Futures Markets & Licensing

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Jul 24, 2006 10:34 pm

What are the main differences between the Series 3 & 31?


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I think the 31 allow one to sell only managed futures products while the 3 allows you to sell any futures product?



You would think the combination of the 7 & 31 would allow you to sell any futures product or contract..



What are everyone’s thoughts on futures contracts?  Does anyone use these contracts for clientele or personal investments?


Reason being, I am thinking about playing in the futures markets with a small amount of money.  I am just want everyone’s opinion.     
Jul 24, 2006 11:16 pm

Just remember that pumpkin futures peak around February.

Jul 24, 2006 11:48 pm

The 31 allows you to sell managed futures products only.

Remember futures are not governed by the NASD(at least not alone).  Rather, I think the licensing/governing bodies are the NFA and the CFTC.

Jul 25, 2006 5:03 am
joedabrkr:

The 31 allows you to sell managed futures products only.

Remember futures are not governed by the NASD(at least not alone).  Rather, I think the licensing/governing bodies are the NFA and the CFTC.


What difference does that make?

Jul 25, 2006 9:46 am

In regards licensing question, I have to take the 3 in a few weeks. 


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And I have always toyed with the idea of the futures markets..   
Jul 25, 2006 10:12 am
NASD Newbie:

[quote=joedabrkr]The 31 allows you to sell managed futures products only.

Remember futures are not governed by the NASD(at least not alone).  Rather, I think the licensing/governing bodies are the NFA and the CFTC.
[/quote]


What difference does that make?



It would mean that combining the 31(managed futures pool license) and series 7(general securities license) would NOT logically allow you to transact business in specific futures...

Jul 25, 2006 10:19 am

Playing in the futures market is great until you get trailer-tractors full of soy beans being dropped off at your door.  My honest opinion is if you want to speculate with derivative securities, do it with index options.  If you want to hedge with these futures, then you'd better be a farmer.

Jul 25, 2006 1:16 pm
entrylevelFA:

Playing in the futures market is great until you get trailer-tractors full of soy beans being dropped off at your door.  My honest opinion is if you want to speculate with derivative securities, do it with index options.  If you want to hedge with these futures, then you'd better be a farmer.


Gosh, how often does that happen--getting a tractor trailer full of soybeans dumped in your yard?


If you want to be a hedger you'd better be a farmer?  What if you use soybeans to make, say, soybean burgers?  Would it be OK to hedge then, even though you're not a farmer?

Jul 25, 2006 1:57 pm
entrylevelFA:

Playing in the futures market is great until you get trailer-tractors full of soy beans being dropped off at your door.  My honest opinion is if you want to speculate with derivative securities, do it with index options.  If you want to hedge with these futures, then you'd better be a farmer.



By definition you are not "hedging" with these products unless you are in some way exposed to the underlying commodity, either as a farmer, food producer, etc.  Other wise-unless you're trying to hedge your grocery bills-you're a 'speculator'.

Oh and P.S.  many people use Index FUTURES too!

Jul 25, 2006 2:23 pm
entrylevelFA:

Playing in the futures market is great until you get trailer-tractors full of soy beans being dropped off at your door.  My honest opinion is if you want to speculate with derivative securities, do it with index options.  If you want to hedge with these futures, then you'd better be a farmer.


You might want to know what you're talking about before you open your trap to give advice, it will be beneficial for your clients.....I promise.

Jul 28, 2006 9:58 am
dude:
entrylevelFA:

Playing in the futures market is great until you get trailer-tractors full of soy beans being dropped off at your door.  My honest opinion is if you want to speculate with derivative securities, do it with index options.  If you want to hedge with these futures, then you'd better be a farmer.


You might want to know what you're talking about before you open your trap to give advice, it will be beneficial for your clients.....I promise.



I totally understand the comments from you guys, but the point is, he says he wants to "play the futures market."  He does not say, he is a soy burger manufacturer, looking to hedge the price of beans, nor does he say he's speculating on a bad crop.  Not to mention not all investors know that futures involve the obligation to purchase the underlying asset at a future date and price.  The point is, for someone to play in something like the futures market without being heavily involved with the underlying commodity is a perfect case of information asymetry.  If Joe Blow farmer in Iowa knows that him and every other farmer in Iowa are having a huge harvest of corn this year, he can lock his selling price with futures.  However, if Joe Blow broker/investor in some big city wants to "play" the corn futures, he is at a disadvantage being that he is not privy to all of this information and it will not be accurately reflected in the price of the future until ALL corn future traders have realized the implications of the harvest.


To whoever said Index Futures, that's a good call.  As are currency futures if you are brave (that is brave to speculate, rational to hedge currency risk of foreign positions).  I am a firm believer that options and futures should only be for hedging the risk of an open position or complex spreads (but not for an average investor).


Jul 28, 2006 2:27 pm

What about single stock futures as well?  For anyone who knows about the futures market, the idea of getting a load of soybeans delivered is assinine.  Very few of the people who play the futures market receive the underlying commodity.

Jul 29, 2006 7:14 am
dude:

What about single stock futures as well?  For anyone who knows about the futures market, the idea of getting a load of soybeans delivered is assinine.  Very few of the people who play the futures market receive the underlying commodity.


Individuals NEVER take delivery--part of the total value of a futures contract is a storage factor.  If you happen to be short and somebody delivers the commodity against your account it will be accepted at a bonafide storage facility and you will turn around and resell the physical.


Futures are a great way to goose up a portfolio, but for about 99% of the investing public the only sane way to use them is in managed portfolios.


There are two sides to the trade--speculators and hedgers.  Hedgers are places like McDonalds who will use the futures markets to lock-in the cost of meat, potatoes, and other things, perhaps wheat for the buns.


Hedgers can also be those who produce something--say a soybean grower who can use the futures market to lock in the selling price of his crop.


A lot of financial institutions will hedge their borrowing costs with intersest rate futures.  Manufacturing firms hedge their costs with futures on metals--back in the days of film Kodak was the largest player in the silver futures market, these days it's probably somebody who makes circuit boards--who knows.


If you know people like that then getting a Series 3 so you can handle that business would be an excellent idea.


The other side of the trade is the speculator.  They run the gamut from individuals who are simply working on a "hunch" to very sophisticated investors who make extensive use of technical analysis coupled with long term forecasts for the weather or labor conditions in South Africa, where they mine a lot of gold, or the world situation regarding oil.  It can be a fascinating niche in the market.


The leverage is tremendous--for (say) $5,000 you can control a million dollars worth of something.  A very minor fluctuation in the price of the underlying commodity can result in huge percentage gains in your deposit.


Or losses if the price goes the wrong way.


Additionally, there is something known as "limit moves" which can wipe you out before you know it.  I don't have any reason to remember the various moves but let's say that the limit in soybeans is 2 cents a bushel and you're controlling 50,000 bushels.  That means if the first trade of the day is 2 cents less than the closing price yesterday you are "limit down" and cannot--as in CANNOT--sell your contract.


2 cents on 50,000 bushels is $1,000--you just lost 20% of your money and you cannot do anything about it.  If tomorrow it opens down another 2 cents you'll lose another $1,000.  Depending on the commodity, on the third day the limit is expanded, say to 4 cents.  If on the third day it drops another 4 cents you lose another $2,000.  Finally on the fourth day you will be allowed to sell for whatever you can get for it-- but by then you've lost $4,000 of your $5,000.


It is not a game for the faint of heart--but for the guy who bets $1,000 on a field goal in a football game, think of all the jollies he can get watching wheat go limit up following a hail storm in Iowa.

Jul 30, 2006 5:19 pm

If you really do want to dabble with the futures market (I'm done being a jerk now), I would recommend researching spreads just like you would do with options spreads.  Two common futures spreads are called cracks and crushes.  Crushes are performed by soybean processors and cracks by oil refineries.  Those are both hedging techniques however, I am sure there are ways to turn it in to a speculative spread.  The other thing you could try is called a spark spread.  Basically, with a spark spread you will play electricity and fuel (which is used to produce the electricity) futures.  This is practiced by power companies. 


The more simple spreads are trading the same futures on two different BOT's, trading the same futures with different expirations, or trading related futures (i.e. corn and cattle).  Spreads, as with options, are safer if you want to specualte than buying/selling futures outright.


You might also consider interest rate futures, especially for clients that you would like to protect against interest rate risk. 


You could also play swaps, but read up first (for example, Orange County California). 

Jul 31, 2006 9:59 pm

Just out of curiousity, are you a newbie (I ask because you posted in the rookies section, not because you are aren't sure the difference between the 3 and 31)?


My next question is where do you work?


My third question is do you want the 3 to split commissions with a seasoned vet who trades commodities, or do you want to jump into it yourself?


If you work at a big firm and are new, chances are they will NOT let you do this for a few years. With that being said, if there is no one there that is doing that and doing well at it, you may not want to waist you time. Most say you won't take the 3 if you plan on taking it later. I say that's bs and talk coming from lazy people. If you end up wanting to do it, take it then, but if you are a newbie, you might want to skip it for now (unless as I said you have an expert to learn from whom you might split commission with).




Shmer33:

What are the main differences between the Series 3 & 31?


 <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />


I think the 31 allow one to sell only managed futures products while the 3 allows you to sell any futures product?



You would think the combination of the 7 & 31 would allow you to sell any futures product or contract..



What are everyone’s thoughts on futures contracts?  Does anyone use these contracts for clientele or personal investments?


Reason being, I am thinking about playing in the futures markets with a small amount of money.  I am just want everyone’s opinion.     
Aug 15, 2006 9:03 pm

Forgive me I have been absent for a few days.  <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />


 


I did not clarify myself.  I am required to take the 3.  I am well aware of the fact that I will not be able to trade futures for my clientele for well over two years.


 


And as for me saying I want to play in the futures market I will be working with a “seasoned vet”.  At one point I considered managed futures for my personal investments.