. Your actual charges
may vary based on the service level you choose. The two primary factors investors tend to overlook
when trading options include:
Each contract traded is charged a commission. This is often misinterpreted as each spread or
strategy that is charged a commission. If you trade one bull call spread, your account would be
charged for 2 contracts rather than 1 spread.
Customers often try to sell or collect premium on options that are far out of the money with
the belief that they are collecting easy money. The further away an option strike price is from
the current market price, the lower the value of the option. Make sure that you are not paying
more in commission and fees than what you are collecting. Keep in mind that until an option
expires, you do hold risk in the positions. Is the net premium collected after paying commission
and fees worth the risk?

Table of Contents
Getting Started.........................................................................................................................4
Futures 101..............................................................................................................................5
Who Trades Futures............................................................................................................... 10
Why Trade Futures.................................................................................................................. 11
Basic Futures Trading Strategies............................................................................................ 13
Get Comfortable with Futures................................................................................................ 16
Additional Resources ............................................................................................................. 17

Getting Started
Many of the savviest traders in the world trade futures. For starters, they appreciate
the exposure to worldwide markets on regulated exchanges and regulated
counterparties.
They also like increasing the efficiency of their

Everyone on our team is devoted to providing

trading capital via the leverage available in

the service you need to become a successful

futures. And, finally, they know they can count

futures trader.

on the futures markets liquidity to help them

execute their ever-changing strategies.

A list of guides from RJO Futures covering

more specific futures trading topicsas well as

You can be a savvy futures trader, too. This

additional resources for learning the basicsis

guide will start you down the path with a good

at the end of this document.

explanation of the basicsfrom how prices

are quoted to understanding margin to trading
strategies. We hope it will inspire you to try your
hand trading some of the most exciting markets
in the world.

Please feel free to contact us to answer any

questions you have about trading futures.
Any of our experienced team can explain the
principles and strategies in this guide, and help
you understand if trading futures is right for you.

RJO Futures, the premier brokerage firm for

If so, we look forward to welcoming you as a

futures traders, has specialized in serving

new client at RJO Futures.

futures traders for more than 100 years.

Futures 101
Futures contracts are financial instruments focused on discovering the price of
a specific commodity or asset at a specific time in the futureanywhere from
tomorrow to years from now.
Most often, though, futures traders are focused
on price prospects over the next few months.

How Futures Trading Works

Futures trading occurs on federally regulated

In futures, as information about the supply and

exchanges, which facilitate the place where

demand for the underlying asset changes over

buyers and sellers trade as well as post-trade

time, the price of the futures contract changes

clearing. In the United States, futures trading

as traders take positions based on their opinion

began in the mid-1800s as a way to bring

of what the assets price will be at that certain

together producers and users of grains and

point of time in the future.

cotton. Today, the CME Group in Chicago is the

What is a Futures Contract?

A futures contract is an obligation to buy or sell
a specific quantity of a certain commodity or
asset on a future date at an agreed upon price.

largest futures exchange in the world; its stock is

listed on the New York Stock Exchange.
In futures trading, the buyer and seller create a
new contract with each trade, and the number
of contracts that can be created is limitless. In

Because the terms of futures contracts for each

contrast, a limited number of shares of stock

commodity or asset are standardized (i.e., same

are available to trade for each company that is

quantity, quality, delivery), they can be traded

publicly listed and traded.

on an exchange. The only variable is the price.

Remember, its a futures contract. You are

Today, futures contracts represent commodities

taking a position on what you think the price

and financial instruments you know and hear

of something will be on the date the contract

about in the news every day, including oil,

expires. If youre trading crude oil and you

corn, gold, popular stock indices and foreign

believe the future price of oil will be higher,

currencies.

then you would buy the contract. If you believe

the future price will be lower, then you sell the
contract.

What is Margin?
Margin is essentially a good-faith deposit. It
represents a small percentage of the total dollar
value of the contract you have agreed to buy or
sell at a future date.
There are two types of margin. Initial margin is
the amount of cash (or equivalent) you must
have in your account at the time an order
is placed. Maintenance margin is the dollar
amount that must be maintained in the account
to continue to hold the futures position.

expire and cease to exist. On the expiration

date, futures contracts may call for physical
delivery of the commodity, while others are
settled in cash. But, dont worry. When you
make a futures trade, you dont need to make or
take delivery of the commodity. In fact, if youre
like the vast majority of futures traders, you
will offset your position long before ever being
faced with the delivery process.
To close out a position in a futures contract, and
avoid delivery, you offset the contract by taking
an equal, but opposite, position in the same

Margin Call

contract month. Thus, if you were long a futures

A margin call occurs when there is not

would sell a matching contract; if your initial

enough cash in the account to cover all the

position were a sale, you would buy to offset it.

maintenance margin required to hold all the

Either of these actions exits your position and

positions in the account. It is a call for money.

gets you even.

A margin call generally occurs when prices

contract (i.e., having bought a contract), you

move against your positions. Many experienced

Counterparty

traders view a margin call as a red flag that

Once you have a position in a futures

their trading strategy might be flawed. Market

conditions permitting, brokerage firms might
allow up to five days to meet a margin call, even
though they are due payable before the next
trading day begins.

Expiration and Delivery

An important aspect of trading futures is
understanding that futures contracts ultimately

contract, that contract is cleared and held at

a clearinghouse, which ultimately is your true
counterparty so that you may exit the position
at any time. The futures exchange clearing
corporations handle this process automatically.

Trading Symbols

Contract Month Symbols

In futures trading, each commodity has its own

symbol, e.g. C for corn or ES for the E-mini
S&P 500. However, each market might have
more than one symbol to represent contracts

January

February

March

April

May

trading on different exchanges or on different

June

platforms, e.g. trading pit or electronic. For

July

example, wheat in the Chicago Board of Trade

August

trading pit is W, but is ZW on the CBOTs

September

electronic platform and KW on the Kansas

October

November

December

City Board of Trade

Your RJO Futures representative can help
you find the contract symbol for the product,

As an example, the symbol for the July 2014

exchange and platform you wish to trade.

soybean contract at the Chicago Board

Each commodity contract has an expiration

contract and ZSN4 for electronic trading.

of Trade would be SN4 for the pit-traded

month that also is abbreviated by symbol:

ADDITIONAL RESOURCES

Click for your RJO Futures guide, Introduction to

Options Trading for more detailed examination of
options trading.
Or, call 800-441-1616 to request your free copy.

Know Your Contracts

Commodity

Symbol

Unit of Trade

How Quoted

Value

Grain Futures

PIT

E-CBOT

CBOT Corn

CBOT Wheat

ZC

5,000 bushels per contract

Cents per bushel

One cent = $50

ZW

5,000 bushels per contract

Cents per bushel

One cent = $50

CBOT Soybeans

ZS

5,000 bushels per contract

Cents per bushel

One cent = $50

CBOT Soybean Oil

BO

ZL

60,000 pounds per contract

Cents per pound

1/100 cent = $6

CBOT Soybean Meal

SM

ZM

100 metric tons per contract

Dollars per ton

$0.10/ton= $10

CBOT Oats

ZO

5,000 bushels per contract

Cents per bushel

One cent = $50

Meat Futures

PIT

GLOBEX

CME Live Cattle

LC

GLE

40,000 pounds per contract

Cents per pound

.025 cents = $10.00

CME Feeder Cattle

FC

GF

50,000 pounds per contract

Cents per pound

.025 cents = $12.50

CME Lean Hogs

LH

HE

40,000 pounds per contract

Cents per pound

.025 cents = $10.00

Metals Futures

PIT

GLOBEX

NYMEX Gold

GC

GGC

100 troy ounces per contract

Dollars per troy ounce

One dollar = $100

NYMEX Platinum

PL

GPL

50 troy ounces per contract

Dollars per troy ounce

$0.10 per oz.= $5

NYMEX Silver

SI

GSI

5,000 troy ounces per contract

Dollars per troy ounce

One cent = $50

NYMEX Copper

HG

GHG

25,000 pounds per contract

Cents per pound

1 cent per lb = $250

Petroleum Futures

PIT

GLOBEX

NYMEX Crude Oil

CL

GCL

1,000 barrels per contrac

Dollars per barrel

$0.01 per barrel = $10

NYMEX Heating Oil

HO

GHO

42,000 gallons per contract

Dollars per gallon

1 cent per gal = $420

NYMEX RBOB Gasoline

RB

GRB

42,000 gallons per contract

Dollars per gallon

1 cent per gal = $420

Softs

PIT

ICE

NYBOT Coffee

KC

IKC

37,500 pounds per contract

Cents per pound

one cent = $375

NYBOT Sugar #11

SB

ISB

112,000 pounds per contract

Cents per pound

one cent = $1120

NYBOT Cocoa

CC

ICC

10 metric tons per contract

Dollars per metric ton

$1 per ton = $10

NYBOT Orange Juice

OJ

IOJ

15,000 pounds per contract

Cents per pound

One cent = $150

NYBOT Cotton

CT

ICT

50,000 pounds per contract

Cents per pound

One cent = $500

Currencies

PIT

GLOBEX

CME Euro FX

EC

GE

$100,000 per EC per contract

Dollars per foreign currency

0.0001 = $12.50

CME Canadian Dollar

CD

GC

$100,000 per CD per contract

Dollars per foreign currency

0.0001 = $10

CME British Pound

BP

GB

$62,500 per BP per contract

Dollars per foreign currency

0.0001 = $6.25

CME Japanese Yen

JY

GJ

$1,250,000 per JY per contract

Dollars per foreign currency

0.0000001 = $12.50

Stock Index Futures

PIT

GLOBEX

CME S&P 500

SP

GS

$250 times the index

Dollars per index

0.10 = $25

CME S&P Emini

ES

$50 times the index

Dollars per index

0.50 = $25

Mini Dow

YM

$5 times the index

Dollars per index

1 = $5

Price Quotes

Volume

Futures contracts are not all priced in dollars

Volume tells you how many contracts traded

and cents, with a handy decimal point and

hands in a particular contract or market.

two numerals behind it. So, it is important to

Total volume equals all contracts traded. (The

understand how the market you are trading is

purchase and sale of a single contract counts

quoted. For example, the grains have minimum

as one, not two.) Volume helps measure the

ticks of quarter-cents while T-bonds are priced

strength of price movements.

in 32nds, sugar in points based on the contract

size and some stock indices in multiple-point

Open Interest

increments.

Open interest tells you how many contracts

Your RJO Futures representative can explain

how the markets are priced and how to
decipher a quote on the quote system you are
using. For example, a corn quote might read
$4.2525 for $4.25 and cents per bu., or it
could be listed old-school as 4252, where the
last digit represents 2/8 of a cent, or cent.
Note that the opening price is generally the
midpoint of the opening range or a single price
designated by the exchanges. The end-of-day
value of a futures contract used to determine
margin calls is called the settlement price.
Settlement prices are determined by exchanges
based on closing prices.

existare live or activein the market at any

given point in time. This is similar to the number
of shares outstanding for a stock. The larger the
open interest, the greater the liquidity (i.e., ease
with which you can enter or exit the market).

Who Trades Futures

Participants in the futures market fall into two broad categoriesspeculators or
hedgers. Speculators take risk and provide liquidity for hedgers who are seeking to
dispose of any number of kinds of business risks they face.
Speculators

Hedgers

Speculators take risk and seek to profit from the

Hedgers use the futures markets to get rid of

ups and downs of futures prices. Speculators

the price risk that is inherent in their business.

can be individuals like you to professional

Farmers, food processors, energy producers

traders working alone or within trading groups.

and even corporate treasury departmentsare

They also could be institutional money

examples of hedgers who lock in prices using

managers. But, whoever they are, profit is their

futures contracts to protect against price

primary objective.

movement and volatility. Hedging becomes a

Similar to stock trading, speculators in futures

use both fundamental and technical analysis
to generate signals as to the future price

form of price insurance as it establishes a price

for something they intend to buy or sell in the
cash market at a future date.

movements of a specific contract. They might

Stock traders can hedge, too. Lets say you hold

trade support and resistance levels from a

a broad range of stocks or a stock index in your

futures price chart. Or, they might study global

portfolio. You are concerned about near-term

supply and demand. Professional traders

performance given market conditions, but do

increasingly use computerized algorithms to

not want to lighten your holdings because of

monitor the markets and take advantage of

capital gains tax consequences plus, long-

very slim pricing opportunities. The volume

term youre bullish. Selling a stock index futures

of trading generated by speculators provides

contract could protect your exposure to a drop

liquidity for hedgers.

in the stock market.

10

Why Trade Futures

Lets get right to it. Why should you even be interested in futures trading? Whats in it
for you?

Leverage
This is the big one for most traders. In futures
trading, the capital you devote to holding a
position is substantially less than what you
need to hold an equities positioneven on
margin.
A non-margined equities account requires you
put up 100% of the value of the security. Even
a margin account requires an initial deposit
of at least 50% of the stocks current value. In
contrast, you typically are required to put up
just 5%-20% of a contracts value to hold a
futures position.
Your gain or loss, however, is still calculated as
if you had deposited 100% of the value of the
contract.

There is no doubt that leverage is a two-edged

sword. Experienced futures traders will tell you
that using stops, taking small losses and being
vigilant about your risk-management practices
will help you stay on the right side of the
leverage beast.
Ask your RJO Futures representative about
current minimum margin requirements for
the markets you are interested in trading. Be
aware that margin requirements can change
at any time, and are particularly likely to do so
when the markets are volatile. Also, you can
always commit more capital to margin than
the minimum requirements in order to reach a
comfortable level of leverage for you.

Example of Leverage:
At $6 per bu., a 5,000-bu. corn futures contract is

Leverage is what gives futures trading its

worth $30,000. If the price of corn rises by 10% to

reputation for being risky. Although it can

$6.60, the contract is then worth $33,000a gain of

make your money work harder and deliver

$3,000 for someone who is long futures at $6.

more profits when you are on the right side

of the market, leverage is equally effective at
magnifying your losses if the market is going
against your position.

If the margin requirement for one corn futures

contract is $2,000, then a 10% price increase (and
gain of $3,000 in contract value) means a futures
trader made a 150% return on the capital required to
hold the position.

11

Tax Advantages

Asset Diversification

Given their short-term nature, futures trading

Futures allow investors to broaden the range

profits get a preferential 60/40 long-term/short-

of asset classes held in their portfolios, thereby

term capital gains tax treatment. This means

potentially reducing risk and improving long-

that 60% of gains are considered long- term and

term returns. According to a study published

are taxed up to 15%, while the remaining 40%

by the CME Group, portfolios with as much as

of gains are considered short-term gains and

20% of assets in managed futures yielded up to

are taxed up to 35% (regardless of the time the

50% more than a portfolio of stocks and bonds

contract is held). Please discuss how this may

alone.

affect your situation with your tax advisor.

Increased Opportunity
Futures trading appeals to those who embrace
opportunity and freedom. For example,
futures trading does not discriminate against
someone who wants to trade on the short side
of the market. The the margin and order-entry
requirements to sell short are the same as if you
want to be long. You dont have to borrow
anything to get into a short position, and theres

Futures also allow a pure play with the

underlying commodity that simply is
unavailable with stocks, even those with strong
correlation. For example, a mining stock could
be considered as having exposure to the gold
market. But it is not a pure play because
other factors exist, e.g., sector influence and
corporate management, that affect the value
of the security but are not related to the
commoditys price.

no uptick rule for selling short.

Financial Protection

Second, many futures marketseven U.S. stock

Futures trading has its roots in protecting

indicesare open virtually 24 hours day from

against the risk of adverse price movement.

Sunday night through Friday afternoon. Youre

Indeed, the markets began in the mid-1800s

able to trade when its convenient for youor

as a way for commodity producers and users

whenever global news prompts you to take

to hedge against prices going against their

action.

best interest. Today, companies worldwide do

exactly that, particularly with financial futures
contracts that cover stocks, interest rates and
currencies.

12

Basic Futures Trading Strategies

The most-often used trading strategies in the futures markets are pretty simple. You
buy if you think prices are going up or sell if you think prices are going down.

And, in futures trading, selling first is just as

Heres an example, using July 2014 soybeans

easy as buying firstthe positions are treated

trading at $13.00 per bushel in January 2014.

equally from a regulatory point of view.

In January, you think soybean prices are likely

The following two strategies are just a starting

point. For more advanced futures-trading
strategies, request the RJO Futures guide

to rally into the summer, so you put up $4,000

in initial margin and buy a July 2014 soybean
futures contract.

Introduction to Spread Trading. Or, learn some

Four months later, soybean prices have rallied

trading strategies for options on futures with the

$1 per bushel and you decide to take your

RJO Futures guide Introduction to Options on

profits and close out your long position by

Futures Trading.

selling a July 2013 soybean futures contract.

Buy Futures
If you expect a futures markets price to be

That generates a profit of $5,000 (minus

commissions and fees*), or return on initial
margin of 125%.

higher in the future than it is today, you would

buy a futures contract, or go long. If you are
right about both market direction and timing
and the price indeed rises, you can then sell
the same futures contract to collect your profit
(minus commissions and other fees).
However, if you are wrong about the markets
direction or your timing is off and prices
ultimately fall, then you will take a loss when
you exit the position. And, because of the
leverage in futures, that loss could be greater

January Buy 1 July

soybean
futures
contract
April

Sell 1 July
soybean
futures
contract
Gain

Price
per
bushel

Value of
5,000-bu.
contract

$13.00

$65,000

$14.00

$70,000

$1

$5,000

than your initial margin deposit.

*Commissions and fees from brokerage firm can be up to $99 per round turn with the vast majority of people paying significantly less. Your actual charges may vary
based on the service level you choose. See disclaimer on inside cover for detailed discussion.

13

Of course, theres always the possibility that

the meantime, you dont need to own the

prices dont behave as you expect. If soybean

underlying commodity or financial instrument.

prices dropped $1 per bushel from January to

April and you exited your initial long position
at a loss, you would have lost your initial
margin of $4,000 plus an additional $1,000 (plus
commissions and fees*).

Selling a futures contract as your initial position

is just as simple as buying a futures contract.
You believe the price will go down, so you sell.
If you ever traded stocks, youll be glad to know
that no borrowing or loan fees are involved with
shorting futures. You simply sell as easily as you

January

April

Price
per
bushel

Value of
5,000-bu.
contract

Buy 1 July
soybean
futures
contract

$13.00

$65,000

Sell 1 July
soybean
futures
contract

$12.00

Loss

buy.
If you are correct in your market direction and
timing and prices decline, then you can profit
from your short position by simply buying the
same contract. However, if the market moves

$60,000

against your position and rallies, then you

would suffer a loss when exitingand the loss
could be more than what you put up to make

$1

-$5,000

the trade.
As an example, you believe in January that
soybean prices will fall into the summer. So,

Sell Futures
The concept of selling something you dont
own is often a stumbling block for traders
new to futures. But its easy to overcome.
Just remember that a futures contract simply
represents the commitment to either sell or
buy an asset at a future date. So when you sell
to initiate a position, all youre committing

you put up $4,000 in initial margin to take a

short July soybean futures position. By April,
the market has fallen $1 per bushel, which
equates to a $5,000 decline in the value of the
contract. Because you shorted the market when
the contract value was higher, you can buy it
back at the lower price and make $5,000 (minus
commissions and fees*).

to is selling at that price in the future. In

*Commissions and fees from brokerage firm can be up to $99 per round turn with the vast majority of people paying significantly less. Your actual charges may vary
based on the service level you choose. See disclaimer on inside cover for detailed discussion.

14

Price
per
bushel

Value of
5,000-bu.
contract

January

Sell 1 July
soybean
futures
contract

$13.00

$65,000

April

Buy 1 July
soybean
futures
contract

$12.00

$60,000

$1

$5,000

Gain

However, if soybean prices rally

Price
per
bushel

Value of
5,000-bu.
contract

Sell 1 July
soybean
futures
contract

$13.00

$65,000

Click for your RJO

Futures PRO demo!
An exclusive and
sophisticated online
trading platform
like no other with
integrated tools to
seamlessly trade and
monitor the markets.
Test drive a demo
today with a Free 100K
simulated account
with real time data &
execution.

Buy 1 July
soybean
futures
contract

$14.00

$70,000

Or, call 800-441-1616

to request your free
demo.

$1

-$5,000

$1 from January to April, your

short position will show a $5,000
loss (plus commissions and
fees*) if you buy July futures to
exit the position.

January

April

ADDITIONAL
RESOURCES

Loss

*Commissions and fees from brokerage firm can be up to $99 per round turn with the vast majority of people paying significantly less. Your actual charges may vary
based on the service level you choose. See disclaimer on inside cover for detailed discussion.

15

Get Comfortable with Futures

Futures

Stocks

Represents

A commitment to buy or sell something in the future at

an agreed-upon price

Ownership of a corporation

Trading

Traded on a regulated exchange

Traded on a regulated exchange or through a dealer

association

Issued by

A futures exchange writes the terms of each contract

and makes it available for trading

A corporation

Maximum number
that can be
outstanding

No limit to the number of futures contracts that can be

traded

Set by the companys charter; issuance regulated by filings

with the SEC

Margin

Requires deposit of about 5%-20% of the value of

the futures contract, depending upon price level and
volatility

If purchased in a margin account, requires minimum initial

deposit of 50% of the value of the security; the remaining
50% is considered a loan from the broker who charges
interest

Selling short

As easy as buying

Requires borrowing stock, if available, and selling when

price is rising

Timing

Fixed expiration date, usually less than one year

Stocks are perpetual instruments as long as the underlying

company remains solvent

Fundamental
analysis

For commodities, research analysts provide views of

supply/demand and other economic factors or physical
conditions (e.g., weather) that could affect values

Research analysts provide views of micro and macro

economic factors that could affect values

For financial futures, the same stock research applies

Technical analysis

Traders chart price movements to analyze patterns

and support/resistance levels; this generates buy/sell
signals

Traders chart price movements to analyze patterns and

support/resistance levels; this generates buy/sell signals

Risk of loss

Because the purchase or sale of a futures contract

requires only a small percentage deposit of the total
value of the contract, a client can lose more money
than the initial deposit

In terms of potential loss, a stock bought on margin works

the same as a futures contract

Chart information from CME Group

16

A non-margined stock purchase requires a 100% deposit

and therefore represents the total potential loss

Additional Resources
Thank you for the opportunity to provide you with this educational material. Anyone can offer
online trading in online markets. But RJO Futures is not just anyone. We are specialists devoted to
delivering the best possible trading experience for our clients. Whether you want to trade on your
own, tap into the experience of our brokers or let a professional money manager make the calls, you
can do it all at RJO Futures, the premier provider of futures brokerage services.

Open an Account Easily and Quickly:

By Phone:

By Email:

Online:

800-441-1616

[email protected]

rjofutures.rjobrien.com/open-account

312-373-5478

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For a longer-term view on the markets as well as pointers on trading techniques, subscribe to eView,
our free newsletter delivered to your inbox every two weeks. Youll read insights from our team of
professional futures brokers, whose commentary is often featured in major news media.
Click to sign up for your free eView subscription today.

RJO Futures Learning Center

We believe that knowledge makes better traders. In the RJO Futures Learning Center youll find
educational tools for every level of experience. We offer a library of guides and articles that help you
learn about futures and futures on options from the basics to technical analytics. For an interactive
experience, join us for our regularly scheduled live webinars.
Click to visit the RJO Futures Learning Center.

RJO Futures Brokers

The RJO Futures brokers provide the experience and background to help you with your trading
needs, and assist you with reaching your investment goals. We invite you to review each brokers
profile, experience, and techniques to help you select a partner that best fits your trading needs
and style.
Click to meet our team.

17

A division of R.J. OBrien

RJO Futures
222 South Riverside Plaza
Suite 900
Chicago, Illinois 60606
800-441-1616
312-373-5478
rjofutures.rjobrien.com
Facebook
Twitter
LinkedIn

RJO Futures
@rjofutures
RJO Futures

Futures trading involves the substantial risk of loss and is not suitable for all investors.
Copyright 2014 R.J. OBrien & Associates, LLC
0114

Introduction to
Options on
Futures Trading
A basic understanding to
consider adding options on
futures to your trading plan.

rjofutures.rjobrien.com 800-441-1616

A division of R.J. OBrien

Important Information About

Trading Futures and
Options on Futures
This communication is intended as a solicitation. Futures trading involves the substantial risk of loss
and is not suitable for all investors. Trading advice is based on information taken from trades and
statistical services and other sources which RJ OBrien believes are reliable. We do not guarantee
that such information is accurate or complete and it should be relied upon as such. Trading advice
reflects our good faith judgment at a specific time and is subject to change without notice. There
is no guarantee that the advice we give will result in profitable trades. All trading decisions will be
made by the account holder. Past performance is not necessarily indicative of future trading results.
When analyzing option strategies, it is important to take into account the commission and fees
associated with making a trade. Similar to trading futures, each contract executed in an option
strategy is charged commission and fees. Commissions and fees from brokerage firms can be up
to $99 per round turn with the vast majority of people paying significantly less. Your actual charges
may vary based on the service level you choose. The two primary factors investors tend to overlook
when trading options include:
Each contract traded is charged a commission. This is often misinterpreted as each spread or
strategy that is charged a commission. If you trade one bull call spread, your account would be
charged for 2 contracts rather than 1 spread.
Customers often try to sell or collect premium on options that are far out of the money with
the belief that they are collecting easy money. The further away an option strike price is from
the current market price, the lower the value of the option. Make sure that you are not paying
more in commission and fees than what you are collecting. Keep in mind that until an option
expires, you do hold risk in the positions. Is the net premium collected after paying commission
and fees worth the risk?

Table of Contents
Getting Started.........................................................................................................................4
Basics of Options on Futures....................................................................................................5

Why Trade Options on Futures?............................................................................................5

What are Options on Futures?..............................................................................................6

Buying vs. Selling Options on Futures...................................................................................7

Options Terminology..........................................................................................................7

Reading Options Quotes...........................................................................................................9

Basic Options Trading Strategies............................................................................................ 10

Buying options on futures.................................................................................................. 10

Selling options on futures.................................................................................................. 11

Additional Resources ............................................................................................................. 13

Getting Started
Options on futures let you participate in the futures markets with defined risk.

Yet, you still can take advantage of price

with descriptions and terminology. And, well

movement opportunities commodities, stock

conclude with examples of four basic trading

indices, foreign currencies and interest rates

strategies.

with an added layer of versatility that goes

beyond simply buying if prices are going up or
selling if prices are going down.
RJO Futures, the premier brokerage firm for
futures traders, has specialized in serving
futures traders for more than 100 years.
Everyone on our team is devoted to providing
the service you need to become a successful
futures trader.
This guide explains the basics of trading options
on futures. Well start from the beginning

A list of guides from RJO Futures covering

more specific futures trading topicsas well as
additional resources for learning the basicsis
at the end of this document.
Please feel free to contact us to answer any
questions you have about trading options
on futures. Any of our experienced team can
explain the principles and strategies in this
guide, and help you understand if trading
options on futures is right for you.

Basics of Options on Futures

Options on futures and options on stocks have the same parameters.

They are contractual agreements that provide

going up and sell if its going down. Many

the right, but not the obligation, to buy or sell

traders like the defined-risk aspect of options,

an underlying asset at a certain date at a set

for example. But, it doesnt mean options are

price. The premium is the price paid for that

entirely without risk. You have to get direction,

right. In stocks, the underlying asset is 100

time frame, and amount of move right in order

shares of stock. In futures, the underlying asset

to profit.

is a futures contract in the same expiration

month as the option.
Before equity options were first listed on the
Chicago Board Options Exchange in 1973, they
were traded in an over-the-counter market, with
each contract having unique terms. It was up to
buyers and sellers to find each other, and they
did so via newspaper ads.

Heres some of reasons traders choose

options on futures:
Defined risk. Unlike futures trading, in which
all positions have unlimited risk, you can
define the amount of risk you take when you
buy options on futures. And, often option
premiums require less cash outlay than margin
requirements on a futures position. However,

Exchange-traded equity options took the idea

if you sell options on futures, your risk is

of standardizing strike price, expiration, size and

unlimited, just as it is in trading futures.

other contract terms from the futures markets.

Options on futures were introduced in October
1982, with options on U.S. Treasury bond
futures at the Chicago Board of Trade.

Why Trade Options on Futures?

Options are a great way to fine-tune your
trading approach beyond simply buy if its

Leverage. Like futures, your money works

hard for you in options trading because of the
leverage involved. The premium paid when you
buy an option is only a small percentage of the
value of the underlying futures contract, and
varies based on several factors including time
to expiration, market volatility and underlying
price.

Generate income. Selling call options against

You can liquidate an options position in one

a long futures position, a strategy known as a

of three ways:

covered call, provides extra income because

you collect the option premium. If the market is
flat to lower, you likely will be able to keep both
your futures position and the option premium.
If the market rallies, you may have to deliver
your long futures position to the option buyer at
the strike price; your profit will be limited to the
options premium collected.

Offset. This reverses the original transaction

to exit the trade, and is the most common way
to liquidate a position. If you had bought an
option, you would sell the same strike price and
contract month to offset your original position;
an option seller would buy an option with the
same strike price and contract month.

What are Options on Futures?

Exercise. You exercise an option when you

There are two types of options:

futures market that is your right by virtue of your

Calls. These give the buyer the right, but

not the obligation, to buy (go long) a futures
contract at a certain price (strike price) prior to

choose to take a position in the underlying

option. Option buyers assume a long position in
futures by exercising a call or a short position in
futures by exercising a put.

option expiration. You would buy a call if you

Expiration. If an option is not offset or

think prices will rise.

exercised, it eventually expires. The buyer then

Puts. These give the buyer the right, but not

the obligation, to sell (go short) the underlying
futures market at a certain price (strike price)
prior to option expiration. You would buy a put
if you think prices will fall.

loses all of the premium paid, while the seller

profits by the amount of premium collected.
Both buyer and seller may be charged
commissions and fees.

Buying vs. Selling Options on Futures

Most individual traders tend to buy options because they know their maximum risk (premium paid)
upfront. But, selling options can give you opportunities to profit because you collect and keep the
premium the buyer pays if the option expires worthless or decreases in value. However, there is
potentially unlimited risk in selling options.
Understanding Buying vs. Selling Options
Buy Options (Long)

Sell Options (Short)

Make profits with call options only in rising markets.

Make profits with short calls in flat to falling markets.

Make profits with put options only in falling markets.

Make profits with short puts in flat to rising markets.

Unlimited maximum gain for a long call position as prices Maximum gain for short options equals total of premiums
rise. Maximum gain for long puts can also besignificant, received.
but underlying price cannot fall below zero.
Maximum potential loss for long options equals total of Maximum loss for short options is unlimited.
premium paid.

Options Terminology
Like learning anything new, youll want to
become familiar with the lingo that pertains to
options trading.
Strike price. The price at which the underlying
futures contract can be exercised, thus why it
is also known as the exercise price. The strike
price is the biggest factor in determining the
price (premium) of an option.
Time value. The portion of the option premium
based on the amount of time remaining until
the option contract expires. In general, the more
time until an options expiration, the greater the
time value.

Volatility. The amount of price movement in

the underlying market over a certain period
of time. Prices that experience large swings
up and/or down have greater volatility, which
translates into greater risk and potential reward
as well as a higher premium.
Intrinsic value. The difference between the
underlying futures contract price and the option
strike price. Intrinsic value is positive when
the option is in-the-money. Intrinsic value is
negative when the option strike is either at-themoney or out-of-the-money.
Call options with a strike price below the
current price of underlying futures contracts
are said to have intrinsic value. Put options

Call Option

Put Option

In-the-money

Strike < Futures

Strike > Futures

At-the-money

Strike = Futures

Strike = Futures

Out-of-the-money

Strike > Futures

Strike < Futures

with a strike price above the current price of the

of-the-money when futures are trading below

underlying futures contract also have intrinsic

$25. A put option is out-of-the-money if the

value.

strike price is below the price of the underlying

In-the-money. An option is in-the-money when

it has reached even one tick beyond its strike
price to the positive. A call option is in-the-

futures. Out-of-the-money options also have no

intrinsic value. They expire worthless if they are
out-of-the-money on expiration day.

money if the strike price is below the price of

Break-even. The price at which an options cost

the underlying futures contract. So, if a call

is equal to the proceeds acquired by exercising

option strike price is $25 and the underlying

the option. The break-even point is the same for

futures market price is $35, then the intrinsic

both the buyer and seller of an option.

value of the call option is $10. A put option is inthe-money if the strike price is above the price
of the underlying futures. In-the-money options
have positive intrinsic and time value.
At-the-money. An option is at-the-money
if the strike price is at the same price as the
underlying futures contract. At-the-money
options have only time valueno intrinsic

Call option
Strike Price + Premium + Commission and Fees*
= Break-even
If the futures price is above break-even for a call
option, it means a profit for the buyer and loss
for the seller.

value.

Put option

Out-of-the-money. An option is out-of-the-

Strike Price - Premium - Commission and Fees*

money when it has reached even one tick

= Break Even

beyond its strike price to the negative. A call

option is out-of-the-money if the strike price is
above the price of the underlying futures. For
example, a call option with a $25 strike is out-

If the futures price is below break-even for a put

option, it means a profit for the buyer a loss for
the seller.

*Commissions and fees from brokerage firm can be up to $99 per round turn with the vast majority of people paying significantly less. Your actual charges may vary
based on the service level you choose. See disclaimer on inside cover for detailed discussion.

Reading Options Quotes

When youre looking at a page of quotes for options on futures, youll need to know
a few basics.

Type

Symbol

Strike

Open

High

Low

Last

Change

DTE

Call

ES U3C1650

1650

47.00

52.25

47.00

52.25

+4.00

113

Put

ES U3P1650

1650

56.25

57.00

52.00

52.00

-5.00

113

First, the trading symbol will designate the

Strike: The strike price (also known as exercise

market, the contract month/year, whether it is

price) of an option.

for a call or a put and the strike price.

Second, the prices quoted are for the premium
you pay or collect, depending on whether you
buy or sell the option. To know how much
cash outlay (or income) is involved, multiply
the premium price by the markets standard
multiplier.
Heres an example of how youll see options
on futures quoted:
Type: Call or Put. These give the buyer the
right, but not the obligation to buy (call) or sell
(put) the underlying futures market at the strike
price prior to expiration.
Symbol: This includes the symbol for the
commodity (ES), the symbol for the expiration
month (U3) and the strike price (1650).

Open: The price where the option opened on

the trading day.
High: The highest price the option traded on
this day.
Low: The lowest price the option traded on this
day.
Last: The most recent trade price for the
option. (For the E-mini S&P 500 in this example,
multiply the last price by $50 to get the total
dollar value of the premium.)
Change: How much the premium price of the
option changed vs. the previous days closing
price.
DTE (Days To Expiration): Number of days
until the expiration of this option.

Basic Options Trading Strategies

With options on futures, you gain flexibility in your trading because of the many
strategies available for bearish, bullish or neutral market environments.

Buying Options on Futures

As a buyer of an option, you pay a premium
upfront to own the right to take the underlying
futures position at the strike price at any time
before the option expires. The premium paid is

to hold your long option, which should track

movement in the underlying futures market
fairly closely because it is in-the-money.) Heres
how your profits would be calculated (net of
fees and commissions*):

your maximum risk. As for profit potential, you

Futures Price

105.00

have unlimited potential if you buy a call; if you

- Strike Price

95.00

buy a put your maximum profit potential is the

difference between the strike price and zero.
Buy a Call
October crude oil 95 call trading at $3.90

10.00
- Premium Paid
Profit

3.90
6.10 x $1,000 = $6,100

For each dollar that crude oil increases, your

profit increases $1,000. As there is theoreti- cally

With October crude oil futures trading near

no limit to how high the price of crude oil could

$95 per barrel, you think prices will keep going

go, there is no limit to your potential profit. But,

up but would like to define the amount of

once you assume the futures position, your risk

risk you take in the position. So, you buy an

is unlimited.

October 95 call trading a $3.90, which means

you pay $3,900 (premium times 1,000 barrels
per contract) upfront. This amount is your
maximum risk.

Buy a Put
October crude oil 95 put trading at $5.90
With October crude oil futures trading near $95

If October crude oil rises in price to $105, you

per barrel, you think prices will fall but would

can exercise your call options and assume a

like to the define the amount of risk you take

long position underlying futures from $95, the

in the position. So, you buy an October 95 put

strike you purchased. (You also could continue

trading at $5.90, which means you pay $5,900

*Commissions and fees from brokerage firm can be up to $99 per round turn with the vast majority of people paying significantly less. Your actual charges may vary
based on the service level you choose. See disclaimer on inside cover for detailed discussion.

10

(premium times 1,000 barrels per contract)

It is important to recognize that option sellers

upfront. This amount is your maximum risk.

are much more exposed to risk than option

If October crude oil falls in price to $85, and

you decide to exercise the option, you would
assume a short position in October futures at
$95, the strike you purchased. (You also could
continue to hold your long option, which

exposed to unlimited potential losses. The

potential losses with writing a put option are
limited only by the difference between the strike
price (minus what you receive in premium) and
zero.

should track movement in the underlying

futures market fairly closely because it is inthe-money.) Heres how your profits would be
calculated (net of fees and commission*):
Strike Price

95.00

- Futures Price

85.00
10.00

- Premium Paid
Loss

buyers. If you write a call option, you are

5.90
4.10 x $1,000 = $4,100

Sell a Call
October crude oil 95 call trading at $3.90
You think crude oil prices are at a peak. If
you sell the October 95 call at $3.90, you will
receive $3,900 (strike price times 1,000 barrels
per contract) into your account. This is your
maximum profit potential (net of commissions
and fees) if the option expires worthless, i.e.,

For each dollar that the price of crude oil drops,

under the $95 strike price.

your profit increases $1,000. However, if you

assume a futures position rather than hold your

However, if October crude oil rallies to $105

option and offset it to take profit, you will be

and the option buyer exercises the option, you

exposed to unlimited risk.

will be assigned a short position in October

Selling Options on Futures

As an option seller (also known as an option

futures at $95, the strike price. Heres how

you loss would be calculated (net of fees and
commission*):

writer), you receive cash premium upfront,

Futures Price

105.00

which equals your maximum profit potential

- Strike Price

95.00

(net of commissions and fees) if the option were

10.00

to expire worthless. If your option is exercised

- Premium Received

by the option buyer, you will then hold a short

Loss

3.90
6.10 x $1,000 = $6,100

futures position at the strike price.

*Commissions and fees from brokerage firm can be up to $99 per round turn with the vast majority of people paying significantly less. Your actual charges may vary
based on the service level you choose. See disclaimer on inside cover for detailed discussion.

11

For each dollar that crude oil increases beyond

$105, your loss increases $1,000. As there is
theoretically no limit to how high crude oil

ADDITIONAL
RESOURCES

prices could rise, there is no limit to your

potential losses until you would exit your short
futures position with an offsetting purchase.
Sell a Put
October crude oil 95 put trading at $5.90
You think crude oil prices have found a bottom
near $95 per barrel and likely will rise before
expiration. You sell an October 95 put trading at
$5.90 and receive $5,900 of premium into your
account. This is your maximum profit potential.
However, if October crude oil futures fall to $85,
and the option buyer exercises the option, you
will be assigned a long October futures position
at $95. Your loss would be calculated as follows
(net of fees and commission*):
Strike Price

95.00

- Futures Price

85.00
10.00

- Premium Received
Loss

5.90
4.10 x $1,000 = $4,100

Click for your RJO

Futures PRO demo!
An exclusive and
sophisticated online
trading platform
like no other with
integrated tools to
seamlessly trade and
monitor the markets.
Test drive a demo
today with a Free 100K
simulated account
with real time data &
execution.
Or, call 800-441-1616
to request your free
demo.

For each dollar that crude oil drops, your loss

increases by $1,000, unless you decide to exit
your futures position with an offsetting sale.

*Commissions and fees from brokerage firm can be up to $99 per round turn with the vast majority of people paying significantly less. Your actual charges may vary
based on the service level you choose. See disclaimer on inside cover for detailed discussion.

12

Additional Resources
Thank you for the opportunity to provide you with this educational material. Anyone can offer
online trading in online markets. But RJO Futures is not just anyone. We are specialists devoted to
delivering the best possible trading experience for our clients. Whether you want to trade on your
own, tap into the experience of our brokers or let a professional money manager make the calls, you
can do it all at RJO Futures, the premier provider of futures brokerage services.

Open an Account Easily and Quickly:

By Phone:

By Email:

Online:

800-441-1616

[email protected]

rjofutures.com/open-account

312-373-5478

rjofutures.com/open-account/type/downloadforms

RJO Futures eView E-newsletter

For a longer-term view on the markets as well as pointers on trading techniques, subscribe to eView,
our free newsletter delivered to your inbox every two weeks. Youll read insights from our team of
professional futures brokers, whose commentary is often featured in major news media.
Click to sign up for your free eView subscription today.

RJO Futures Learning Center

We believe that knowledge makes better traders. In the RJO Futures Learning Center youll find
educational tools for every level of experience. We offer a library of guides and articles that help you
learn about futures and futures on options from the basics to technical analytics. For an interactive
experience, join us for our regularly scheduled live webinars.
Click to visit the RJO Futures Learning Center.

RJO Futures Brokers

The RJO Futures brokers provide the experience and background to help you with your trading
needs, and assist you with reaching your investment goals. We invite you to review each brokers
profile, experience, and techniques to help you select a partner that best fits your trading needs
and style.
Click to meet our team.

13

A division of R.J. OBrien

RJO Futures
222 South Riverside Plaza
Suite 900
Chicago, Illinois 60606
800-441-1616
312-373-5478
rjofutures.rjobrien.com
Facebook
Twitter
LinkedIn

RJO Futures
@rjofutures
RJO Futures

Futures trading involves the substantial risk of loss and is not suitable for all investors.
Copyright 2014 R.J. OBrien & Associates, LLC
0114

Top 20
Dos and Donts
Of trading futures and options on
futures.

rjofutures.com 800-441-1616

A division of R.J. OBrien

Important Information About

Trading Futures and
Options on Futures
This communication is intended as a solicitation. Futures trading involves the substantial risk of loss
and is not suitable for all investors. Trading advice is based on information taken from trades and
statistical services and other sources which RJ OBrien believes are reliable. We do not guarantee
that such information is accurate or complete and it should be relied upon as such. Trading advice
reflects our good faith judgment at a specific time and is subject to change without notice. There
is no guarantee that the advice we give will result in profitable trades. All trading decisions will be
made by the account holder. Past performance is not necessarily indicative of future trading results.
When analyzing option strategies, it is important to take into account the commission and fees
associated with making a trade. Similar to trading futures, each contract executed in an option
strategy is charged commission and fees. Commissions and fees from brokerage firms can be up
to $99 per round turn with the vast majority of people paying significantly less. Your actual charges
may vary based on the service level you choose. The two primary factors investors tend to overlook
when trading options include:
Each contract traded is charged a commission. This is often misinterpreted as each spread or
strategy that is charged a commission. If you trade one bull call spread, your account would be
charged for 2 contracts rather than 1 spread.
Customers often try to sell or collect premium on options that are far out of the money with
the belief that they are collecting easy money. The further away an option strike price is from
the current market price, the lower the value of the option. Make sure that you are not paying
more in commission and fees than what you are collecting. Keep in mind that until an option
expires, you do hold risk in the positions. Is the net premium collected after paying commission
and fees worth the risk?

Table of Contents
Getting Started.......................................................................................................................................................4
Top 10 Futures Trading Dos................................................................................................................................5
Top 10 Futures Trading Donts...........................................................................................................................8
Additional Resources..........................................................................................................................................11

Getting Started
Whether youre brand new to futures trading or have been around the block a few
times, its always good to stay on the straight and narrow when the leveraged,
volatile futures markets are involved.
Thats exactly what youll find in this guide
the Top 10 Dos and Top 10 Donts to trading
futures. Both sets of guidelines are hard-won

ADDITIONAL
RESOURCES

by brokers and traders who have been involved

with the futures markets for yearseven
decades.
Futures are exciting markets, theres no
doubt. They trade around the clock on global
exchanges. Theres no uptick or short-sale rules
like in stocks. They are taxed at a favorable
60/40 rate. And, they are highly leveraged,
which is a double-edged sword for profits and
losses.
Take a few minutes and review these 20 basic
principles that professional traders inherently
live by. They are presented in no particular
order, as every one of them is significant. Then,
learn more about trading futures by reviewing
the Next Steps and Additional Resources
sections at the end of this guide.

Click for your

RJO Futures guide,
Introduction to Futures
Trading for more
detailed examination
of trading the futures
markets.
Or, call 800-441-1616
or 1-312-373-5478
to request your
free copy.

Top 10 Futures Trading Dos

Here are 10 simple steps you can take to increase your potential for success in
trading futures.

1. DO Have a Trading Plan

3. DO Know Your Risk

Some of the best advice youll ever get from

Knowing how much you are willing to risk on

experienced traders is to plan your trade and

any one particular trade is just as important as

trade your plan. So, before you place a trade,

knowing how much you are willing to risk on

know the answers to these questions:

trading in general.

Where is my entry point? Why am I placing

it there?

An account should always be opened with risk

Where is my protective stop?

if lost, without any hardship.

Where will I begin to take profits?

capital, i.e., money that you can walk away from

For individual trades, set a risk limit and place

a stop order there so the market cant get away

2. DO Stick with Your Plan

When you have a trading plan for entry, exit and
profit-taking, you wont have to make tough
decisions as the market is moving. You will

from you. Also, be aware that you might be able

to use options on futures as a way of limiting
risk. Ask your RJO Futures broker how this
works.

already know what to do.

While some flexibility is also important,

4. DO Take Profits

remember that you came up with your plan for

Most new traders seem to have an aversion to

a reason. Nothing is worse than your broker

taking profits. Funny, but true. Thats because

calling you with bad news, and having to make

they seem to think that the market will always

an immediate decision.

go their way and never reverse. But, thats not

the way the markets work.
You have to exit a trade to turn that position
into cash. Dont let greed get the best of you. If

you have profits, take them! The markets have

been around for hundreds of years, and theyre
not going anywhere. That one trade that is
making a lot of money is not the only trade you
will ever make.

6. DO Learn How to Place Orders

Every business has its own lingo, and futures
is no exception. Learning how to correctly
place an order when speaking with your broker
or trade execution desk can save you many
problemsand a lot of money.

5. DO Be Aware of Margin

A mistake in placing a buy order when you

Leverage is one of the great benefits of trading

meant to sell or vice versa is one of the most

futures, and that means margin requirements

devastating errors you can make. On a new

on futures products tend to be far less than

position, you would hold the opposite of what

those for stocks. And, it means both profits and

you wanted. On exiting an existing position,

losses can add up quickly in your account

youd be doubled up instead of flat. Be sure to

say buy if you want to go long and sell if you

Initial margin is the amount needed to initiate

want to go short.

a new position. Maintenance margin is the

amount needed in your account to avoid a

A variety of order types are available to help you

margin call. Margin excess (available cash) is the

get in or out of the market exactly as you wish.

amount of money available for initial margin to

The most common is a market order, which is

add new positions.

executed immediately upon entry. Other types

include limit, stop, stop-limit, fill-or-kill, market

Margin calls occur when the cash in your

on open and market on close. Not all markets

account falls below the maintenance margin

accept all orders. Ask your RJO Futures broker

requirement for all your positions. If that

about order types, when you might want to

happens, you must deposit additional funds or

use them and whether they are available in the

liquidate enough of your positions to eliminate

market you want to trade.

the margin call.

A margin call tells you that youre in trouble.
Experienced traders typically use just 30%-50%
of their total account for margin.

7. DO Ask Questions
There are no dumb questions when its your
money on the line. Go ahead and ask your
RJO Futures broker to find out the answer.
For starters, the more you know the less likely

youll experience errors in trading or due to

miscommunication. Your broker knows that a
more-informed client is a more-loyal client
and has the potential to make more money in
the markets, which is good for you both.

10. DO Enjoy the Experience

Trading can be one of the most rewarding
experiences of your lifenot just financially,
but also mentally. Successful traders get a
feeling of accomplishment when they do their
homework, plan out a trade and execute the

8. DO Be Patient

trade to profitability. Every traderincluding

the most successful professional traders in the

Be patient and think everything through before

worldstarted at the beginning. Take your time

making a decision. There is always another day

and enjoy.

and another market. Take your time. And if you

find yourself getting too emotional, compose
yourself. A well-thought-out decision is usually
better than a hasty one.

9. DO Accept Responsibility for Your

Money
The funds you send into your trading account
are your moneyand your responsibility. Only
you truly know how important your trading
money is to you, and you shouldnt be swayed
by what you hear from a broker, newsletter
writer or TV commentator.
Trading funds should be risk capital, which
means that if you lose it all, you wont suffer any
adverse affects to your life. In other words, dont
risk the mortgage money on trading. Anything
can happen in the futures markets.

Top 10 Futures Trading Donts

Knowing what not to do is just as important as the dos when it comes to trading
futures markets. As with most donts in life, the following 10 tips have been
learned the hard way by many traders.
1. DONT Confuse Trading with
Investing
Trading is a short-term venture. You enter a
position expecting to exit quicklyfrom 30
seconds to several months, depending on your
strategy. Investing is a longer-term activity, with
positions that might last years.

John Templeton, founder of Templeton Funds,

was once asked how to know when to buy or
sell a market. His response was simple, yet very
complex: I buy markets when everyone else
wants to get out of them, and I sell markets
when everyone else wants to get into them.
This means that a mass thought process played
an important role in his decision-making

The only thing that trading and investing have

process. When everyone else is scared to death

in common is that you need to exit a position

to be in a particular market, he would like to

to turn it into cash. Other than that, they are

buy. When everyone else thinks a market is the

inherently different and you should realize this

next big killing, he wants to sell. The Templeton

when trading futures.

Funds were one of the most successful groups

of funds on Wall Street.

2. DONT Let Emotions Get in the

Way
Emotionsparticularly fear and greedmove

3. DONT Let a Winner Turn Into a

Loser

markets. Learn to divorce yourself from your

If you have a winner on the books, protect it.

fear and greed when making trading decisions

Dont let it turn into a loser. There is nothing

because decisions based on emotion are often

more demoralizing than to have a 10K winner

the wrong decisions. Dont let your emotional

turn into a 20K loser. And dont think it wont

attachment to money cloud your decision-

happen to you; it can happen to anyone. Talk to

making process.

your RJO Futures broker about stop orders and

other techniques to help you take profits.

4. DONT Forget the Importance of

Open Interest and Volume
All traders should watch open interest and
volume because those two numbers will tell

didnt have to sacrifice much in returns to get

reduced volatility. Talk to your RJO Futures
broker about how a managed futures account
could diversify your entire investment portfolio.

you the markets depth. A general rule of thumb

is that the higher the open interest and volume,
the better the fills in that market.

6. DONT Trade on Rumors

Rumors dont follow any rules. Anybody can

Open interest tells you how many positions

make up a rumor at any time with no evidence

exist in the market. Volume tells you how

to back it up. Trading on rumors will result in

much trading has been done in that market.

bad decisions more often than not. Dont do it!

If the open interest is low, then there are not

many market participants. The larger the
open interest, the larger the number of market
participants and the less likelihood it is being
dominated by a single entity.

7. DONT Pick Market Tops and

Bottoms
You will probably never sell the exact top of a

Paying attention to open interest will help

market or buy the exact bottom of a market. If it

you get out of a market before its First Notice

happens, it is generally simply luck. Professional

Day, when those who have a desire to take or

traders know better than to even try. So avoid

make delivery declare their intentions. Most

putting that pressure on yourself and instead

speculators get out of the upcoming delivery

just watch the trend and your indicators for

month before this happens.

signals that confirm the markets direction.

5. DONT Put All Your Eggs in One

Basket
Diversifying the markets you trade allows you to
spread out your risk. This way, when one market
is down, another might be showing positive
returns. On a portfolio basis, diversification can
help stabilize market volatility. Studies on the
performance of managed futures funds have
shown that over lengthy periods, investors

8. DONT Wait to Catch Up on a

Losing Trade

10. DONT Just Jump Into Trading

Futures

Cut your losses if a trade is heading south. It

While the temptation to just get started might

might be hard to admit youve made a mistake,

be great, trading futures without the proper

but its even harder to lose more money. Many

tools and research can be a scary prospect.

experienced traders get out if a position goes

Take time to learn how the futures markets

against them for three days straight. Use stop

work, and how the market youre interested

orders to help you get out when you might

in behaves. Take advantage of all the guides

otherwise be tempted to try and play catch-up.

like this one from RJO Futures to improve your

trading approach. Try trading in an online
simulated account to gain confidence.

9. DONT Forget to Learn from Your

Mistakes
Nobody is perfect when it comes to futures
trading. And, each mistake can turn into a
learning opportunitywhether you should have

And, finally, establish a good relationship with

your RJO Futures broker, who can help guide
you through the process of learning to trade
futures and answer your questions.

gotten out sooner or held on longer. Examine

what the market was telling you at the time you
made your mistakes and you could learn some
valuable lessons.

ADDITIONAL RESOURCES

Click for your RJO Futures PRO demo! An exclusive and

sophisticated online trading platform like no other
with integrated tools to seamlessly trade and monitor
the markets. Test drive a demo today with a Free 100K
simulated account with real time data & execution.
Call 800-441-1616 to request your free demo.

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Additional Resources
Thank you for the opportunity to provide you with this educational material. Anyone can offer
online trading in online markets. But RJO Futures is not just anyone. We are specialists devoted to
delivering the best possible trading experience for our clients. Whether you want to trade on your
own, tap into the experience of our brokers or let a professional money manager make the calls, you
can do it all at RJO Futures, the premier provider of futures brokerage services.

Open an Account Easily and Quickly:

By Phone:

By Email:

Online:

800-441-1616

[email protected]

rjofutures.com/open-futures-account

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The RJO Futures brokers provide the experience and background to help you with your trading
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Click to meet our team.

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A division of R.J. OBrien

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Suite 1200
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