Futures are very inexpensive to trade. Commissions are very low and much more importantly futures are generally very liquid with tight bid/ask spreads, so trade slippage is very low.
However, anything using leverage is dangerous and I recommend one knows exactly what one is getting into when messing with leverage, that includes trading futures or borrowing 80% to buy a house. Make no mistake the bank owns the house for many years and you take all the initial risk. i.e. The bank doesn’t lose a penny until after you’ve lost all your money invested in the house. Leverage in futures or 2x, 3x, 5x ETFs can be wicked too.
Most funds that trade futures will have 75% to 95% excess cash in their account and use gross margin of only 5% to 25% and they will trade many different markets (currencies, interest rates, equity indices, metals, soft commodities, energy, grains, etc) to diversify enough that their net margin is a fraction of that 5% to 25%.
An old Chicago saying is “More than 90% of futures traders lose money.” I have no idea if that is true or not, because I cannot verify it.
@bloomfield88. Thx once again. That helps. It’s a little crazy but helps.
Just so when I hear the news I wanted it to make a little more sense to me. Not anything at all that I am interested in investing in. Being a passive investor has worked out well for me for 30 years. Until now… Lol… It will come back in time for me.?.
A good friend of mine that takes on like just 10 2 million dollar accounts back in the day told me. Pick some mutual funds. Keep feeding it. Don’t watch the news or react to it. In 30 years you should be fine…
More or less we have done that with some exceptions. Can’t wait till this all comes back though in a few years.
My son who got in now with his $3,000 picked some extreme lows from different sectors. He’s pretty excited to see where he is at on 5 years. Good way to start learning about the market… As long as his Robin hood app doesn’t fail him… Lol. He is connected to Merill Lynch through us but he refuses to use their free app and it hasn’t gone down once… Agh…
@Knowsstuff Just to be clear, my reply to you was the ‘Scenario A, B, C’ post. My more recent one on opening an account and leverage was a reply to @Publisher 's question. I know you have no interest in investing in futures and I think that is wise for you.
I have some experience in the area. Just thought that it would be helpful to readers to get more info. from one actively involved.
I read an interview many years ago of a broker who had made a big hit on the futures market. During the interview he was asked how many of his clients had made money trading futures. He could not think of a single client who had made money over their entire time in the futures market.
Somewhat akin to gambling the worst thing that can happen to a futures trader is making a big hit early on.
@Knowsstuff Well, there you go! S&P closed +9.8% today. 7th best day ever. Unfortunately, the 10 best days ever were:
This year on March 13th, and all the other 8 were within the Great Depression or the 2008 Global Financial Crisis. Bear markets tend to have wonderful rallies, sometimes violent ones for a day or two or three and sometimes nice slow rallies for 6 months and then retest and set new lows.
Buckle up, it might be quick and we are off to new highs, or it might be a looong roller coaster ride. Remember, this was the ‘everything bubble’ that just burst a month ago, and it has been the most talked about bear market to come that I can ever recall, with the Internet bubble the 2nd most obvious, so looking at markets daily might drive you nuts. I don’t want you to be glued to the screen. Some Japanese have been waiting over 3 decades to touch the old high. Other countries are still waiting 1 - 2 decades later, so if you are expecting April 2020, you might want to prepare for a few other outcomes, just in case it isn’t a quick ‘V’-shaped recovery back to 3,386 on the S&P.
@bloomfield88. Yep. I am smiling today… Lol. I like your analysis. If your bored and want to every now and then lend some insight… I am willing to listen. Just learning here. I understand it’s going to be quite a ride. I don’t expect anything less.
We just feel like this downturn is not the same as 2008 and it’s going to take a much longer time for the market to recover. Just a gut feeling but this is not just a financial crisis. It’s more than that. Add on a government that has no clear plan and is possibly making the pandemic and/or the economy worse and I just don’t see a recovery in five years. This “break” from normal life is going to likely bring a lot of changes in how we live our lives in the future which brings a lot of uncertainty.
Sound familiar?
“In Goethe’s 1831 drama “Faust”, the devil persuades a bankrupt emperor to print and spend vast quantities of paper money as a short-term fix for his country’s fiscal problems. As a consequence, the empire ultimately unravels and descends into chaos." - Scott Minerd
Saltwater School, New-Keynesian central bankers have been using this tired, old playbook, while selling it as profound and original. One doesn’t need to be a student of economic history to understand the impact of extreme central bank intervention.
We’ve repeated this so many times before, the subject even comes to the fore in a popular play from almost two centuries ago.
What a rally. The S&P 500 almost recovered half of its fall from the all-time-high (Feb 19th) to the recent low (March 23rd). That 50% retracement is where the bear market rally peaked after the first waterfall decline in 1929, and then reversed downwards, but no one knows what will happen this time.
Investors still in ‘buy-the-dip’ mode, which worked the past decade, so that is expected for any new bull market dip and at the beginning of any new bear market. Certainly, not a tell.
Is this a ‘V’ stock market and we are already in the upleg of the ‘V’ (time to hold and buy more)?
or
Will this be the 2nd chance, best time after the waterfall decline to sell and unload into?
The highly unlikely event is that it does nothing and sits at 2,700-2,800 for the rest of 2020.
Hope stockholders are just as mentally prepared for 2,000 and <1,000 on the S&P Index as they are for 4,000 and 5,000.
@knowstuff I have no more predictive ability than a coin toss.
Therefore, it is best to just cover the main drivers for both sides and then you draw your own conclusions.
On one hand you have a giant reflationary force
Central bankers and governments all around the world are desperately printing, borrowing, lending, buying and spending like never before to reinflate the ‘Everything Bubble’ (burst on Feb 19, 2020) they created by printing, borrowing, lending, buying and spending, since 2008. Fed balance sheet has gone exponential to $6.1 Trillion and they are even buying junk corporate bonds now.
On the other hand there are 3 deflationary forces
Perhaps, by the market had already priced in both the oil price war and all the ramifications of Covid-19. That seems a lot in 23 trading days. Even if that is the case, has it also priced in the global debt based recession that was going to happen in 2020?
During the summer of 2019, bond markets were signalling a recession was on the way. Central banks put the world in a precarious position long before the virus by creating more debt than money and more debt than economic growth during the entire decade of recovery.
Global Debt to Global GDP reached an all-time high of 322% by Q3 2019. Can you imagine how much it must be in Q2 2020? The numerator is climbing quickly and the denominator may be decreasing. I don’t even want to see the numbers for Q4 2019 and Q1 and Q2 2020, when they are released. After Covid-19 is behind us, the bigger investment issue may be when the central bank crisis is the headline for the foreseeable future.
We’ve had two very quick ‘V’ shaped recoveries from early 2018 and Christmas 2018.
The bottom could have been made on March 23rd, but that is only 23 trading days from the February 19th peak and circumstances are more than slightly different to 2018. Would be quite an amazing recovery if the bottom is already in on March 23rd, but who knows?
I don’t have grandchildren, but when I do, I will be telling them about today.
And they will ask, “Grandpa, why didn’t you have a giant oil storage tank?”
May Crude Oil futures price went negative today. Quite amazing.
The May contract opened at $17.73 per barrel (42 gallons). If you had a place to store crude, at the settlement price today you are PAID $37.63/barrel of crude to be delivered May 1st. That is paid to own, not to store for someone else.
You can turn around and sell the oil for June 1st delivery for $21 today.
Fantastic $58/barrel costless arbitrage, but all Storage units are full. Pipelines are full. Ships are full.
More extreme economic dislocations will follow in 2020.
The good news is, gas prices at the pump to fall even more.
@Mwfan1921 and…I give thought to if I could store oil in my empty 1,000 gal propane tank…what is the smallest delivery unit? Just got me thinking. So many empty tanks in the midwest and northeast this time of year.
I’ll be getting my last oil delivery sometime next month. I get four deliveries a year. My furnace heats my water. No oil, no hot water.
My cousins own a heating and fuel company in CT. I’m curious to hear how it’s affecting him. I know from past conversations he tries to buy low and sell high. But, if there is no storage anywhere, as I’m hearing - the oil has nowhere to go.