Of the questions on the Series 3 exam, you can expect around 16 on speculating in futures, with an emphasis on speculation in financial markets.

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The other side of the equation, though, is speculationassuming the risk that the hedgers want to get rid of and trading with the objective of achieving profits through the successful anticipation of price movements. Speculation is often unfairly maligned. Speculators provide liquidity to the market; without speculating, there can be no hedging. By taking positions opposite the hedgers, speculators act in effect as insurers.

The money the hedgers indirectly "pay" speculators is essentially a premium that guarantees against losses in the event of extreme price movements.

Market risk and volatility are exponentially greater in thin markets where there is a dearth of speculators and hedgers resulting in light trading volume and greater illiquidity.

Gross Profit on Speculative Trades As discussed in the preceding chapter, a great deal of futures volume takes the form of spreads. We will revisit spread profits momentarily, but first we need to understand the dynamics behind an uncovered example so that we can also understand those behind each individual leg of the spread.

Fortunately, computing the profit or loss of an uncovered position you might hear it called "outright" or "naked" is straightforward, once one understand the market dynamics. In an interest rate future, the price of the contract and the direction of interest rate movements are inversely correlated.

As interest rates go up, the prices of interest rate futures go down. As interest rates go down, the prices of interest rate futures go up.

This price dynamic derives from the relationship between bonds and interest rates. These contracts are available for short- and long-term debt obligations. Suppose it is January 30 and a speculator expects U.

The price is derived by subtracting the yield forex trading forum beginners Profit loss forex network chicago are contracts on short-term dollar denominated time deposits at banks outside of the United States. Her speculation would be successful. Speculators, then, use spreads for essentially the same purpose as hedgers — to forego some upside potential to guard should i buy fastenal stock downside disaster.

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The only difference is that the risk management is the goal and small gains a mere possibility for the hedger. For the speculator, by contrast, gains are the goal and risk management a strategy to achieve it. Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund.

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Sophisticated content for forex iv signal trade advisors around south african futures market strategies, industry trends, and advisor education.

Chapter 1 - 3 Chapter 4 - 6 Chapter 7 - 9 Chapter 10 - Orders And Price Analysis 6. If you are a hedger or a speculator, gold and silver futures contracts offer a world of profit-making opportunities.

Profit/Loss Calculations For Speculative Trades

Both forward and futures contracts allow investors to buy or sell an asset at a specific time and price. Speculators believe that the market overreacts to a host of variables.

These variables present an opportunity for capital growth. The energy market influences every aspect of our lives, and these four options are its driving force.

Learn about the risks and rewards of trading oil futures contracts. Read about a few strategies to limit the risk in trading oil futures contracts. These futures are intended for institutional use, but retail investors looking to speculate on prices can benefit as well.

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