WLFGuide 2010

2010
futures options forex

WLF Futures, Options and Forex
Education Network™
Beginning Traders Start Here™
© 2010 by World Link Futures, Inc.

All rights reserved.
This Guide may be distributed only by
World Link Futures, Inc. and authorized affiliates.
table of contents:
welcome page 4 psychology of trading page 83
so… what have you heard? page 5 trading costs and fees page 85
what’s in it for you? page 6 trading as a business page 87
understanding the terminology page 8 taxation of trading gain/loss page 88
what’s the advantage? page 10 the benefit of paper trading page 89
types of orders page 14 spotting investment swindles page 91
how to sell short page 17 additional resources page 93
commodity futures page 20 about the WLF Network page 95
managing margin funds page 27 about the author page 96
commodity trading as a second income page 31
commodity options page 32
commodity option spreads page 41 Extended Trade Topics:
covered option sales page 44 deconstructing an option spread page 98
comparing price movements: trading into option expiration page 99
options vs. futures page 46
forex trading page 48
forex vs currency futures page 52 Author’s Trading Stories:
binary options page 54 my first commodity trade page 100
day trading page 57 my luckiest commodity trade page 102
electronic trading page 60
the trading plan page 65
trade system development page 68 general disclaimer page 106
managing the risk of trading page 72 copyright page 107
fundamental and technical analysis page 76
understanding fibonacci page 80
welcome
Welcome to a new world of investing! My name is Rick Thachuk and I'm the
president of World Link Futures, Inc. as well as a long-time trader. Over the
years, I've helped thousands of traders get started on the right foot and
I'm glad to have the chance to spend some time with you now.
Many investors have been able to set aside some risk capital (meaning money
that they can afford to lose without significantly jeopardizing their life style)
and are searching for new investment opportunities that can provide high rates
of return commensurate with the risk. Their search takes them into the world of commodity futures,
commodity options, forex and even binary options that are now growing in popularity especially among
beginning traders. In this Trading Guide for Beginners, I’ll give you a fair and balanced overview of
these investment vehicles and I’ll also shed some light on various aspects of trading in general.
Now, let me say right at the start that trading these instruments is NOT suitable for everyone.
Each involves risk of loss that, in some cases, can be substantial. I wrote this Guide to help you
decide for yourself if trading is appropriate for you.
In my experience, I have found that education is key. An educated trader is more likely to succeed.
This Guide is a good start but by no means should you stop here. In fact, throughout this Guide and
in the Additional Resources, I’ll show you where to find more information, much of it for free, You’ll
also be able to send an email to World Link Futures should you have any question or want any
clarification on anything found in this Guide. Are you ready to begin?
page 4
so… what have you heard?
Chances are, you have already heard something about futures, options or forex trading. Maybe you’ve
heard stories or read claims of fortunes being made trading these instruments. Or maybe you’ve
heard just the opposite; that practically everyone who tries it fails. As with most things, the truth
lies somewhere between these two extremes. It is true that many who start do lose much of their
trading capital, especially so if they were not prepared, but it is also true that some individuals make
very good money trading for a living. To illustrate the latter, on January 14, 2010 a sale was made in
membership of the Chicago Mercantile Exchange, which is part of CME Group, for $854,000 and
membership is held by some very active traders.
Maybe you’ve heard that futures trading is very risky; that people can lose their house if they’re not
careful. While I can’t say that, in all of my years in the business, I have ever met or even heard of
anyone who lost their home, I can say that futures trading is indeed risky and I’ll explain what makes
it risky in this Guide. Did you know, though, that there are many ways to manage that risk? For
someone who is just starting out, knowing how to manage the risk of trading is an important and
necessary first step and I’ll talk more about that in this Guide.
Do you think that trading is really just a matter of luck? Maybe you want to give it a try to see if
you’ll be lucky too. If so, I would suggest that you save yourself some time and money and stop here.
While anyone can have a lucky trade or two, it is not luck that generates sustained trade
performance. People who trade for a living don’t rely on luck to pay the bills. Rather, they rely on a
time-tested trading plan and they have the discipline to follow that plan without being led astray by
emotion. In other words, they trade responsibly and regard trading as a business, and I’ll talk more
about that later in this Guide.
page 5
what’s in it for you?
Futures, options and forex grew partly in response to the overwhelming desire of the every-day
retail trader, such as you and I, to have access to markets that were otherwise only accessible to
large financial institutions. Precious metals, crude oil and currencies are just some examples of the
markets in which, thanks to the introduction of futures, options and forex, we can now participate all
with the intent of making speculative profit. And many people have been doing just that, from all
walks of life.
Although attracted by the potential to earn profit by trading, many

of the individuals who find their way to the online web sites of the
WLF Futures, Options and forex Education Network, and perhaps
this includes yourself as well, do not succumb to the illusion that
trading is a quick and easy way to become a millionaire. Rather, they
already have careers and are interested in trading as a way to generate
a secondary source of income, a source over which they can exercise
complete control and that can potentially continue even after they
retire from traditional employment.
The desirability of having such a secondary source of income was driven home by the recession of
2008/2009. I like to refer to this recession as the period of great disillusionment because we saw
many things happen that seemed impossible to believe: the collapse of large investment banks who
were supposed to be the savvy investment leaders of the nation, double-digit percentage declines in
home values thereby shattering the myth that real estate always appreciates, and a staggering
number of job losses which showed just how easy it was for an entire family to suddenly face
financial disaster leading even to the loss of one’s home.
page 6
what’s in it for you? - continued
Yet even during this time, the futures, options and forex markets provided trading opportunities
with the potential to earn speculative profit. And the desire to tap into that potential is what draws
people to these markets. Earning speculative profit with futures, options and forex is done the same
way as it is with stocks, bonds, real estate, and even old comic books and baseball cards. Money is
made if you
With futures, options and forex, you can sell before you buy, so this simple rule can also read: Money
is made if you
That last part often causes a lot of confusion among beginners. How can you sell something if you
don’t already own it? You can with futures, options and forex and I’ll talk more about that in a later
section.
Under what conditions you’ll buy or sell, and what you’ll do after having bought or sold, meaning when
will you close the position either at a profit or a loss, are all specified in the trading plan, and I’ll talk
more about this in a later section. Trading responsibly essentially means investing your time, energy
and money into developing a trading plan that can reliably generate speculative profit, on balance, and
then having the discipline to follow that plan. Doing so may provide a source of income for years to
come regardless of what’s going on in the job market.
page 7
understanding the terminology
Some of the terminology used throughout the futures, options and forex industry can be a little
confusing to the beginner. So, let’s clear a few things up right from the start.
When you buy a futures or forex contract then you are said to be long the market. You will go long
when you expect prices to go up. When you sell a contract, you are said to be short the market. You
will go short when you expect prices to go down. There is no such thing as going long a short, or
buying a short. You are either long or short - one or the other.
You can sell a futures, options or forex contract without having first bought it. This enables you to
profit from an anticipated decline in price and is such an important and advantageous feature of
these investment vehicles that I’ll revisit it in more detail in a later section.
An open position means that you are either long a contract or short a contract. Profit or loss accrues
as the price of the contract changes. If you are long a contract and prices rise, then the profit is
credited (added) to your account. If prices decline, then the loss is debited (removed) from your
account. This adjustment is referred to as marked-to-market.
It doesn’t cost any money to buy or to sell a futures or forex contract except for the commission
and other transaction fees charged by your broker. You do, however, have to maintain a certain
amount of cash in your trading account in order to meet the required margin. This margin is set by
the broker and/or exchange and depends upon the underlying commodity or foreign currency pair,
respectively. When buying options, there is no margin or risk of margin call because you must pay for
the full option premium upon purchase.
page 8
understanding the terminology - continued
If you are long (short) a futures or options contract, then you must sell (buy back) a contract of the
same underlying commodity and contract month in order to close the position, also called squaring or
offsetting the position. This must be done before the contract expires. In the case of options, the
trader can let the option expire instead of closing the position. An option that expires out-of-the-
money will have a zero dollar value while an option that expires in-the-money will be automatically
exercised into the corresponding futures position.
The forex market is a cash market and, as such, contracts do not expire
(nor have distinct contract months) but rather can be held for a prolonged
period of time with the trader essentially paying the interest rate
differential of the two currencies as a carrying cost. Closing a forex
position is simply done by selling (buying back) in the same quantity the
foreign-currency pair that was previously bought (sold).
Once a position is closed or squared, you have no remaining liability or exposure, nor is there any risk
of taking or making delivery of the underlying commodity. You are only left with the net profit or
loss on the completed trade, less associated fees. In practice, the large majority of futures
contracts are offset prior to expiration.
If there are a lot of people trading a certain futures, options or forex contract, then the contract is
said to be liquid. This is the same as saying that the contract has high volume. The more liquid is a
contract, the easier it is to buy and sell since there will be plenty of counterparties to your trade.
page 9
what’s the advantage?
The futures, options and forex markets have several advantages. Here are a few:
1. Leverage.
Leverage compares the market value of an investment to the money required to buy (or sell) the
investment. If you need to pay the full value when buying an investment, then there is no leverage.
On the other hand, if you only need to put up a small fraction of the market value of the investment,
then leverage is high. Futures and forex have high leverage. So a trader with limited trading capital
can still buy and sell a lot of product.
Let’s say that you believe that gold will rally in price so you want to be long gold, meaning buy gold.
You could buy and take delivery of 100 ounces of physical gold but you would have to pay the full
market value of this investment. If gold is trading at $975 per ounce, then 100 ounces would cost
$97,500. Instead of this, you can buy a futures contract that is based on 100 ounces of gold. The
cash or margin required in this case could be under $5,000. (This is set by the futures exchange and
is subject to change.) The profit and loss associated with the gold futures contract is essentially the
same as if you had bought 100 ounces of physical gold but the cash needed to create this investment
exposure is a lot less. Why? Because the futures is a leveraged investment vehicle.
To buy or sell most futures contracts, you’ll only need cash equal to anywhere between 5% and 20%
of the market value of the underlying contract. Forex can have even higher leverage meaning that
even less cash is needed. High leverage increases trading risk since gain or loss can quickly become
significant relevant to the initial cash required. This can, in turn, make you very rich or very poor in a
short space of time. I’ll talk more about managing the risk of trading in another section.
page 10
what’s the advantage? - continued
2. Variety.
Futures and options contracts are traded on a wide variety of markets and new contracts are
constantly being designed by the exchanges. Generally speaking, the available markets can be
grouped as (1) energies such as crude oil, unleaded gasoline and natural gas, (2) precious metals such
as gold, silver and platinum, (3) softs such as coffee, sugar and cocoa, (4) agriculturals such as corn,
wheat and soybeans, (5) financials such as bonds, T-bills and eurodollars, (6) currencies such as the
Euro, Japanese yen and Canadian dollar and (6) equity indices such as futures on the S&P 500®, the
Dow and the NYSE index.
Forex trading is possible across all of the popular foreign-exchange rate pairs such as EUR/USD,
USD/JPY, USD/CAD, GBP/USD, EUR/GBP. (You can discover what these symbols mean under the
section, Forex Trading.)
What is the advantage of being able to trade a variety of markets?

Simple. As a trader, you can be picky. You may only want to trade
markets with which you are familiar. For example, a farmer may only
want to trade grain futures or options while an economist may only
want to trade bond or equity futures or options. An international
executive may prefer the forex market.
And, of course, you’ll only want to trade those markets that represent
the best opportunity for profit. The greater the variety of markets to
trade, the more likely it is that you’ll find an opportunity.
page 11
3. Diversification.
Portfolio finance teaches that diversification among assets whose price movements are not
correlated can produce the desirable effect of reducing overall portfolio volatility or risk without
jeopardizing return. Many investors are already aware of the benefits of diversification within their
equity portfolios: the more company stocks you hold, the less volatile is the value of your overall
portfolio since as some stocks go down, others go up. On average, the portfolio earns a return very
similar to the entire market. Unfortunately, though, the entire stock market is still subject to
systemic risk as most stocks do tend to move together through economic cycles.
The underlying markets of futures, options and forex are diverse and uncorrelated in their behavior.
When some markets are rising, others may be falling. When some are moving sideways, others may
be trending, and many markets move seemingly independent of what the stock market is doing. This
suggests that by judiciously adding futures, options or forex to a traditional stock investment
portfolio, the portfolio may achieve superior performance.
4. Efficient Markets.
Many futures and options contracts, and all forex, are traded electronically, directly over the
computer. This makes trading quick and easy. In many cases, a simple click of the mouse can execute
a trade. In addition, the trader can often get real-time prices and reporting so the exposure and
running net gain or loss is known at all times. And all futures and options prices are disseminated
from a central marketplace – the exchange - to all market participants at the same time thus
creating a fair and level playing field.
page 12
5. Liquidity.
Investors require market liquidity. A market is said to be liquid if transactions can be executed
quickly and easily. There are many futures markets that are liquid, sometimes even more liquid than
the cash market for the underlying instruments themselves. For instance, the futures market in U.S.
Treasury bonds is regarded as being more liquid than the cash market. In some cases, the futures
market is so liquid that futures prices become the industry benchmark. For example, gold, crude oil
and cotton futures prices form the basis for pricing other related products in the industry.
Volume and open interest provide a good indication of market liquidity: the higher are they, the more
liquid is the market. In almost all cases, the futures or options contract that is closest to expiration
will be the most liquid contract.
Volume in the forex market is considerable. Every three years, the Bank for International
Settlements conducts a Central Bank Survey of Foreign Exchange and Derivatives Market Activity.
The most recent survey was done in April 2007. According to them,
the average daily turnover in traditional foreign exchange markets
was $3.2 trillion, or $3,200 billion, making it the largest and most
liquid market in the world. This market can absorb trading volume
and transaction sizes that dwarf the capacity of most other markets.
Of the currency pairs, EUR/USD was by far the most actively traded
and captured 27% of global turnover followed by USD/JPY with 13%
and GBP/USD with 12%.
page 13
types of orders
When you want to buy or sell a contract, whether in the forex or futures and options markets, you give
your broker an "order“ to do so on your behalf. This can be communicated by telephone or sent
electronically over a trading platform. There are many types of orders, each being used during
different occasions, but the most common are the market order, the limit order, and the stop order.
A market order is the simplest of orders. It is what you'll use when you want to buy
or sell immediately, at whatever price you can get. For example, say that it is
September and that you want to sell 2 October cotton contracts immediately.
You would enter an order to sell 2 October cotton "at the market." You will not
know the selling price of your cotton contracts until after the order has been
executed. You have to accept whatever price you can get for immediate execution.
For this reason, you should check market prices prior to entering a market order.
If price is more important than immediacy of fill, then you will use a limit order. With a limit order, you
have control over the fill price. Let’s say that you want to buy a contract that is currently trading at
125, but you don’t want to pay more than 124. That is, you’re hoping to get into the trade cheaper by
buying if the price drops a little. To do this, you would use a limit buy order. A limit buy order includes,
along with the type and quantity of contracts to purchase, a maximum price to pay for the contract.
This price is always below the prevailing market price since you would have otherwise entered a market
buy order. A limit buy order is only executed if the market price declines to the limit price. If prices
never dip down to the limit price, then your order will not be filled and you will not have a long position
in the market. This is the risk you take: missing an important market move if prices move up and up! If
you had used a market order, then you would have paid more but at least you would be long the market.
page 14
types of orders - continued
Limit sell orders work the same way except now you want to sell at a higher price than the market
price. For limit sell orders, you include, along with the type and quantity of contract to sell, a minimum
price to sell the contract. You will use a limit sell order if you desire to sell a contract but want to
receive at least some specified price - the limit price. This price is always above the prevailing market
price otherwise you would have entered a market order.
A stop order is another type of contingent order like the limit order
because the order does not get executed unless the market price first
reaches a certain point, in this case, the stop price. You will use a stop
order to instruct your broker to sell if prices fall to a certain point
(the stop price), or to buy if prices rally to a certain point. Because stop
orders are most often used to close a position that is losing money, they
are regarded as a useful risk management tool and this will be described
in greater detail in the section Managing the Risk of Trading.
Keep in mind that stop orders are often filled with some slippage meaning that the fill price can be
worse than the stop price. Slippage means that loss on a trade will be a little more than you expected,
or that profit will be a little less. Every trader must accept this fundamental limitation of the stop
order. Slippage can become large if a market is very volatile and moves suddenly, or if the market
opens at a price significantly different from the prior day's closing price. In other words, the market
price "gaps" on the open. While this type of activity can occur at virtually any time, you can protect
yourself a little by confining your trading to relatively less risky markets,
page 15
types of orders - continued
It may be helpful to remember this distinguishing feature between limit orders and stop orders: A
limit order to buy has a price that is below the market price while a stop order to buy has a price that
is above the market price, and a limit order to sell has a price that is above the market price while a
stop order to sell has a price that is below the market price.
A stop-limit order combines both a stop and a limit order and is used to control slippage. A stop-limit
order is triggered when the designated stop price is traded on the market, much as a regular stop
order. The order then enters the order book as a limit order with the customer’s specified limit price.
The order is executed at all price levels between the stop price and the limit price. For example, a stop
order to sell at 50 limit 47 would sell once the price fell to 50 but would not accept any fill price below
47. If the order is not fully executed, then the remaining quantity of the order remains in the market.
A buy stop-limit order must have a stop price above the last traded price for the contract. A sell stop-
limit order must have a stop price below the last traded price. Note that the stop price and the limit
price can be the same.
Because stop and limit orders are contingent orders, they can be specified either as day orders or as
Good-Till-Canceled (GTC) orders. A day order is valid for the trading day only and automatically
expires at the end of the trading day if not filled or canceled by you, the customer. A GTC order, also
called an open order, remains working day after day until it is filled or canceled by you. As a matter of
industry policy, all orders are assumed to be day orders unless you specify them as being GTC orders.
However, some brokers and electronic trading platforms may not accept GTC orders for all types of
contracts. Please see the section, Electronic Trading. In this case, you must use day orders and enter
the orders on a daily basis.
page 16
how to sell short
You can sell a futures, options or forex contract even though you didn't previously buy it. That is,
you can sell first and then buy back later, hopefully at a lower price. This is referred to as selling
short and it enables you, the trader, to profit from an expected decline in price. But how can you sell
something if you don’t already own it?
Let’s consider futures first. When you sell a futures contract, you are really just making a promise -
legally binding, of course - that you will sell the underlying commodity at some future date. Since you
don’t have to deliver anything right now, you don’t have to actually have the commodity in your
possession. From now until then, you can cancel this promise by buying back a futures and if you buy
it back at a lower price, then you get to keep the profit!
To sell short a futures contract, you simply tell your broker (or enter the trade online for
electronically traded markets) that you wish to sell a particular futures contract identified by the
underlying commodity and contract month. You don’t even need to say if you are selling short or not,
and your broker probably won’t even ask. You will, naturally, need cash in your account sufficient to
cover the margin for the futures trade and it’s the same margin had you bought the contract instead
of sold it.
After having sold short, the position will now earn unrealized profit if prices fall and unrealized loss
if prices rally. You sold short because you believed that prices would decline but you must protect
yourself from an unexpected price rally. For example, you might decide to place a protective stop
order to buy back at a price above the selling price of the contract. You can find an example of using
a stop order in this manner in the section, Managing the Risk of Trading.
page 17
how to sell short - continued
Below is a daily chart of the December 2009 futures contract on the U.S. Dollar Index (USDX) which
is a weighted-average value of the U.S. dollar against a basket of foreign currencies.
This was a significant bear market in the dollar and shorting the market would have been a profitable
trade. Over the July-December period shown, the USDX declined from 81 points to 74.5 points. Each
index point in the price of a USDX futures contract is worth $1,000 so this 6.5-point drop in price
represents a dollar value change of $6,500 (calculated as $1,000 x 6.5) per contract.
page 18
how to sell short - continued
Selling short in the forex market is just as easy, though is technically different. The forex market
is a cash market meaning that all transactions, whether buying or selling, create actual currency
positions. Buying and selling, in any order, requires the paying or receiving, from one day to the next,
of the interest rate differential between the two currencies being traded. This value is
automatically debited or credited to the trader’s account in addition to the net gain or loss resulting
from the movement of the foreign exchange rate itself. It really is as simple as clicking the BUY
button or clicking the SELL button in any order that you like. (Actually, you’ll be clicking the OFFER
button to buy and the BID button to sell and I’ll describe that in the section, Forex Trading.)
SELLING SHORT ENABLES YOU TO PROFIT

FROM AN EXPECTED DECLINE IN PRICE.
Finally, as I mentioned in the section on options, you can sell short an option as well. A trader who
believes that the price of the underlying instrument will move sideways or rally can sell a put option
while a trader who believes that the price will move sideways or decline can sell a call option. An
option seller retains the option premium as income but has a risk similar to that of an outright
futures contract: if prices move adversely, loss can be considerable if this risk is not managed
properly. Note that this applies to option sales that are naked, in other words, not covered. An option
sale that is covered is less risky than a naked option sale and can be a useful investment strategy
even for a beginner. as I describe in the section, Covered Option Sales.
page 19
commodity futures
When you think of commodities, do you think of pork bellies? Some people are
reminded of the movie Trading Places starring Dan Aykroyd and Eddie Murphy.
Ever see that movie? It gave many people their first look into the exciting and
potentially profitable world of futures trading. Do you remember the end of
the movie when Aykroyd and Murphy made a substantial amount of money, at
the expense of their former employer, by investing in futures on frozen
concentrated orange juice? They sold futures at a high price and were able to buy them back at a
much lower price following the release of the favorable crop report. The result: a life of luxury for
the rest of their days. Incidentally, the trading scene was shot on location in the trading pit of the
New York Cotton Exchange – where I used to work – because that pit was larger than the OJ pit.
It might be useful to contrast stocks with futures. Stocks, because they represent part ownership
of a corporation, are referred to as real assets. Futures and options, though, are referred to as
derivative products because their value is “derived” or dependent upon the value of the underlying
commodity. The value of a silver futures or options contract, for example, depends upon the value of
silver in the cash or spot market. When you buy stocks, you need to put up cash equal to between
50% to 100% of the value of the stock. When you buy futures, though, you often only need to put up
around 10% or even less of the value of the futures contract. So, you get more bang for your buck
with futures. This is called leverage and I already touched upon this in an earlier section. Stocks
don’t expire. Once you own stock in a company, you will always have it unless you sell it or unless the
company declares bankruptcy. Futures contracts, though, do expire. Every futures contract expires
at a particular time and, in fact, the month of expiration defines a futures contract. Let’s look at an
example.
page 20
commodity futures - continued
For instance, if it is early 2010 and you want to buy corn futures, then you have your pick of the
March, May, July, September or December contracts and even contracts for delivery next year.
All of these contracts will have a slightly different price though they all tend to move by a similar
amount. If you want to buy a corn futures, you must specify which contract, for example, the May
contract. Usually the contract nearest to the present time is the most liquid and that is the contract
that you will choose to trade. Because futures contracts expire, you must plan to be out of the trade
before contract expiration or you may end up having to take delivery of 5,000 bushels of corn!
page 21
What exactly is a futures contract? What do you get when you buy one?
When you buy a futures contract... you essentially make a binding promise to acquire the commodity
at a certain time in the future. This time occurs at or around the expiration of the contract and may
be several months down the road. When you buy a futures contract, you're not taking possession of
anything. All you have done is lock in a buying price for the commodity, but you'll never want to
actually own it. Your goal is to sell this futures contract hopefully at a higher price.
Because you're not taking possession of the underlying commodity, you don't need the full dollar
amount of the contract. Instead, you only need in cash the margin which may be 10% of the contract
value - or even less. Think of margin as money to show your financial ability to handle the risk of the
trade. For example, assume that it is late February. You can buy a May silver futures right now. So,
you have about 3 months before you actually have to take delivery of silver. Don't worry. You won't
actually take the silver. You will instead offset or square your futures position prior to the
contract's expiration by selling a May silver futures.
The difference between your buy price and sell price is profit (or loss), not including commission and
other transaction fees. Once you sell this silver contract, there is no further obligation or risk on
your part. That means you don't have to worry about 5,000 ounces of silver showing up on your
doorstep! Don't forget that you'll need enough cash in your account to satisfy the margin required
for a silver contract.
page 22
Hypothetical example of buying a futures contract.

Consider the chart below of the lean hog futures contract expiring in Feb 2010. Prices rallied during
the fall and then retraced in early November 2009. The recovery off the lows generates the following
buy signal by your trading program:
Date: Nov 17, 2009

Action: Buy one Feb Lean Hog
futures on the open. SELL
Fill: 62.00 cents
You will need cash in your account to

cover the margin of $1,420 as well as BUY
cash beyond this to cover any loss on
the trade. Lean hog prices do rally and
your trading plan generates the signal
to close the trade as follows:
Date: Nov 30, 2009

Action: Sell one Feb Lean Hog
futures on the close.
Fill: 66.875 cents
Each one-cent movement of a lean hog futures contract is worth $400 so the trade has a net gain of
$1,950 calculated as (66.875-62.00) x $400, less commission and other fees.
page 23
In this example, the margin was $1,420 as set by the exchange. Margin is subject to change,
increasing or decreasing to reflect changing volatility – and risk - of the underlying futures contract.
For this reason, you should always consult your broker for current margin requirements prior to
establishing a trade. Once a futures trade is closed, there is no more risk and no longer a need to
meet the margin requirement.
Finally, in this example, prices could have just as easily fallen resulting in a loss. To manage the risk
of such loss, the trader could use a stop order that automatically closes the position should prices
move adversely to a prescribed level. I will talk about this in more detail in the section, Managing the
Risk of Trading.
In the futures market, selling first (in other words, selling short) and buying back
later is just as easy as the traditional “buy first and sell later” strategy. It is the
nature of the investment vehicle that makes this possible.
When you sell a futures contract... you essentially make a binding promise to deliver the commodity
at a certain time in the future. Again, you'd be expected to deliver the commodity at or around the
expiration of the futures contract which may be several months down the road. You don't have to
own the commodity now in order to sell a futures contract and, in point of fact, few traders do. The
trader's strategy is to buy back the contract prior to its expiration and hopefully at a lower price.
Let’s take a look at an example.
page 24
Hypothetical example of selling a futures contract.

Consider the chart below of the live cattle futures contract expiring in Feb 2010. In late October
2009, prices rallied to near 88 cents per pound and then met heavy resistance, Upon falling back, your
trading plan generates the following signal to sell:
Date: Nov 6, 2009

Action: Sell one Feb Live Cattle
futures on the close.
Fill: 86.275 cents
You will need cash in your account to cover

SELL
the margin of $1,080 as well as cash beyond
this to cover any loss on the trade. Prices
languish and then drop. The sharp gap open on
Dec 11 triggers your trading plan to close the
trade as follows:
BUY
Date: Dec 11, 2009
Action: Buy one Feb Live Cattle
futures on the open.
Fill: 82.70 cents
Each one-cent movement in the price of a live cattle futures contract is worth $400 so the trade has
a net gain of $1,430 calculated as (86.275-82.70) x $400, less commission and other fees.
page 25
Remember again that the margin of $1,080 is subject to change in tandem with changing volatility –
and risk - of the underlying futures contract, in this case live cattle. For this reason, you should
always consult your broker for current margin requirements prior to establishing a trade. Once a
futures trade is closed, there is no more risk and no longer a need to meet the margin requirement.
Also, in this example, prices could have just as easily risen resulting in a loss. To manage the risk of
such loss, the trader could use a stop order that automatically closes the position should prices move
adversely to a prescribed level. I will talk about this in more detail in the section, Managing the Risk
of Trading. You can also find more information in the section, How to Sell Short, in this Guide.
You can find more information on commodity futures trading under the
content index pull-down menu on the blue WLF Network Navigation Bar.
Start at RESOURCE CENTRAL at http://www.worldlinkfutures.com
I already talked a bit about margin requirements when trading futures and, in the next section, I
want to spend a little more time looking at this, including an example. It’s important to understand
how margin works so that you can avoid the unpleasantness of receiving a margin call. Also, margin is
used when trading forex so, once you understand how it works, you’ll feel more comfortable trading
forex as well.
page 26
managing margin funds
The margin account provides the capital to finance a commodity futures position. It is a direct
measure of the customer's equity so it is important to properly manage margin funds both in terms of
monitoring the level of equity in the account and getting the most out of your margin dollars.
Monitoring Margin Funds
When you first open a futures trading account, you deposit money into
the margin account. Since there are no futures positions outstanding,
all of the margin is available or excess margin. Excess margin is the
amount of money in a margin account left over after taking into
consideration margin requirements and the net profit or loss of all
outstanding futures positions.
Excess margin is reduced as:
! new futures positions are initiated since funds are used to meet margin requirements,
! options are purchased since this leaves less cash in the account,
! there is a combined net loss on all outstanding futures positions calculated daily using futures
settlement prices, and/or
! a withdrawal is made from the margin account.
page 27
managing margin funds - continued
Excess margin is increased as:
! futures positions are closed since funds are released from margin requirements,
! long option positions are sold since the cash value of the options is deposited into the account,
! there is a combined net gain on all outstanding futures positions calculated daily using futures
settlement prices, and/or
! a deposit is made to the margin account.
Because the level of excess margin can fluctuate daily, a trader should form the habit of monitoring
the equity in their account at the end of every day. Monitoring the equity in your account is not
difficult. It requires you to know the margin requirements of a futures position and thereafter to
keep a running tally of the net profit/loss of all open futures positions.
Example A customer who has recently opened a futures trading account with $15,000 buys 2 CME
Group August E-mini gold futures at a price of $985.50 per ounce. Let’s say that the initial margin on
an E-mini gold futures for traders (as opposed to hedgers) is $1,350 per contract for a total margin
requirement of $2,700. This money is deducted from the margin account, leaving a residual $12,300
as excess margin not including commission and other fees which are also deducted from the account.
Since the trader now has an open futures position, it is marked-to-market at the end of every trading
day beginning with the day of the futures trade. Say, for example, that August E-mini gold futures
settled the day at $982.70 per ounce. There is an unrealized net loss on the gold futures position of
$2.80 per ounce or $185 in total (calculated as $2.80/ounce x 33 ounces/contract x 2 contracts
rounded to the nearest dollar for presentation purposes).
page 28
Even though this is an unrealized loss, it is nevertheless deducted from excess margin in the trader’s
account, leaving $12,115 in excess margin. A summary account statement looks like this:
Cash in margin account: $15,000

Initial margin requirement: ($2,700)
Profit (loss) on futures position: ($185)
Excess margin: $12,115
The next day, August E-mini gold futures rally sharply to settle at $994.20 per ounce. The trader
now has an unrealized net profit on his futures position of $8.70 per ounce or $574 in total. Even
though this net profit is unrealized, it is added to the margin account. In addition, the margin
required is now only the maintenance margin which is less than the initial margin and is equal to, say,
$900 per contract. (Initial margin is required only on the day of the futures transaction. For all other
days, equity must only be above the maintenance margin requirement. Margin values change and are
set by the Exchange.) Excess margin is now $13,774. A summary account statement looks like this:

Maintenance margin requirement: ($1,800)
Profit (loss) on futures position: $574
Gold continues to rally and, on the subsequent day, the trader closes out his position by selling two
August E-mini futures at $997.70. A summary account statement looks like this (not including
commission and other fees which are also deducted from the account):
page 29

Maintenance margin requirement: $0
Profit (loss) on futures position: $805
Since the futures position has been closed, there is no longer any margin requirement to meet. In
essence, cash is “released” in the account. The trader is left with the net gain on the trade less
commission and other transaction fees not shown.
If, at the end of any trading day, there is insufficient margin in the account to meet the maintenance
margin requirement for the aggregate futures position (in other words, if at any time the excess
margin drops to below zero), then the trader will receive a margin call to deposit additional funds
necessary to bring the equity in the account up to the level of initial margin required for all futures
positions outstanding. The trader can also close positions until excess margin becomes positive.
Earning Interest on Your Margin Dollars
Interest income is typically not paid on excess margin. However, customers who routinely maintain a
high balance of excess margin in their account can earn interest income by using some of this excess
margin to purchase U.S. government securities such as Treasury bills. It is important, however, that
the customer retain an appropriate level of cash in the margin account. In the event that cash
deteriorates significantly, U.S. securities held in the account will be liquidated to provide necessary
margin funds.
page 30
commodity trading as a second income
The recession of 2008/2009 convinced many people of the

necessity to explore sources of income in addition to regular
employment and investing in commodities can provide that
income. From October 2007 to March 2009, the S&P 500
declined some 56% yet even during this time, sugar rallied
43%, cocoa about 44% and gold was up 31%. With commodities,
bear markets present an equal opportunity for gain as do bull
markets so you can add crude oil, wheat and high grade copper
to this list.
For these people, commodity trading is not meant to be a full-time job and consequently, a trading
plan needs to be constructed that is consistent with this trading style. For example, trading must not
monopolize your time, threaten your finances or cause undo stress, anxiety and sleepless nights.
After all, you have important things to do and you can’t afford to let trading interfere with or
dominate your day.
The trading plan also needs to be simple to understand, provide straight-forward signals of when to
buy or sell, and adhere to the important risk management principles that are so important especially
for the beginner. It should emphasizes trading slowly and responsibly and set realistic performance
expectations. Finally, the trading plan should not require significant financial investment in supporting
services such as commodity charts or news feeds.
In the Additional Resources, you can find a free trade video on commodity trading as a second income
that describes in more detail the criteria of this new approach or new mind-set to trading.
page 31
commodity options
An option on a futures contract is just like an option on anything else such as an individual stock. The
only difference is that, with options on futures, the underlying interest is a futures contract. For
instance, a May option on frozen concentrated orange juice (FCOJ) has as its underlying interest one
May FCOJ futures contract.
Buying options on commodity futures has the chief advantage

of allowing you to profit from favorable moves in prices while
at the same time, limits risk to the amount paid for the
option plus commission and other transaction fees. For example,
if you pay $500 for an option (including all fees), then this is
the most that you can lose no matter what. This fixed downside
loss is of great appeal to those who have limited trading funds
or who desire less risk than, say, trading commodity futures.
Options exist on many commodities such as cotton, sugar, and crude oil, and on currencies such as
the Canadian dollar and the Euro, and on broad stock market indices such as the S&P 500. Each of
these is a commodity futures contract and you will buy a call or put option on that futures contract.
Don't be confused by this. It simply means that you need to look at the price of the commodity
futures contract as this is the price on which the option is based.
page 32
commodity options - continued
If you think that prices will increase, then you will buy a call option. A call option
gives the holder the right, but not the obligation, to buy the underlying futures
at a known price which is the strike price of the option at or prior to option
expiration. To buy an option costs money and this cost is referred to as the
option premium. The holder can effect the purchase of the underlying futures
by exercising the option. For example, a July cotton call option having a strike
price of 53 cents might cost $550. Anyone willing to pay $550 - the option premium - can acquire
this option which will give the holder the right to buy one July cotton futures contract at a price of
53 cents on or prior to the option's expiration. As the price of July cotton rises, this call option will
also increase in value to the gain of the option buyer.
If you think that prices will decline, then you will buy a put option. A put option gives the holder the
right, but not the obligation, to sell the underlying futures at a known price which is the strike price
of the option at or prior to option expiration. The option buyer pays the option premium. The holder
can effect the sale of the underlying futures by exercising the option. For example, a July cotton
put option having a strike price of 53 cents might cost $475. Anyone willing to pay $475 - the option
premium - can acquire this option which will give the holder the right to sell one July cotton futures
contract at a price of 53 cents on or prior to the option's expiration. As the price of July cotton
falls, this put option increases in value to the gain of the option buyer.
Option buyers must pay the full option premium upon purchase. In other words, there is no margin so
an option buyer need never worry over getting a margin call, no matter how much prices may move
adversely.
page 33
Call and put option premiums depend upon several factors, the most important of which is the strike
price of the option relative to the market price of the underlying futures contract. A call option
becomes more valuable, and hence the premium becomes greater, as the market price of the
underlying futures contract rises above the option's strike price. In this case, the option is referred
to as being in-the-money.
Consider a July silver call option having a strike price of $14.50. If the market price of the July
silver futures is $14.25, then this option will have little value: Why pay for the privilege of buying
the futures at $14.50 when you can alternatively buy the futures now in the market at a lower price?
In this case, the option is out-of-the-money. Say, though, that the market price of the July silver
futures is $14.75. Now, the option should have value because, if you own it, you can purchase the
futures at $14.50 which is below the market price.
In fact, this option will cost at least $0.25 which is the difference between the strike price of the
option and the market price of the underlying futures contract and is referred to as the intrinsic
value of the option. The intrinsic value is the amount by which the option is in-the-money. Prior to
expiration, the option will likely trade at a price above its intrinsic value, say at $0.45, with the
difference of $0.20 referred to as the option's time value.
OPTION PREMIUM = INTRINSIC VALUE + TIME VALUE
page 34
A put option becomes more valuable, and hence the premium becomes greater, as the market price of
the underlying futures contract falls below the option's strike price. Consider a July coffee put
option having a strike price of 130.0 cents. If the market price of the July coffee futures contract
is 134.25 cents, then this option will have little value: Why pay for the privilege of selling the
futures at 130 cents when you can alternatively sell the futures now in the market at a higher price?
In other words, the put option is out-of-the-money. Say, though, that the market price of the July
coffee futures is 129.50 cents. Now, the option should have value because, if you own it, you can sell
the futures at 130 cents which is above the market price. In fact, this option will cost at least 0.50
cents which is the difference between the strike price of the option and the market price of the
underlying futures contract - the intrinsic value of the option. The option will likely trade at a price
above its intrinsic value, say, 1.15 cents. Again, the amount by which an option trades above its
intrinsic value is referred to as the option's time value, in this case, 0.65 cents.
The intrinsic value and time value together constitute the option premium. An option may or may not
have intrinsic value, but it will almost always have time value. Any option may become valuable in the
future and hence, a liability to the seller, so the time value exists to compensate option sellers
appropriately. The major factors that influence the time value of an option are time to expiration
and volatility. The longer the time to expiration of a call or put option, the larger the time value. This
is because, with lots of time until expiration, the option has plenty of opportunity to acquire intrinsic
value. On the flip side, as an option approaches expiration, the time value, all else constant, will erode
steadily to zero. As the underlying futures contract becomes more volatile, the time value of a call
and a put option increase. This is because, as volatility rises, it becomes more likely that prices will
move to the point where the option has intrinsic value.
page 35
Hypothetical example of buying a call option:
Let’s say that it is early January 2010 and you are looking at the chart below of the wheat futures
contract that expires in March. The aggressive rally from recent lows has triggered a buy signal from
your trading plan. You could buy a wheat futures but decide instead to buy a call option on a wheat
futures because you prefer the limited downside risk of an option purchase. Option prices are as
follows:
March Wheat Call Option Prices

Strike Premium Cost
550 30 cents $1,500
560 26 cents $1,300
570 23 cents $1,150
The dollar cost is calculated by multiplying the

premium in cents by $50 which is the contract
multiplier for wheat.
Notice that as the strike price of the call option

increases, the premium declines since the call option
becomes more out-of-the-money.
page 36
Hypothetical example of buying a call option - continued:
Based on the cost of the options, your available trading capital, and your expectation of the extent
of the upcoming recovery in wheat prices, you decide to purchase the March 570 strike call option.
If the price of the March wheat futures rallies and closes above the strike price of 570 cents, then
your option will expire having intrinsic value. Because you bought the March option, you have about
two months for this to happen.
Break-Even Analysis
You paid 23 cents for the option. This, when added to the strike price, provides a break-even price
of 593 cents, not including commission and fees. March wheat must rally to close at this price by the
time the option expires in order for you to earn back the money paid. A closing price higher than this
amount represents profit on the trade, with each cent above the break-even price generating $50 in
profit, less commission and fees.
Closing the Position:

Upon expiration, the option will either have intrinsic value or it will not. If it does not, then you can
let the option expire worthless. If it does have value, then it will be automatically exercised into a
long March wheat futures contract. To close this position, you need to sell a March wheat futures.
The above is true if the option is held until expiration, but you need not wait until then. At any time
prior to option expiration, the option can be sold and the difference between the selling price and
buying price of the option represents the profit or loss on the trade, not including commission and
fees.
page 37
Hypothetical example of buying a put option:
Let’s say that it is early January 2010 and the price of the March sugar futures contract has just
made a key reversal. This has triggered a sell signal from your trading plan. You could sell a sugar
futures but you decide instead to buy a put option because you prefer the limited downside risk of
an option purchase. Option prices are as follows:
March Sugar Put Option Prices

Strike Premium Cost
26.00 1.49 cents $1,669
25.50 1.25 cents $1,400
25.00 1.03 cents $1,154
The dollar cost is calculated by multiplying the

premium in cents by $1,120 which is the contract
multiplier for sugar.
Notice that as the strike price of the put option

decreases, the premium declines since the put
option becomes more out-of-the-money.
page 38
Hypothetical example of buying a put option - continued:
Based on the cost of the options, your available trading capital, and your expectation of the further
decline in sugar prices, you decide to purchase the 25.00 strike March sugar put option. If the price
of the March sugar futures drops and closes below the strike price of 25.00 cents, then your put
option will expire having intrinsic value. Because you bought the March option, you have about two
months for this to happen.
Break-Even Analysis
You paid 1.03 cents for the option. This, when subtracted from the strike price, provides a break-
even price of 23.97 cents, not including commission and fees. March sugar must drop and close at
this price by the time the option expires in order for you to earn back the money paid. A closing
price below this level represents profit on the trade, with each full cent below the break-even price
generating $1,120 in profit, less commission and fees.
Closing the Position:

Upon expiration, the option will either have intrinsic value or it will not. If it does not, then you can
let the option expire worthless. If it does have value, then it will be automatically exercised into a
short March sugar futures contract. To close this position, you need to buy a March sugar futures.
The above is true if the option is held until expiration, but you need not wait until then. At any time
prior to option expiration, the option can be sold and the difference between the selling price and
buying price of the option represents the profit or loss on the trade, not including commission and
fees.
page 39
For every option buyer, there is an option seller. The seller of a call option receives the option
premium but, in return, must sell the underlying futures to the option holder if option is exercised.
The seller of a put option receives the option premium but, in return, must buy the underlying
futures from the option holder if the option is exercised. Selling options outright or naked carries
risk similar to trading a futures contract. Margin is required and risk is no longer limited. For this
reason, selling options outright should probably be avoided at least until you develop a certain level
of skill and experience with trading options. An option sale that is covered, on the other hand, is a
different story, and I’ll talk about that in the next section.
You can find more information on commodity options trading under the
You’ll also find a free options on futures brochure in the

Additional Resources.
page 40
commodity option spreads
Let's say that you're bullish or bearish on a commodity but that all of the relevant call and put
options are too expensive relative to your available risk capital. This can certainly happen if the
commodity becomes volatile in price. What can you do?
An appealing alternative and one that is certainly appropriate for the beginning trader, is to buy an
option spread. An option spread is constructed by simultaneously buying one option and selling
another option similar to the first but being more out-of-the-money, in other words, the strike price
is farther away from the market price. The revenue received from the option sale will lower the net
cost of the option purchased thus making the overall trade more affordable. In fact, an option
spread can continue to be affordable even when implied volatilities are high and even when the
maturity of the component options is lengthened, since it is the difference in price between the two
component options that determines the cost.
Buying an option spread is often less risky than just buying options both because the cost and hence,
maximum loss, is less and because a spread fluctuates only very little in value with movements in the
price of the underlying commodity. In return, though, the maximum possible value of an option
spread is fixed and calculated as the difference between the strike prices of the component options.
There are many types of option spreads but we will consider just two: a bull call spread purchased in
anticipation of a rise in prices and a bear put spread purchased in anticipation of a decline in prices.
Let’s take a look at some examples.
page 41
commodity option spreads - continued
Hypothetical example of buying a bull call option spread:
Let’s say that it is late March 2010 and you are looking at
the chart at right of the June E-mini S&P 500 futures.
Option prices are as follows:
June E-mini S&P 500 Call Option Prices

Strike Premium Cost
1170 36.70 $1,835
1180 31.20 $1,560
1190 26.10 $1,305
1200 21.60 $1,080
You are bullish on the market and decide to buy

the 1180/1200 bull call spread. You will buy the
1180 call option and simultaneously sell the 1200
call option for a net cost of $480 plus transaction
fees.
This amount is the most that you can lose and this will occur if the June E-mini futures price is below
1180 at option expiration. The most that the spread can earn is $1,000 calculated as the value of the
difference of the component strike prices (20 points x $50 per point). This maximum will be earned
if the June E-mini futures price is above 1200 at option expiration. Even though the maximum gain is
limited, on a percentage basis, the return is about 100% relative to the cost.
page 42
commodity option spreads - continued
Hypothetical example of buying a bear put option spread:
Let’s say, instead, that you believe the market to be over-valued and anticipate a drop in prices. You
will consider buying a put option spread. Put option prices are as follows:
June E-mini S&P 500 Put Option Prices

Strike Premium Cost
1160 33.80 $1,690
1150 30.20 $1,510
1140 27.00 $1,350
1130 24.10 $1,205
You decide to buy the 1150 put option and simultaneously sell the 1130 put option for a net cost of
$305 plus transaction fees. This amount is the most that you can lose and this will occur if the June
E-mini futures price is above 1150 at option expiration. The most that the spread can earn is $1,000
which will occur if the June E-mini futures price is below 1130 at option expiration. Note again that,
even though the maximum gain is limited, on a percentage basis, the return is more than 100%
relative to the cost.
You can find more information on spreads in commodity options trading under
the content index pull-down menu on the blue WLF Network Navigation Bar.
page 43
covered option sales
I mentioned that uncovered or naked option sales carry essentially the same risk (and require
margin) as a futures transaction. But a covered option sale is less risky. A call option sale is covered
if the seller owns the futures underlying the option. For instance, the seller of a December gold call
option is covered if they also own or are long December gold futures. A put option sale is covered if
the seller is already short the underlying futures.
For many traders, the only time that they might sell an option is when implementing a covered-call
write strategy. Covered-call writing consists of buying a futures contract and then selling an out-of-
the-money call option on that futures contract. An out-of-the-money call option is one that has a
strike price that is above the market price. For example, with gold futures at $885 per ounce, a call
option having a strike price of $900 per ounce is out-of-the-money. The option sold is protected or
"covered" by the long futures position.
Since the trader buys the futures contract, they will earn profit if prices rally and will incur loss if
prices decline. The trader also sells a call option and immediately receives the premium from the sale
of this option. This premium income is retained regardless of what happens. If prices range trade or
decline up to the time of the option's expiration, then the option will expire worthless and the
premium received will help offset the loss, if any, on the long futures position. If prices rally beyond
the strike price of the option by the time of the option's expiration, then the option will be
exercised and the long futures position will be automatically closed at the strike price. Although the
trader will realize profit, the maximum profit is limited by the strike price of the option. There is a
trade-off between maximum profit and premium income: The higher the strike price of the option
sold, the greater is the potential for profit but the lower is the premium income initially received.
page 44
covered option sales - continued
Meanwhile, the revenue received from the sale

of the call option enables the trader to set a
more accommodative stop on the long futures
position than what might otherwise have been
the case with a straight futures purchase.
So, the position is better able to tolerate
random fluctuations and is less likely to be
closed prematurely.
A covered-call write is a neutral-to-moderately

bullish strategy. Most traders initiate this
strategy when prices are range trading and are expected to continue to range trade, and the
option sale is timed to coincide when prices move at or near the top of the price range. If a trader is
very bullish, then they will probably not elect to sell the option as this limits the upside gain; it’s
better just to hold the long futures position. On the other hand, if the trader is very bearish, it is
better to consider a short strategy rather than a covered write.
You can find a trade video on covered-call writing under the

free stuff pull-down menu on the blue WLF Network Navigation Bar.
page 45
comparing price movements: options vs. futures
Buying options is a comparatively safer investment approach relative to trading futures or forex
outright as the purchase of options limits downside risk to the option premium plus commission and
fees. As I mentioned in the previous section, an option’s value consists of intrinsic value, if any, plus
time value. So far, so good. What I want to explain now is how option prices move, from day to day,
relative to the movement in price of the underlying futures. On a day when the underlying futures
moves in a significantly favorable direction, option buyers can be disillusioned by their option values
that move by half, or even less than half, of that amount.
An example will make this clear. Shown below are changes in the settlement price of various cotton
call and put options on a day when October cotton, the underlying futures contract, settled up 1.06
cents to 62.70 cents. Call options rose in price and put options fell in price – as you would expect-
but, in all cases, the change in option prices was less than 1.06 cents, the change of the futures
price. For instance, an individual holding the at-the-money 62 call option saw an increase in value of
only 0.44 cents. For those traders holding call options with higher strike prices, the increase was
even less.
Oct Cotton Call Options Oct Cotton Put Options

Strike Price Change Strike Price Change
61 2.60 +.59 58 .26 -.18
62 2.00 +.44 59 .40 -.26
63 1.50 +.40 60 .62 -.33
64 1.10 +.30 61 .91 -.46
65 0.79 +.22 62 1.30 -.56
page 46
comparing price movements: options vs. futures - continued
These sample option prices highlight the following fact: At-the-money options (whether calls or puts)
will move in price by approximately half of the amount of the underlying futures contract. Options
that are progressively more out-of-the-money (whether calls or puts) will move in price by a lesser
and lesser amount, and options that are progressively more in-the-money will move in price by a
larger and larger amount. In the extreme, an option which is deeply out-of-the-money will move in
price hardly at all when the underlying futures moves, while an option that is deeply in-the-money will
move in price by essentially the same dollar amount as the underlying futures. In this latter case, the
deep in-the-money option behaves much like a futures contract.
The sensitivity of an option’s price is called the delta of an option. That is, for a full point movement
in the price of the underlying futures, the delta of an option provides an indication of the
corresponding change in price expected for the option, all else constant. Call options have a positive
delta (since call option prices rise with futures prices, and vice-versa, all else constant) and put
options have a negative delta (since put option prices fall as futures prices rise, and vice-versa).
The delta of an option is a consequence of the time value of an option and it

changes as futures prices move and as the option approaches expiration. For
the beginner, the important message is that when purchasing options, especially
out-of-the-money options that are relatively cheap, a rather large movement in
price of the underlying futures will be needed before such options appreciate
significantly in value. This should be kept in mind when determining the investment
strategy with the best risk/return profile.
page 47
forex trading
Forex trading is the simultaneous buying of one currency and selling of another. For example, buying
Euros and selling U.S. dollars. The price at which this is done is the spot foreign currency exchange
rate. If you have ever exchanged foreign currency at a bank or airport, then you are already familiar
with foreign currency exchange rates. It is nothing more than the value of one currency in terms of
another currency.
Speculators desire to trade forex for the opportunity to profit from a

movement in currency exchange rates. For example, if a trader believes that
the Euro will weaken relative to the U.S. dollar, then the trader can sell Euros
against U.S. dollars in the forex market. This is referred to as being "short
Euros against the dollar" which, from a trading perspective, is the same as
being "long dollars against the Euro". If the Euro weakens against the dollar,
then the position will profit.
The forex market is over-the-counter meaning that trades occur over

electronic systems and typically between buyers and sellers without an
intervening broker. While this market had only been accessible to large
financial institutions that deal in a typical transaction size of $5 million, thanks
to modern technology, it is now accessible to retail traders at much smaller
volumes. So, you can trade forex directly from your computer and essentially
24 hours per day. Moreover, the forex trading platform usually provides real-
time prices, charts, technical analysis and position reporting at no additional
cost. With all of these services, it is no wonder that many investors include
forex in their trade portfolios.
page 48
forex trading - continued
Like futures contracts, forex trades require margin. But the margin for a forex transaction is
usually less on a percentage basis, approaching even just 1% of the market value of the currency
position. With such low margin, only a relatively small amount of capital is required to buy and sell
forex and this, too, appeals to many retail traders. Furthermore, most trading platforms
automatically close all open positions the moment that margin in the account drops below the
required level, and this helps to ensure that the forex trader does not lose more than the money
that was originally deposited.
The forex market is different in many ways to the futures market and many retail traders view
these differences as being advantageous. I’ll describe these differences in more detail in the next
section. For now, let’s take a look at how foreign currencies are quoted and what it means when you
buy or sell a currency pair. Here are examples of some of the more common currency pairs:
EUR/USD (Euro / U.S. Dollar)

A sample price of 1.4089 means that one Euro costs
1.4089 U.S. dollars. Consequently, one can quote the
price as $1.4089. As the Euro strengthens relative to
the dollar, then this price will increase to, say, 1.4124.
If the Euro weakens relative to the dollar (in other
words, the dollar strengthens relative to the Euro),
then this price will decline to, say, 1.4013. As a trader,
if you believe that the Euro will strengthen (weaken)
relative to the dollar, then you will buy (sell) EUR/USD.
page 49
GBP/USD (British Pound / U.S. Dollar)

A sample price of 1.8331 means that one British Pound costs 1.8331 U.S. dollars.
Consequently, one can quote the price as $1.8331. As the pound strengthens
relative to the dollar, then this price will increase to, say, 1.8382. If the pound
weakens relative to the dollar (in other words, the dollar strengthens relative
to the pound), then this price will decline to, say, 1.8288. As a trader, if you
believe that the pound will strengthen (weaken) relative to the dollar, then you
will buy (sell) GBP/USD.
USD/JPY (U.S. Dollar / Japanese Yen)

A sample price of 96.07 means that the cost of one U.S. dollar is 96.07 Japanese yen. As the dollar
strengthens relative to the yen, then this price will increase to, say, 96.85. If the dollar weakens
relative to the yen (in other words, the yen strengthens relative to the dollar), then this price will
decline to, say, 95.35. As a trader, if you believe that the U.S. dollar will strengthen (weaken)
relative to the yen, then you will buy (sell) USD/JPY.
USD/CAD (U.S. Dollar / Canadian Dollar)

A sample price of 1.0857 means that the cost of one U.S. dollar is 1.0857 Canadian dollars. As the
U.S. dollar strengthens relative to the Canadian dollar, then this price will increase to, say, 1.0888.
If the U.S. dollar weakens relative to the Canadian dollar (in other words, the Canadian dollar
strengthens relative to the U.S. dollar), then this price will decline to, say, 1.0797. As a trader, if
you believe that the U.S. dollar will strengthen (weaken) relative to the Canadian dollar, then you
will buy (sell) USD/CAD.
page 50
Forex transactions are executed on bids and offers. For example, say that USD/JPY is currently
quoted as 96.05/96.08. The first quote is the bid (the price at which someone is currently willing to
buy dollars against the yen) and the second quote is the offer or ask (the price at which someone is
willing to sell dollars against the yen). A trader who wants to buy dollars against the yen at the
market must deal at the offer of 96.08. This is referred to as lifting or paying the offer. All orders
to buy deal on the offer. A trader who wants to sell dollars against the yen must deal on the bid of,
in this case, 96.05. This is referred to as hitting the bid.
Forex bids and offers are dealable meaning that a trader can almost always transact at the quotes
shown. (During very volatile times, there may be some discrepancy.) This price transparency is a
great advantage of the forex market as the trader knows with almost certainty the price at which a
trade can be done. The minimum fluctuation of an exchange rate is referred to as a pip. For
USD/JPY and EUR/JPY, a pip is equal to 0.01 and for the other exchange rates, a pip is equal to
0.0001.
The difference between the bid and offer is referred to as the spread and represents a cost of
transacting in the forex market. The more liquid is a particular currency pair, the smaller will be the
spread and hence, the cost. As I will describe in the next section, there is typically no brokerage
commission in the forex market though this depends upon the forex broker.
You can find more information on forex trading under the

page 51
forex vs currency futures
Forex and currency futures both allow a trader to take an investment position on a currency pair
with the goal of earning speculative profit. For example, a trader who believes that the Euro will
strengthen relative to the U.S. dollar can buy the Euro currency futures contract that trades on
CME Group, or alternatively, can buy Euros against the dollar in the forex market. Both positions will
gain should the Euro strengthen, and both will lose should it weaken.
1. The Marketplace
The difference is really just the market in which the trade is established. Currency futures
contracts are transacted on a regulated futures exchange with centralized clearing that ameliorates
counterparty credit risk. In the forex market, a retail customer trades directly with a counterparty
and there is no regulated exchange or central clearing house to support the transaction.
2. Transaction Size
Currency futures contracts have a set unit size and a fixed expiration date all set by the exchange.
In the forex market, however, the trader usually has more flexibility over the contract size. Most
forex brokers offer a standard trade size of 100,000 units of foreign currency which is similar in
size to a typical futures contact, as well as a mini trade size that is 1/10 the standard contract, or
10,000 units of foreign currency. Profit and loss is one-tenth the amount of the corresponding
standard contract. While both have the same bid/offer prices and liquidity, the mini with the smaller
contract size has, consequently, the smaller risk. The trader has the flexibility in selecting a
transaction size that is appropriate to their amount of trading capital and tolerance for risk. For
example, a trader wishing to establish a position of 30,000 units of foreign currency would just
transact 3 mini contracts. The mini contract size may have a required margin of only a few hundred
dollars.
page 52
forex vs currency futures - continued
3. Fees
When trading a currency futures contract, the customer pays brokerage commission and other
transaction fees such as clearing and regulatory fees. In the forex market, there is usually no
brokerage commission. The customer does, though, pay the quoted bid/offer spread.
4. Regulation
Futures and options trading on U.S. exchanges must adhere to the rules promulgated by the
Commodity Futures Trading Commission (CFTC) and the National Futures Association. The forex
market, in contrast, was originally subjected to less regulatory oversight. While forex dealers such
as banks and financial institutions are regulated, those who solicited forex accounts on their behalf
or who managed forex accounts were not. However, as part of the reauthorization of the Commodity
Futures Trading Commission in May 2008, forex solicitors, account managers and pool operators are
now required to register with the CFTC and to become members of National Futures Association.
5. Starting Capital
To transact in a currency futures, a trader must open an account with a futures and options broker
and meet the minimum cash deposit which is usually $5,000, while to trade forex, an account is
required with a forex broker and the initial cash deposit is much less, sometimes as little as $500.
6. Variety
Finally, there exists a greater variety of currency pairs that can be traded in the forex market as
opposed to currency futures. For example, a trader who wishes to take a position on the EUR/JPY
will find no liquid currency futures and must therefore transact in the forex market.
page 53
binary options
Binary options are a novel type of investment vehicle that appeal to the beginning investor because
they are simple to understand. Like the name implies, a binary option has only two possible outcomes
each of which pays out a fixed return depending upon whether a certain condition is fulfilled by the
time the option expires.
For example, a binary option that has percent payout

of 70/10 means that, with an initial investment of
U.S.$100, the customer will receive $170 if the
condition is met and $10 if the condition is not met.
In the latter case, the net cost to the customer is
$90. The payout and risk of a binary option are known
in advance and are fixed.
Binary options are available on the popular foreign currency cross rates, select stocks and even gold
and silver. They have a short expiration, typically just one hour, enabling the investor to earn as high
as a 70% rate of return over this short time interval. Furthermore, the maximum payout is earned
even if the binary option expires just one tick in-the-money so this rate of return can be earned with
even a relatively small but favorable market price movement.
Among their other advantages, binary options have no required margin and there is no risk of losing
more than the amount initially invested. Binary options cash settle at expiration so there is no need to
manually close a position. They are traded live over the computer allowing the investor to watch prices
on a tick-by-tick basis throughout the life of the option. Finally, a customer can invest in a binary
option for as little as U.S.$30.
page 54
binary options - continued
For a binary call option, the price of the underlying instrument must rise after option purchase in order
for the maximum payout to be earned. In other words, the binary call option must expire in-the-money.
Otherwise, the minimum payout is received.
At right is an example of a one-hour binary call option

on the EUR/USD exchange rate. The option has a 70/10
payout. In the example shown, this option started trading
at 6:00 a.m. and can be bought at any time up to ten
minutes prior to the option's expiration at 7:00 a.m., after
which time a new option will be available for trading. The
blue line shows the price history of the EUR/USD over
the life of the option thus far.
The EUR/USD current price is 1.3529. If you expect that,

at option expiration, the EUR/USD rate will be above the
current price (green shaded area on chart), then you will
click on the green CALL button to invest in the binary call
option that locks in the current price. After so doing, you
need only wait for the option to expire. If the binary call
option expiration price is above the locked-in price, then it
will return the maximum payout, in this case, the initial
investment plus 70%. If not, then you will receive 10% of the
initial investment meaning that 90% of the initial investment
is lost.
page 55
binary options - continued
For a binary put option, the price of the underlying instrument must fall after option purchase in order
for the maximum payout to be earned. In other words, the binary put option must expire in-the-money.
Otherwise, the minimum payout is received.
At right is a one-hour binary put option on the EUR/USD.

The characteristics of this option are similar to the binary
call option in the prior example but this time, the maximum
payout will be earned if the exchange rate falls.
The EUR/USD current price is 1.3529. If you expect that,

at option expiration, the EUR/USD rate will be below the
current price (green shaded area on chart), then you will
click on the orange PUT button to invest in the binary put
option that locks in the current price. After so doing, you
need only wait for the option to expire. If the binary put
option expiration price is below the locked-in price, then it
will return the maximum payout, in this case, the initial
investment plus 70%. If not, then you will receive 10% of
the initial investment.
You can find more information on binary options under the

content index pull-down menu on the blue WLF Network
Navigation Bar. Start at RESOURCE CENTRAL at
http://www.worldlinkfutures.com
page 56
day trading
Day trading, whether in the futures or forex markets, means

that all contracts whether bought or sold are closed on the
same day as they are established. If a day trader buys a
contract, then it must be sold prior to the closing bell on that
day. The market closing time is set by the respective futures
exchange or forex dealer, as the case may be, and can vary
from market to market.
Day trading has two major advantages. First, because positions

are not held overnight, day trading may be less risky than position
trading in which open contracts are held for several days or more. Reflecting this, margin requirements
are usually lower for day trading which, in turn, makes it more affordable. Second, many day traders
enjoy the relief of knowing that all trades terminate by the day's end so no sleep is lost at night
worrying over any open positions. Each day represents a new opportunity to earn profit.
High levels of liquidity and volatility are the main requisites for a market to be attractive to day
traders. Beyond this, the markets must be accessible electronically in order to enable the quick
execution and reporting that day traders require. Several futures contracts and most of the popular
forex currency pairs fall into this category.
Among the futures contracts, the E-mini® S&P 500® futures listed on CME Group is by far the most
popular for day trading. According to data provided by CME Group, the average daily volume of the E-
mini S&P 500 futures in 2009 was over 2.2 million contracts. There are even times when the volume
exceeds open interest suggesting that many of the contracts that are bought and sold are closed
within the same trading day.
page 57
day trading - continued
The size of the E-mini S&P 500 futures is $50 multiplied by the E-mini S&P 500 futures price for
that corresponding contract. So, for instance, if a day trader buys a June E-mini at 901.25 and then
sells it later in the day at 903.75, then this would result in a profit of $125 (calculated as 2.50 points
x $50 per point), less commission and other trading fees.
Volatility is the source of potential profit, as well as potential loss, for the day trader and measuring
it is done with reference to the Daily Range Value calculated by multiplying the day's high-low range
of a particular contract by the point value of that contract. For the E-mini® S&P 500® futures, the
daily high-low range is multiplied by $50, the contract's multiplier. The result is the theoretical
maximum profit or loss for one contract possible during the day. For example, a day's trading range
of 22.50 points represents a Daily Range Value of $1,125, the per-contract maximum that could be
earned or lost by buying an E-mini S&P 500 futures at one price extreme and selling at the other.
From June 2008 to Dec 2009, the Daily Range

Value of the E-mini S&P 500 futures fluctuated
between a minimum of just $125 and a maximum
of $5,775 with the average being $1,265 per
contract. The histogram at right is more
revealing: about half of the trading days had
a range value of over $1,000 per contract with
14% of the days exceeding $2,000.
page 58
day trading - continued
No trader can or should expect to buy at the low and sell at the high. For that reason, the Daily
Range Value represents a maximum theoretical measure. In practice, though, a day trader can strive
to capture some percentage of the Daily Range Value as target performance. If, for example, a
trader could capture just half of the price movement, then based on the histogram, one out of every
two trading days in the E-mini S&P 500 futures would still provide the trader with the potential to
earn $500 or more.
E-mini S&P 500 futures contracts are traded electronically on the CME® Globex® trading platform.
This platform and its functionality are discussed in the next section on Electronic Trading.
Day traders, like all traders, need to develop a reliable trading plan that incorporates a method of
price prediction and proper risk management. You can find information on this in the upcoming
sections, The Trading Plan and Trade System Development.
While there are occasionally fundamental factors that can affect the intra-day price fluctuation of
a forex currency pair or a futures contract – the most notable being the release of an important
economic report like U.S. monthly payrolls – it is more often the case that price movements are a
response to technical considerations and changing expectations. For this reason, the day trader
needs to be familiar with the tools of technical analysis. You can find information on this in the
section, Fundamental and Technical Analysis.
You can find more information on day trading under the content index pull-down menu on the blue
WLF Network Navigation Bar. Start at RESOURCE CENTRAL at http://www.worldlinkfutures.com
page 59
electronic trading
As we have already seen, forex is traded electronically. The trading platform is provided by the
forex dealer when you open an account and may be web-based and/or client-side meaning downloaded
onto your computer. These platforms can vary from dealer to dealer but they all generally provide
the same features: rapid order execution, real-time bid/ask prices, open position management,
technical analysis studies and economic and market news. Most forex dealers provide a free trial of
their platform in a simulated trading account so you can become familiar with its functionality prior
to trading actual money.
When futures and options on futures were first introduced,

the method of transaction was open outcry in the trading pit.
Orders from customers made their way to the pit broker who
was responsible for executing the order. While open outcry
still exists for many commodity markets, electronic trading
whereby orders are moved swiftly and seamlessly from the
customer to the exchange-administered trade matching
platform provides an alternative method for order execution
that is now much more popular. According to CME Group,
electronically executed trading accounted for 86% of total volume in 2009.
Electronic trading of markets listed on CME Group takes place on the CME® Globex® trading
platform. While most CME Group contracts trade electronically during some part of the day, some
such as the E-mini® contracts only trade electronically. All futures markets listed on the
IntercontinentalExchange® (ICE®) trade electronically on the ICE electronic platform. The latter
includes the U.S. regulated subsidiary, ICE Futures U.S.®, that trades the softs such as coffee,
sugar and cotton.
page 60
electronic trading - continued
As with forex, electronic trading platforms may vary among futures brokers but they all tend to
provide the same functionality though some are designed for specific types of trading, for example,
day trading. Also, as with forex, the trading platforms for futures and options can be web-based or
client-side meaning downloaded onto your computer.
A major difference between order execution in the forex market versus the futures and options
market is counterparty. In the forex market, the forex dealer is often the counterparty to the
transaction while in the futures market, the futures exchange is never the counterparty. That is,
the futures exchange only matches buyers and sellers but is never a buyer or seller to any
transaction.
Many forex dealers and futures and options brokers allow the customer to call in orders by
telephone to a trading desk. In this case, the order may still be executed electronically: the
receiving broker simply enters the order on the electronic trading platform on your behalf.
Your order to buy a forex pair, futures or option constitutes a bid for that contract - the price at
which someone is willing to buy. The ask or offer is the price at which someone is willing to sell the
contract. The highest bid and lowest ask constitute the current market for that contract. There is
usually a difference or spread between the bid and ask prices which becomes larger the less liquid is
the contract market. If you use a market order to buy a contract, then your bid is automatically
raised to the ask price. In other words, you will pay the current ask price for that contract. This is
the main characteristic of a market order: you get an immediate fill but have to pay whatever price
is necessary for an immediate fill.
page 61
In order to have some control over the fill price, many traders
prefer to use a limit order instead of a market order. With a
limit buy order, the limit price - which constitutes your bid - is
the most that will be paid for the contract. If the limit price
is below the current ask price, then your order will remain
open and unfilled. Should the ask price drop to your bid, then
your limit order to buy will likely get filled. This is referred to
as "working the bid" or "working the market".
At right is an example of an electronic trading screen. The

highest bid is at 80.17 with 3 contracts bid and the lowest ask
is at 80.21 with 9 contracts offered. The bid-ask spread is 4
ticks. A market order to buy will cross the market and pay the
ask at 80.21, assuming that 9 or less contracts are being
bought. If more are requested, then subsequently higher ask
prices will be paid until the buy order is filled. A limit buy
order fixes the bid price. You can join the market by placing a
bid at 80.17, or partially cross the market by placing a bid
within the current spread, say at 80.19, and wait for the ask
to drop to your bid price.
page 62
The electronic trading platforms of CME Group and the

ICE allow for various types of orders and qualifiers.
The table at right describes the functionality as of
December 2009. During the trading session, all of
these orders can be entered and, if not filled, can be
modified or canceled.
Many order types have already been described in the

section, Types of Orders. When executed electronically,
some have a protection feature that is designed to
prevent fills at extreme prices and would be used for a
large quantity order. In filling a buy order with protection,
for example, offers will be sequentially lifted but only up to a maximum acceptable price that is
predetermined based on a dynamic price range set by the exchange for that commodity market.
Rather than continuing to fill the remainder of the order and accept even higher offer prices, the
system will store the remaining, unfilled quantity as a limit order at the highest acceptable price. As
more offers enter the system, prices may decline and the remainder of the order can then be filled.
The protection feature is needed in part because of the speed measured in milliseconds in which an
order is typically filled electronically. This lightning-fast mechanism can cascade through a
significant number of bids or offers before other players even have a chance to react. In contrast,
the painfully slow, by comparison, procedure of filling large orders via open outcry did at least
provide enough time for more bids and offers to enter the trading pit thereby reducing the
likelihood of an extreme price movement.
page 63
Trading electronically allows participants to see current bids and

offers and associated quantity. This is an immediate disadvantage
to the trader with a large order to fill. In response, the trading
platforms of both CME Group and ICE enable the trader to enter
an order for just part of the desired quantity and earmark the
balance as reserve. The order is displayed with this smaller quantity
and, when filled, an identical order is automatically created and sent.
This continues until the reserve quantity is filled. In this way, the
complete quantity remains hidden.
Among order qualifiers, the Good-Till-Canceled (GTC) order remains active in the order book until it
is completely executed, canceled or when the instrument expires. Fill-and-Kill (FAK) orders are
immediately executed against resting orders. If the order cannot be fully filled, the remaining
balance is canceled. A minimum quantity can be specified. If the specified minimum quantity cannot
be filled, then the order is canceled. Fill-or-Kill (FOK) orders must be fully filled immediately or the
entire order is canceled.
CME Globex also allows a "Good-till-Date" (GTD) order. GTD orders remain active on the order book
until they are completely executed, expire at the date specified by the trader, are canceled, or
when the instrument expires.
page 64
the trading plan
Just as a business plan outlines the details of a proposed business, a trading plan outlines a structure
for trading. It specifies when to get into a trade, either long or short, and when to close a trade,
either at a profit or a loss. Developing a trading plan and then following that
plan is the key to trading responsibly.
Trading plans are individualistic, based on such factors as personal experience,

available risk capital and tolerance toward risk. Consequently, trading plans
usually differ from one trader to another. You must develop a plan that works
best for you. Among other things, this requires patience, rigid adherence to
the rules of the plan, meticulous record keeping of trading performance
(which is valuable feedback) and an open mind to try new methods.
The principal requisite of a trading plan is that it be profitable overall. But every trade need not be a
winner. Rather, the relative size and frequency of losses and gains must be such that, over time, a
net profit results. For example, assume that a trading plan generates winning trades only half of the
time. If average profit exceeds average loss, then overall trading will be profitable.
A trading plan can be discretionary or systematic. Discretionary plans rely on subjective analyses or
even just the "gut feeling“ of the trader. For a variety of reasons, most traders have moved away
from relying on discretion. Principal among these are the lack of consistency and reliability of trading
performance associated with discretionary trading. As well, there is no way to back-test the
trader's skill using historical data. Systematic trading plans, discussed at length in the next section,
mechanically quantify the conditions or criteria under which a trade is made with the intent of
eliminating the discretionary element from the trading decision.
page 65
the trading plan - continued
Whatever type of trading plan is used and regardless of its origin, it should be first tested under
simulated but real-life conditions prior to risking actual dollars. This will enable the trader to
develop some skill in implementing the plan and, more importantly, generate valuable feedback. This
feedback will enable the trader to identify strengths and weakness of the plan and take steps to
improve performance. For example, you may discover that the plan performs best only during certain
times of the week or the day. How the plan performs during the volatility that typically accompanies
the release of important financial or economic news can also be determined.
An analysis of the plan's performance over time can provide clues on how to modify and improve the
plan by looking for systemic (consistent) problems that jeopardize performance. For example, say
that a plan often tends to close a profitable trade too soon. This suggests that the condition for
closing a profitable trade needs to be more accommodating. If closing a profitable trade with a
trailing stop order, then the stop order can be trailed farther behind to accommodate more of a
price reaction before a profitable trade is closed. Also, if trading more than one contract, then the
trader may consider closing only a portion of the position on the initial signal with the intent of
closing the rest at a later and better price.
As another example, say that the plan generates a high number of trades that once established get
quickly stopped out. However, subsequent to this, the market then moves favorably. In other words,
the plan correctly anticipated the market move but the trade was closed on a brief market reaction.
The solution here may simply be that the protective stop order needs to be more accommodating,
that is, set father away from the entry price to accommodate more of a market reaction and,
consequently, risk more on the trade.
page 66
the trading plan - continued
Finally, based on the relative size and frequency of gain versus loss, the trader can determine how
much money to risk on any given trade to reduce the probability of ruin. The probability of ruin is a
statistical relationship between the likelihood of profit of a trade generated by a trading plan, the
relative size of gain versus loss, and the percentage of available trading capital that is risked on
every trade. For double-or-nothing trades, for example, that only have a modestly better than 50-50
chance of winning, the trader is more likely to survive and prosper (not face ruin) if only a small
portion of trading capital is risked per trade, in the neighborhood of 10% or less. For such a plan, a
trader starting with an account size of $5,000 should probably consider risking $500 or less on each
trade. While the probability of ruin calculation is a theoretical measure and depends upon certain
simplifying assumptions, its fundamental conclusion generally holds that games with positive
expected values, like trading, should be played slowly to avoid ruin.
After any modification, the plan should then be implemented for a sufficient length of time to
collect valuable feedback on the modification. If performance is superior, then the changes are
maintained. If not, then the trader can return to the older plan and perhaps try another
modification. Alternatively, the trader can create several "second-generation" plans, each one
distinguished by a particular modification. These plans can then be implemented simultaneously and,
after a period of time, the trader simply selects the one that performs best.
Trading plans are dynamic and always subject to modification in order to better respond to the
current market climate. A trading plan that worked well in the past may need modification in light of
changing market conditions. Finally, remember that there are no guarantees of profitability in the
world of trading, but the discipline of a trading plan goes a long way toward improving your chance of
success.
page 67
trade system development
As was mentioned in the previous section, systematic trading seeks to remove the subjectivity from
trading by quantifying or mathematically formulating the buy and sell trading rules that lead to overall
profitable performance.
The primary benefit of systematic trading is consistency. The buy

or sell signal of a trading system follows automatically from the
enabling of a set of rules and this is independent of the varying
discretion and emotion of the trader. Consistency, in turn, means
that the system can be back-tested with historical data and that,
going forward, the performance results have relevance for system
modification. A trading system will also, by construction, follow
obediently the established rules for risk management and limiting
loss, rules that can be difficult to adhere to when trading by
discretion, especially for beginners. Beyond this, a mechanical (computer) system can often be
interfaced with trade execution software to create an entirely automatic, hands-off trading
environment. As the owner of the system, you only need sit back and monitor the trade performance.
You can attempt to develop your own trading system or you can purchase a ready-made system. The
benefit of purchasing a ready-made system is that you avoid the time and expense of designing your
own. A ready-made system would also presumably have a trading edge over other systems, an edge
that you may not be able to provide yourself. However, the greatest concern is legitimacy. There are
many systems that are advertised as generating performance returns and that can not and do not live
up to the buyer's expectations.
page 68
trade system development - continued
The more incredulous the claims, the more likely the system should be avoided. Indeed, it is difficult
to understand why a developer would sell a system that generates profit rather than use it personally
and exclusively. Beyond that, a purchased system may not trade in a way that is consistent with your
personal risk preference and available risk capital.
The primary benefit of building your own system is the intimate knowledge you have of how it works
as well as its historical performance in back-testing and perhaps, live paper trading. This will give you
the confidence to risk your hard-earned money on the system. Also, by developing a system yourself,
you have complete control over the parameters of the system such as the markets traded, time
horizon, risk capital required, trading frequency and maximum drawdown to name a few. In other
words, the self-designed system will trade in such a way as to be consistent with your own preference
for risk and available trading capital. Finally, as the developer, you will be able to modify the trading
system if and when it becomes necessary to do so. This is important as any system will likely need to
be modified at some point. Indeed, for some system developers, modification is an ongoing process.
When designing a system, the first step is to decide which market or

markets will be traded and the time horizon, for instance, day trading,
position trading or swing trading. You should then study the target
market(s) over the relevant time horizon and make note of what seems
to drive or influence prices, in other words, to what does the price react.
You should also observe how prices behave during certain times of the day,
for example, at the open and close and prior to the weekend, and even how
prices behave when approaching a prior area of support or resistance.
page 69
All of these observations will provide insight into carefully crafting a set of trading rules. You should
also have a solid understanding of technical analysis as any trading system, especially a day-trading
system, will no doubt need to rely on some technical indicators. With a general understanding of
technical analysis, you can experiment with modifying the established indicators or developing your
own indicator for enhanced trade performance.
Remember that the key to developing a successful system is to have a set of

rules that leads to profitable trades. Finding this set of rules represents the
lion’s share of the exercise. While it certainly helps if you have some trading
experience that you can draw upon, either personally or from others, it will
likely be the case that a wide variety of trading rules will need to be created
and back-tested with the intent of finding a winning formula. Consequently,
patience and dedication are required. In many cases, the feedback provided
from back-testing can provide insight to a clear and methodical thinker into
how to modify the trading rules in order to improve overall performance.
You are a bit like a scientist, trying new things, recording the results and
using feedback to guide modification.
Since most if not all systems these days rely on computer software, you will need some computer
programming skill. Fortunately, client-side system development software has become "user friendly"
making it fairly easy for the beginner to learn the necessary software language or, more generally,
the techniques for programming trading rules which may, in some cases, be as simple as point-and-
click.
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The primary drawback of designing your own system is that it will be limited to your own trading
knowledge. For beginners, this could be a significant, binding constraint. While even a beginner using
system development software can create some simple trading systems, such as one based on a moving
average crossover to generate buy and sell signals, it is intuitively difficult to expect such a simple
and widely replicable system to generate profitable performance.
Rather, a successful trading system will likely need to have an edge over other, competing systems.
This could be a novel combination of technical indicators, an original proprietary indicator or reliance
on rather intense mathematical algorithms that are thought to be outside the reach of most traders.
Commission expense and other trading fees need to be realistically calculated in the performance
results of any trading system. In addition, slippage is often not given the attention that it deserves.
If market and stop orders are used by the system, then the fill price for a buy or sell should be
adjusted for slippage, the amount of which will depend upon factors such as the size of the order and
the market and time being traded.
Finally, when designing and back-testing a system, or when relying on the historical performance
results of a purchased system, care must be taken to ensure that the time period under study is
sufficiently long enough and variable enough to provide a representative framework of market price
behavior. To not do so can lead to problems with curve fitting or over-optimization. For example, let's
say that, during the time period under study, the market was trending. In this case, many trend-
following systems will generate positive performance results. However, should the market enter a
consolidation phase, then the performance of the trading system will likely be a disappointment.
page 71
managing the risk of trading
Trading commodity futures and forex is risky: the entire amount of trading capital can be lost and
the trader, in some cases, may even lose more than that amount. Consequently, it is important to
properly manage the risk of trading.
Risk management establishes thresholds to limit loss on any individual

position in the event that your trade turns out to be the wrong move.
And remember that every trader can and should expect to make
"bad calls". After all, that's part of the dynamics of trading.
I already mentioned some aspects of risk management naturally associated with the instrument being
traded. For example, when buying an option, the maximum loss is limited to the premium paid for the
option, plus commission and transaction fees. Among futures, the mini contracts naturally have less
risk than their regular-sized counterparts. And when trading forex, most if not all platforms are
designed to automatically close all open positions before a trader’s account turns negative and this
then limits loss to the initial capital deposit. But much more than this can be done to manage the risk
of trading.
Perhaps the most prolific technique used among traders to manage price risk is with a protective
stop order. A stop order can automatically close a position that is losing money. As was mentioned in
an earlier section, it is a contingent order because the order does not get executed unless the
market price reaches a certain point - the stop price. In other words, when prices move adversely to
the stop price, then the stop order is automatically activated to close the losing position. Let’s look
at some examples. By the way, you’ll also find an instructive free trade video called Using Stop
Orders Effectively in the Additional Resources.
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managing the risk of trading - continued
Below is a chart of the cotton futures contract expiring in March 2010. Say that you just bought one
contract at 75.43 cents which is the closing price of the last day shown on the chart. Every cent in
cotton is worth $500 so a movement, for example, from 75.50 cents to 75.75 cents represents a
value of $125 per contract.
BUY
STOP TO SELL
Even though you expect cotton to rise in price, you wish to manage the loss in case your expectation
turns out to be wrong and cotton prices decline. You decide to risk $750 on the trade which will occur
if cotton drops 1.50 cents. To protect yourself, you will enter a stop order to sell one March cotton
futures if the price ever drops to 75.43 – 1.50 = 73.93 cents. This stop order should be entered as
GTC so it will operate every day until filled, canceled by you, or the contract expires.
page 73
You can use a stop order to protect a short position just as easily. Let's look at an example. Below is a
chart of soybeans expiring in March 2010. Say that you just sold soybeans at 1044 cents which is the
closing price of the last day shown on the chart. Every cent in soybeans is worth $50 so a movement,
for example, from 1025 cents to 1035 cents represents a value of $500 per contract.
STOP TO BUY
SELL
Even though you expect soybeans to fall in price, you wish to manage the loss in case your expectation
turns out to be wrong and prices rally. You decide to risk $1,500 on the trade which will occur if
soybeans rally 30 cents. To protect yourself, you will enter a stop order to buy one March soybean
futures if the price ever rises to 1044 + 30 = 1074 cents. This stop order should be entered as GTC
so it will operate every day until filled, canceled by you, or the contract expires.
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If prices move favorably, a protective stop order can be trailed to lock in profits. A stop order to
sell is trailed higher while a stop order to buy is trailed lower. This can continue until the market
finally retraces sufficiently enough to trigger the stop order, thereby closing the trade at a profit.
Keep in mind that stop orders are often filled with some slippage meaning that a stop order to sell
(buy) may be filled at a slightly lower (higher) price than the stop price. Slippage means that loss on
a trade will be a little more than you expected, or that profit will be a little less. Every commodity
trader must accept this fundamental limitation of the stop order. Slippage can become very large if
a market is very volatile and moves suddenly, or if the market opens at a price significantly different
from the prior day's closing price. In other words, the market price gaps on the open.
The examples shown work just as well in the forex market. The strategy is simply this: (1) decide
upon the dollar amount that you will risk on the trade, (2) calculate the corresponding movement in
the forex price of the currency pair being traded, and (3) enter a protective stop order to sell (buy)
if initially you bought (sold). Most forex trading platforms make this very easy to implement.
Remember that the prepared trader knows the risk of every trade the moment that it is
established.
You can even manage the price risk of an option in the same way. For example, say
that you just purchased a call option for $3,500. Granted that this amount is the
most that can be lost, but must you accept all of that loss? The answer is no. If,
for example, the market declines, you can decide to sell your option at say, $2,000
rather than sit and watch its value further depreciate.
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fundamental and technical analysis
As a trader, your goal is to buy low and sell high, or vice-versa. If you could predict prices perfectly,
then making money would be terribly easy. Unfortunately, predicting prices has proven to be anything
but easy. While most traders admit that it is impossible to predict prices perfectly, most
nevertheless believe that they can improve their chances beyond a "pure guess". By far, the most
commonly used methods of price prediction can be grouped into either fundamental analysis or
technical analysis.
Fundamental analysis attempts to predict prices by determining the factors or variables that affect
the price, and then monitoring these variables for change. As they change, the trader attempts to
predict the resulting change in the price. For example, the fundamental determinants of the
USD/JPY exchange rate may be the level of short-term interest rates in the United States relative
to those in Japan, the rate of inflation in the United States relative to that in Japan, net
merchandise trade flows between the two countries, and the outstanding relative supplies of money.
Determining exactly how each of these variables affects the exchange rate is done through
regression analysis which borrows heavily on economics and statistics. Theoretically, once the
relationship is identified, you are able to predict the likely movement of the exchange rate resulting
from, say, a decrease in Japanese interest rates, and then establish the appropriate forex position.
Advantages of Fundamental Analysis
Intuitive Appeal Most of us accept the precept that one thing causes
another. Using fundamental analysis to predict futures prices has that
precept as its foundation and attempts to identify the "causing" factors.
In this sense, the approach is intuitively appealing.
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fundamental and technical analysis - continued
Objectivity Fundamental analysis is objective in that relationships are tested by sound

mathematical and statistical methods. Those that fail are discarded, while those that pass are
perceived as being credible. There is no room for personal predilection or bias. The reliance on
objectivity is desired by many traders who hold little confidence in their ability to predict prices
purely by discretion.
Available Resources Attempting to predict variables through fundamental analysis is not exclusive
to the futures trader. Companies attempt to predict sales, governments attempt to predict
unemployment and meteorologists attempt to predict the weather. With all of these industries
harnessing the power of fundamental analysis, one benefit is a refinement and improvement in the
pool of fundamental analytic techniques available. For instance, if a good technique is developed to
predict the weather, then it can potentially be applied to futures trading and, hopefully, yield
satisfactory results. This is exactly how Chaos Theory, a particular type of fundamental analysis,
moved into the realm of the futures trader.
Disadvantages of Fundamental Analysis
Data Intensive Fundamental analysis relies on a considerable amount of data to

test the significance of variables. Such data are often not easy to acquire and,
moreover, are seldom available without charge. As well, data can at times be
contaminated with reporting errors which must first be identified and corrected.
Finally, requisite data are often compiled and disseminated with a time lag making
it more difficult to construct a regression with predictive power.
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Labor Intensive Fundamental analysis also requires a considerable amount of human labor - time and
energy. As well, methods have become so complex that few individuals short of a trained economist
can properly apply the available technology. As an example, large banks often employ teams of
economists for formulating their in-house prediction models.
Specificity It is often difficult, even when data, time and energy are available, to determine a
relationship which is robust and which enables satisfactory price prediction. This may be, in part,
because so many variables are linked together, each affecting the other, that it is difficult to
identify causal relationships. You may well spend a lot of time, money and energy looking for a causal
relationship and never find one that is sufficiently reliable to risk your hard-earned dollars.
Technical analysis attempts to predict the price of a

financial instrument based solely on historical prices
of that instrument. Technical analysts contend that
prices already contain all relevant information, so
fundamental analysis is redundant. By the time you
determine where prices should be based on the information
of a fundamental model, you will find that prices have
already moved there. Consequently, one needs to study
price movements themselves in order to predict prices.
In particular, historical prices are studied in order to
identify and exploit patterns that tend to repeat.
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Technical analysis relies heavily on chart formations and indicators. There are chart formations, for
example, the head-and-shoulders pattern and the double-top, which are used to predict a change in
price trend, from up to down. There are other price patterns that suggest that prices will continue
to trend, or break out of a period of consolidation (sideways movement). Indicators, such as
momentum and the RSI over-bought/over-sold indicator, are used to identify the likelihood of a
price reversal, or the sustainability of the current price movement. Moving averages of historical
prices are also used to generate buy and sell signals, and warn of a possible price reversal. The body
of technical analysis is substantial, and continues to grow as traders develop new and supposedly
better chart patterns and indicators.
The chief advantage of technical analysis is its applicability: performing many of

the studies only requires an historical price chart and data. In fact, many studies
are automatically included with a chart subscription service or online trading
platform. Opponents argue that, since everyone has access to historical prices
and the corresponding technical analysis, it is intuitively difficult to explain how
you can expect to outperform other traders. Nevertheless, technical analysis
has developed a large following.
You can find on-line tutorials on technical analysis under the free stuff pull-down menu on the blue
WLF Network Navigation Bar. Start at RESOURCE CENTRAL at http://www.worldlinkfutures.com
page 79
understanding fibonacci
Leonardo “Fibonacci” of Pisa was a great Italian mathematician who lived

in the thirteenth century. His name is associated today with a well-known
yet simple number series - referred to as the Fibonacci series - in which
any number in the series is constructed simply by adding the two previous
numbers. So, the series starts as: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55 and so on.
But that's not the important part! There are regularities in relationships
among these numbers. For example, if you divide any number in the series
by the immediately preceding number, starting with the small numbers and
working higher, then you converge upon an number around 1.618 which is
referred to as the golden ratio. The inverse is 0.618.
There are other ratios that become important, too, with the implication being that these values are
important in natural processes including, by extension, price data. Fibonacci analysis is the application
of these mathematical discoveries to the world of trading, whether commodity futures, options,
forex or stocks. While Fibonacci analysis can be applied in a variety of ways to trading, the most
prevalent is using the particular set of ratios shown below as price retracement values. When
expressed as a percentage price movement within the recent high and low range, they represent
possible support levels for a retracement of a generally bullish market and possible resistance levels
for a retracement of a generally bearish market.
page 80
Let’s look at an example.
You can see that May corn, after having fallen from 432 cents to 363 cents rallied or retraced back
to touch the 389-cent level which represented a Fibonacci retracement of 38.2%. A trader who is
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bearish on corn and who wants to sell on a technical retracement can thus use Fibonacci analysis as a
way to identify these important price levels.
One of the drawbacks of using Fibonacci is that, without further or outside analysis, there is little
way of knowing which Fibonacci level will provide the anticipated support or resistance. Another
problem is that the choice of a recent high and low from which to measure the Fibonacci ratios are
not always obvious and, in part, will depend upon the trading time horizon of the trader. For example,
a day trader will want to apply Fibonacci analysis to, say, 5-minute bar charts and may identify a high
and low period just over the previous few hours.
Despite these drawbacks, Fibonacci analysis remains a useful

technical tool. The reason is that traders all over the world
watch these levels and place buy and sell orders accordingly.
Consequently, price behavior around Fibonacci levels can
become self-fulfilling.
Fibonacci analysis should probably not be relied upon exclusively

for trading but rather, be one of several analytical tools and
techniques in the technical arsenal of the trader. The key to
designing an effective trading plan is often to integrate a few
indicators in a novel and synergistic way and Fibonacci analysis
may very well play an important role.
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psychology of trading
You might think that trading is fairly straight-forward. After all, once you develop a trading plan,
you just implement it. As the saying goes, “Plan your Trade and Trade your Plan”. However, many
traders fail to maintain the discipline to follow their trading plan and instead succumb to the
destructive influences of emotion.
Throughout the entire trading cycle, from entry to exit, the

trader is subject to a range of emotions, most of which are a
natural consequence of the way in which our brains are "wired".
But trading based on emotion leads to undesirable consequences
and must be avoided.
For example, trading emotion can lead to over-trading. The emotion here is often greed. This is more
likely to be the case if the trader began with the unrealistic expectation that a great deal of money
can be made with just a small investment, sometimes reinforced by a series of initial winning trades.
Over-trading can also be motivated by revenge. After having lost some money, the trader may be
tempted to increase trading or position size in an attempt to quickly recoup the loss, even though
this goes against the trading plan. Being bored can also lead to over-trading. When the market is
quiet and no trade signal is given by the plan, the trader may place a trade anyway under the
rationalization that no money can be made if one is not trading. Remember the rule:
NEVER TRADE JUST TO TRADE.
page 83
psychology of trading - continued
Fear is a powerful emotion that, if acted upon, can jeopardize performance in a number of ways. Fear
can cause a trader to exit a trade too soon, or pass up on what would have been a profitable trade.
This is more likely to happen if a trader enters the market with money that they can not afford to
lose. On the other hand, fear of missing out on a profitable trade can cause a trader to wrongly
enter a position prematurely. Fear can lead to indecision, causing the trader to question whether or
not to get into a trade even though the trading plan is giving a clear signal. Doubt or lack of
confidence soon arises, both in the trading plan and in the skill of the trader themselves.
The successful trader starts with a healthy and realistic mindset.

Trading is not regarded as a "get-rich-quick" scheme but rather as
a profession, as a business that requires time, effort and dedication.
Experiencing losing trades is part of this business. The successful
trader controls emotion and rigidly adheres to their trading plan.
As I have already mentioned, this is the key to responsible trading.
A trading log or diary can help a trader maintain discipline: a trader
is more likely to follow their plan if they know that, should they
deviate from the plan, they'll have to admit that failure in writing
later that day.
Finally, every trader needs to realize that trade performance – the winning and the losing trades –
have no reflection on the value of the trader as a person. They are merely a consequence of the
trading plan. They should be recorded and studied, perhaps with the intent of modifying the trading
plan, but have little value beyond that.
page 84
trading costs and fees
To buy or sell a futures or forex contract, you need to have a certain amount of cash
in your trading account to meet the required margin. This is a capital requirement and
not a cost. You get this money back or, to put it more correctly, this money is released
back into your account once the futures or forex position is closed. So what really is
the cost?
Every time that you buy or sell a futures contract, you pay a series of trading-related fees.
Commission is by far the largest fee and is charged by your futures broker. Commission is usually
expressed as a fixed dollar amount per round-turn contract traded. A round-turn transaction means
a completed or closed transaction - a buy followed later buy a sell, or a sell followed later by a buy.
It is usually charged to you half in and half out. For example, a brokerage commission may be $50
round-turn per contract. If you buy one futures contract, you will pay $25 upon buying the contract,
and the other $25 when you sell the contract. If you buy two contracts at once, you'll pay $50 in
commission on the way in, and another $50 when you sell the two contracts.
Brokerage commission varies depending upon the level of customer support. A full-service broker
who, in addition to order execution, provides to their clients market commentaries and trade
recommendations will charge more in commission to compensate for these services than a discount
broker who only provides order execution.
Most futures brokers are willing to negotiate their commission with clients depending upon the level
of the client’s trading activity. A broker may require that the client first demonstrate a few months
of active trading in their account before they can negotiate a correspondingly reduced commission.
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trading costs and fees - continued
In addition to commission, the clerk and floor broker may receive a transaction fee for executing
your buy or sell order. Fees are also paid to the futures commission merchant, the clearing
corporation, the National Futures Association and the futures exchange on which the contract
trades. Taken together, these fees can range anywhere from $2 to $5 per contract.
In addition to receiving small fees, the futures commission merchant typically receives interest
income on customer cash margin deposits; the customer receives no interest income. However, those
customers who typically hold considerable excess margin in their trading account can use some of
this money to purchase a treasury bill which receives interest income.
Options on futures transactions usually face the same cost structure as futures transactions with
one exception: The commission is often paid in full on the way in, meaning that when an option is first
bought or sold, you may be required by the broker to pay the full commission, instead of half-in,
half-out as with a futures transactions. Consequently, there is no remaining commission charge when
the option is closed or left to expire worthless, though the other fees may be charged.
Trading fees in the forex market are different and depend upon the broker.
A forex broker that is also a dealer usually earns income by adjusting or
widening the bid-ask spread shown to its customers. On the other hand, a
forex broker that does not trade against its customers but rather passes
orders through to another third party may charge a commission, especially
if the broker does not increase or otherwise adjust the bid-ask spread.
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trading as a business
Trading can be an ideal at-home business. Just think... no overhead, no

employees, no inventory. You are not tied to one location. You can never
be fired or laid off. You can take a vacation when ever you wish. And when
you “close up shop” by squaring your positions, you eliminate all further
risk. In fact, you can even close for a few days in case of travel or illness
without any worry, knowing that fresh money-making opportunities await
when you return.
The purpose of this business is to develop a trading plan that can reliably
generate income. You should expect to invest your time, energy and money
into making the business succeed. There's no point in starting something if you're not committed or in
trying to cut corners just to save a few dollars. Trading as a business can generate considerable
revenue in the future so it's worthwhile to invest in it, and the best investment at least at the start
is in your education. Spend the money on a course or two and some trading books or CDs. And also
realize that it's perfectly normal to lose some money at the start as you refine your own trading
technique. This too is simply an investment in your education.
Like a business, you will need working capital or cash. This capital is held in your trading account,
whether futures or forex, and is needed both to cover the margin associated with trading as well as
cover any net trading loss that you may experience. As is typical of any business, you should expect
some fluctuation in performance and cash is necessary to carry you through any drawbacks. Finally,
keep a record and receipt of all expenses associated with your trading business. Consult your tax
professional both to determine how trading profits are treated and taxed, and what expenses can be
deducted for tax purposes.
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taxation of trading gain/loss
For U.S. Federal Tax purposes, regulated futures and options on futures contracts are classified as
IRC Section 1256 contracts. In general, any net gain or loss from trading these instruments,
regardless of the holding period (ie., more or less than one year), is treated as follows: 60 percent
long-term capital gain or loss and 40 percent short-term capital gain or loss . This is sometimes known
as the 60/40 rule. For example, if the maximum long-term capital gains federal tax rate is 15 percent
and the maximum short-term capital gains tax rate (i.e., ordinary income tax rate) is 35 percent, then
the 60/40 blended federal tax rate is 23 percent. This is one of the principal advantages of trading
futures over stocks. While short-term stock trading will produce short-term capital gains taxable at a
35 percent federal income tax rate, trading in futures will produce income subject to a 23 percent
federal income tax rate regardless of how long or short in time the futures contract is held.
An investor residing in the United States will report trading gains

and losses on Form 6781 (Gains and Losses from Section 1256
Contracts and Straddles).
Each section 1256 contract held open at year end is treated as if

it were sold at fair market value on the last business day of the
tax year and the resulting gain or loss on such open contracts are
also treated as 60 percent long-term and 40 percent short-term,
regardless of how long the contracts have been held.
Note: The above is provided for informational purposes only.

Please consult your tax professional. Taxation on forex trading
may be different than described above.
page 88
the benefit of paper trading
Paper trading is fictitious or simulated trading in which buy and sell transactions are not carried
through to actual completion but the associated record-keeping is, in all other respects, real. In
other words, even though the trader does not have the market exposure of an actual position and so
there is no price risk, there is an accurate record of buy and sell transactions complete with the
associated margin, impact on account equity and attendant gain or loss on positions,
In order to be beneficial, a paper trading account should have the following:
1. Legitimacy. Third-party involvement is important. When people paper trade on their own, it’s too
tempting and too easy to look back at a chart and say, “Oh yes. I would have bought there.” Paper
trading without third-party legitimacy has little value.
2. Realistic execution of orders. Market orders should be filled at or close to the market price.
3. Realistic Equity Calculations. Current margin requirements should be used to calculate excess
equity, or lack thereof, in the account, just as if trades were done for real.
4. Educational support. You will have questions when paper trading and you will make mistakes. For
this reason, you should be able to rely on assistance from a knowledgeable staff.
Paper trading accounts are usually provided by brokers for the benefit of their clients and typically
for a nominal fee, or even no charge. Almost all forex brokers, for example, routinely offer a 30-day
free simulated trading account to potential clients that uses the same trading platform, price and
news feeds and charting capability that come with an actual account. Not all futures and options
brokers offer paper trading accounts, though the ones that do tend to be the larger firms.
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the benefit of paper trading - continued
The proper purpose for a paper trading account, whether for futures or forex, is to test
performance of your trading plan. In this regard, even though the trades are only simulated, the
trading plan must nevertheless be followed rigidly and accurately. Trade results may then provide a
realistic basis upon which to either move to actual trading in the event of satisfactory performance
or, if otherwise, modify the trading plan.
Paper trading also enables the trader to sharper their ability in implementing the trading plan and
this includes, for example, proper order usage, effective use of the trading platform, and learning
how to control emotion.
Paper trading should continue until a sufficient number of transactions, both winning and losing, have
been made such that the trader feels confident in making a determination of the merits of the plan.
That way, when trading moves to actual dollars, the trader will continue to have confidence in the
plan even, for example, after a string of losing trades.
Keep in mind that, because the economic climate is constantly changing, any trading plan may need to
be amended at any time in order to improve performance, regardless of the plan’s historical
performance under actual or simulated conditions.
You can find simulated accounts for trading commodity futures and options,
forex and the E-mini under the free stuff pull-down menu on the blue
WLF Network Navigation Bar. Start at RESOURCE CENTRAL at
http://www.worldlinkfutures.com
page 90
spotting investment swindles
Investment swindles are proposed transactions or investments that have a zero or very close to zero
probability of earning the return that is advertised. Often, actual return is negative meaning that
the investor loses some or all of the initial investment capital. Investment swindles include programs
in which money is taken from an investor and not invested as promised – the money may be
mishandled, redirected or absconded to the personal gain of an individual – and programs in which the
promised investment was made but the representation of the risk was largely understated and the
return, largely overstated often to the point of being fraudulent. The latter programs are more
common and the more successful in tempting unwary investors. Here’s how such a program may work.
This swindle is regarded as the infallible forecaster. Someone who claims to be a

broker calls a potential customer to relay a futures, options or forex trade that
has just been released from their research department. The information is given
freely as a way to build trust, confidence and a relationship with the potential
customer. Say, for example, that the recommendation is to buy gold. Two weeks
later, gold has increased in price and the broker calls the same customer again, this time with a
recommendation to sell crude oil. Ten days later, crude oil is lower. The third call is made and the
customer sends in a check believing that this broker has an uncanny ability to forecast the market.
What really went on? The broker called 200 people the first day. Half of the people were told that
gold would rise in price, the other half were told that gold would fall in price. Whatever gold prices
do, there are 100 people who received the right forecast. Of those 100 people, the broker told half
of them that crude oil would rally and the other half that crude oil would decline. Here again, no
matter what crude oil does, the broker now has 50 people who sincerely believe that the broker is an
infallible forecaster.
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spotting investment swindles - continued
Here are three basic steps to guard against being the victim of an investment swindle:
1. Carefully check out the person and firm with whom you will be investing. Within the futures
industry, the firm and individual needs to be registered with the National Futures Association
(NFA) and anyone can perform a registration and disciplinary check by using BASIC on the NFA
web site (www.nfa.futures.org).
2. Take a close and cautious look at the investment offer itself. If it sounds too good to be true,
then it probably is. Every beginning trader should be aware of the risks involved with trading and
while certain strategies can reduce the risk, such as purchasing options, be suspicious of any
investment that purports to have zero or very little risk of loss of investment capital.
3. Constantly monitor any investment that you decide to make. As the saying goes, ‘The proof of the
pudding is in the eating.’ Whether a futures trading account or forex account, you should be able
to receive a timely report of your account that includes available cash, open trade equity and
liquidation value. With such information, you will be able to determine the progress, or lack
thereof, of your investment in reaching the advertised return.
You can find a free brochure called, Spotting Investment Swindles

in the Additional Resources.
page 92
additional resources
Free Brochures:
Trading in Futures: http://www.worldlinkfutures.com/broch/tradefut.pdf
Options on Futures: http://www.worldlinkfutures.com/broch/optfut.pdf
Spotting Investment Swindles: http://www.worldlinkfutures.com/broch/invsw.pdf
Free Trade Videos:

Using Stop Orders Effectively: http://www.high-yield-investing.com/video/stops/video.html
Commodity Trading as a Second Income:
http://www.high-yield-investing.com/video/secondinc/secinc.html
Company President on Pod Cast/Radio:

Taking Stock: http://www.high-yield-investing.com/radio/radio.html
Your Money Matters: http://www.high-yield-investing.com/radio2/monmat.html
Other Resources:
Discount Investment Bookstore: http://www.invest-store.com/wlf/
WLF Network Trader’s Store: http://www.worldlinkfutures.com/store.htm
Have a Question?
Contact Us: http://www.worldlinkfutures.com/contact.htm
page 93
additional resources - continued
Have a question about Futures, Options or Forex Trading?
Then speak with the professionals at:
The Futures Training Division of PFGBEST
Call toll-free 800.542.1022
page 94
about the WLF Network
The WLF Futures, Options and Forex Education Network (“WLF Network”) is a collection of high-content, educational web
sites first established in 1996 and designed to teach beginning traders about commodity futures, options on futures,
forex and more. The WLF Futures, Options and Forex Education Network is owned by World Link Futures, Inc.
World Link Futures, Inc. is a licensed educational Commodity Trading Advisor, the regulatory classification for a
commodity futures and options trading professional, that was co-founded by Mr. Rick Thachuk who currently serves as
President. It is registered with the Commodity Futures Trading Commission, the federal regulatory agency with
jurisdiction over the United States commodities markets, and it complies with regulations promulgated by the National
Futures Association (NFA). The NFA, in addition to regulating the industry, promotes just and equitable principles of
trade and, in general, protects the public interest.
The NFA registration ID number of World Link Futures, Inc. is 271581. Any individual can freely access the Background
Affiliation Status Information Center of the NFA web site at http://www.nfa.futures.org/basicnet/ and perform a
disciplinary background check on the Company. After over 13 years in business, World Link Futures is proud to have a
clean disciplinary record. This is rare within the industry and testifies to the high level of professionalism and business
ethics that the Company employs in all of its dealings.
The WLF Futures, Options and Forex Education Network was formed in New York City by individuals having over 15 years
experience in the commodities and brokerage industry. The WLF Network draws upon a wealth of experience of its
employees that includes: proprietary trading in the trading pits of Chicago, electronic brokerage of government debt
obligations and a professional economist at a central bank and a major New York commodity exchange.
Among its many accolades and achievements, the WLF Network is typically ranked as the top futures trading site for the
beginner among the major internet search engines. It often appears as a source for articles or comments in leading
industry magazines such as Futures Magazine, was praised by the Wall Street Journal for being comprehensive and easy-
to-grasp and is referenced by over 235 external web sites (as of January 2010).
page 95
about the author
The author of this Guide is Rick Thachuk, the President of World Link Futures, Inc. that owns the
WLF Futures, Options and Forex Education Network.
Born and educated in Canada, Mr. Thachuk began his career in

June 1988 at the Bank of Canada (Ottawa, Ontario), the nation's
central bank responsible for setting national monetary policy and
intervening in foreign exchange markets, and the Canadian
counterpart of the Federal Reserve Board in the United States.
As an Economist in the Department of Monetary and Financial
Analysis, he participated in the study of gross monetary and credit
aggregates and their implications for general economic activity and
inflation. He then moved to the Foreign Exchange Division of the
International Department which is responsible for the Bank’s
intervention in foreign exchange markets.
Thereafter, Mr. Thachuk moved to New York City to become the Economist and Derivatives Market
Strategist of the financial instruments division of the New York Board of Trade, the oldest futures
and options exchange in New York and now part of ICE Futures U.S. In this position which he held
from August 1992 to December 1995, he designed and authored numerous brochures and trading and
hedging guides on the Exchange’s listed financial futures and options contracts including foreign
currency products – especially the U.S. Dollar Index – and Treasury Note products. Toward the end
of this period, Mr. Thachuk spearheaded the creation, registration and development of the first
ever futures and options exchange contract market on an index of emerging market debt, dubbed
the EMDX, comprised of Latin American Brady Bonds.
page 96
about the author - continued
From January 1996 to July 1997, Mr. Thachuk worked as a consultant to Euro Brokers, the nation’s
largest brokerage of over-the-counter emerging market debt instruments, where he designed and
managed an arbitrage program with the newly designed EMDX futures contract. This arbitrage
program not only generated relatively risk-free revenue but also provided the necessary liquidity to
the Exchange’s contract market.
In August 1996, Mr. Thachuk co-founded World Link Futures, Inc. to serve a neglected segment of
the marketplace: the beginning futures and options trader. Mr. Thachuk realized that the rapidly-
growing Internet provided an effective yet inexpensive means to freely disseminate information to,
and thereby educate, beginners and this gave World Link Futures an edge over its competitors. The
Company, since inception, has been registered with the United States regulatory authorities and has
a clean disciplinary history.
Mr. Thachuk has authored and has been quoted in articles that have appeared in various industry
publications including Futures magazine, Futures & Options World Magazine, Treasury Management
and the Financial Post. Mr. Thachuk has also written an educational column for beginners for Futures
Magazine that is still being carried under the ‘Education: Beginner Basics’ section of its web site.
Mr. Thachuk has a Master of Arts in Economics received from the University of Western Ontario
(1988), with specialization in econometric model-building, and an Honors Bachelor of Arts in Business
Administration and Economics received from Brock University (1987) with specialization in
International Finance.
page 97
extended trade topic: deconstructing an option spread
You may recall from an earlier section that an option spread is constructed by buying one option and
simultaneously selling another option that is similar to the first in all ways except that it is more
out-of-the-money. The revenue from the sale of the second option will help offset the cost of the
purchased option but, in return, the maximum value of the option spread is limited. Once an option
spread is purchased, you can at any time deconstruct it into a long option position by simply buying
back the option previously sold. Doing so removes the upper limit to the value of the position.
Let’s say that you are bullish on a commodity and purchased a

bull call spread. The black line in the chart at right shows the
expiration value of the bull call spread initially purchased. Say
though that commodity prices have since fallen and that both
call options currently have little value. In your opinion, this is
just a temporary retracement; you fully expect prices to resume
their rally. For little expense, you can buy back the call option
sold leaving only a long call position (red line). Should prices turn
around, this long call position will now rise in value without limit.
Notice that this is cheaper than having only bought the long call
option in the first place (green line) since the profit from the
short option trade serves to reduce the net cost of the long call.
More generally, you may elect to convert an option spread to a

long option position whenever the anticipated gain of doing so
outweighs the cost of buying back the short option.
page 98
extended trade topic: trading into option expiration
Shown below is a 30-minute candlestick chart of the nearby E-mini S&P 500 futures on expiration
day of the option. Let’s say that a trader has previously purchased an E-mini S&P 500 call option
struck at 1050, shown as the solid red line on the chart. This option starts the day in-the-money
(meaning that the market price is above the strike price of the option) but the trader is concerned
that prices may collapse and that the intrinsic value of the option will be lost by expiration. This
expectation is reinforced as prices break below recent lows in early morning trading.
Consequently, at 9:00 a.m., the holder decides to sell

an E-mini futures contract at 1053. This locks in a
3-point gain if the option expires in-the-money.
(In this case, the call option will generate a long
futures position at 1050 which will offset the short
position at 1053 leaving a 3-point gain.)
In fact, futures prices drop as feared, even below the

strike price of the option. The holder then buys back
a futures contract at 1040 for a 13-point gain and the
option expires worthless. The call option essentially
allowed the holder to place this short futures trade
with little or no risk.
In general, trading into option expiration can generate

opportunities like this when prices move significantly.
page 99
my first commodity trade
They say that the worst thing to happen with your first trade is to make money. Apparently, it
reinforces, so they say, unrealistic expectations that in turn will lead to financial ruin. Well, I can
tell you from experience that losing on your first trade isn't so great either. Here’s my story...
It was the summer of 1992 and I was working as a Financial Market Economist for a major commodities
exchange in New York City. Being Canadian and after having worked for several years in the foreign
exchange department at the central Bank of Canada, I naturally felt that I had some skill in predicting
the Canadian dollar and so it was in this market that I placed my first trade.
Here's what I did... After watching the Canadian dollar for a while, I finally
got a technical signal to buy. I saw the Cdn dollar move up and through an area
of resistance and this gave me the signal that more strength may lay ahead.
So, with my fresh $5,000 trading account, I phoned my broker and, in my most professional-sounding
voice, confidently placed an order to buy two September Cdn dollar futures contracts. I don't
remember the price, but I do remember that I also placed a stop order to sell these two contracts if
the price declined 55 ticks from my buy price. Confident that I made the right move, I then sat back
and watched...
And here's what the market did... Working at the exchange, we had a real-time price
feed in the office so I could literally watch the Cdn dollar move on a tick-by-tick basis.
Almost right after my trade, the Cdn dollar moved higher a few ticks - and I was feeling
good - then stopped, and started to calmly tick lower. I watched, eyes glued to the screen,
as the currency drifted down, with any buying strength soon giving way to selling pressure.
page 100
my first commodity trade - continued
The next day, the Cdn dollar fell to just 2 ticks below my stop price, just two measly ticks, but it was
enough to trigger the stop order and my first position was officially closed at a $1,100 loss, not
counting commissions, of course.
But then, as if that wasn't enough, the market added insult to injury... Shortly after
having stopped out my trade, the Cdn dollar recovered and moved not only back up to
my initial buy price, but over the subsequent few days, a good 75 ticks beyond that.
If only I had managed to stay in my trade, I would have been taking home money
instead of nursing a damaged ego.
So, what took me many months to save was gone within a few days. And for the next few weeks, I
remember walking around and thinking of all the stuff that I could have bought for $1,100 bucks!
The strategy of buying after a break-out is not a bad one. But I learned to leave a bit more room
around support and resistance levels before putting on a trade. And I developed a new way to set the
stop price, a way that would have risked a little bit more money but, at least in the case of my first
trade, would have turned a loser into a winner.
Years later, when I developed a futures trading course for the beginner, I incorporated all of these
lessons that I learned the hard way. You can find more information about this Course at
http://www.commoditytradingforbeginners.com/futcrs.htm
page 101
my luckiest commodity trade
It is often said that it is better to be lucky than be good. Despite years of formal education in
Financial Market Economics and business, and despite countless hours of studying charts, news and
trade videos, my best trade was one in which I literally had no idea what I was doing. Here's my
story....
I was working in New York as an Economist of a major commodities exchange. I remember that it was
a Monday and I had just placed a trade by phone - you couldn't trade over your computer at the time,
this was many years back - though I can't recall in which market.
Two days later, I received a written trade confirmation by standard mail sent to my home address.
Again, this was well before email was around so any activity in your account, such as trade activity,
was confirmed by post. This was no big deal - I had confirmed the trade by phone on Monday - so I
didn't bother to open the written confirmation until Friday night. That was a mistake...
I opened the trade confirmation expecting to see the usual entries for the
trade that I had made on Monday and the corresponding adjustments to cash.
And, in fact, I did see this. However, I also saw, to my horror, something else.
Underneath my trade was the calm confirmation that I had also, that day,
bought an April Live Cattle futures contract. Now, I had never even looked at
the Live Cattle market, though I had seen live cattle before, and I certainly never traded it.
I was hit by that inescapable sinking feeling that accompanies all bad news but it didn't reach its
climax until I read the fine print down at the bottom of the piece of paper that I was holding in my
slightly shaking hands...
page 102
my luckiest commodity trade - continued
This is what the fine print said...
"Please check confirmations shown above and report any discrepancies. Failure to report within 48
hours shall imply your acceptance of the transactions above."
I was reading this on Friday night, well after the trade desk had closed and, since this would have to
wait until Monday, well after the designated 48-hour period as well. It looked like this long position in
Live Cattle was now mine.
I remember going to the gym that night and not being able to concentrate at all. All night I worried
over this until I finally had an idea. Hmmm, I wondered, at what price did Live Cattle close on Friday?
Saturday morning, I bought a financial paper to check prices - this was before prices were available
on the Internet, indeed, even before the Internet was popular - and I was overjoyed to see that April
Live Cattle had closed about 2 cents higher than the price at which I had allegedly bought. So, I
resolved to do the following...
When Live Cattle opened Monday morning, I would call the trading desk
and immediately sell one contract, thereby closing at a profit this trade
and simultaneously turning a lemon, as they say, into lemonade.
page 103
Monday morning came and I executed this operation without problem. Now the only thing to do was to
wait for the trade report in my mailbox a few days later just as final confirmation of the success of
my cleverly contrived plan. And Tuesday, when I returned home from work, there was the envelope
sitting in my mailbox. Hmmm... a little bit earlier than expected, but what the heck. With confidence,
I opened it and read,
"This is to inform you that the purchase of one Live Cattle futures contract [last Monday] was
attributed to your account in error. This transaction has been corrected and the Live Cattle purchase
has been removed from your account."
Hmmm..... unexpected is this... and unfortunate, to quote a wise, extragalactic

teacher. All at once, the implications of this innocent piece of paper hit me.
The mistake last week that had started this whole episode had been corrected
but the Live Cattle contract that I sold just a few days ago was without a doubt,
absolutely incontestably, my trade and I would have to bear the consequences
of that trade. What had the price of Live Cattle done since I sold one contract
on Monday? I hadn't even looked. It would have to wait until I got into the office
the next morning.
I spent the night worrying yet again but this time having no one to blame but myself. And all because
of a dubious attempt to twist an accounting error to my advantage. It was a long subway commute to
work that morning and, along with the usual burden of the briefcase, I was weighed down by equal
measures of guilt and trepidation. I entered the office, booted up the price reporting screen and...
was once again overjoyed at what I saw.
page 104
Live Cattle prices had fallen starting almost exactly from my sale on Monday and were trading well
below my selling price. When the market opened, I bought one contract to close this short position,
and then watched as Live Cattle prices rallied strongly the entire day.
The result is that I had serendipitously, and without studying any charts or reading any news stories,
sold Live Cattle at the high on Monday and then bought it back on the low on Wednesday. I made a 3-
cent profit equal to $1,200 for the one contract. And that was my luckiest trade ever.
Despite all of my best efforts over the years since that Live Cattle trade, I have never been able to
buy at the low and sell at the high again. Strangely enough, though, it has been easier to do the
opposite (buy at the high or sell at the low), but that's a different story.
page 105
general disclaimer
THE RISK OF LOSS IN TRADING COMMODITY CONTRACTS, OPTION CONTRACTS, FOREX AND LEVERAGED
INVESTMENT VEHICLES IN GENERAL CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER
WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. TRADING IN
FUTURES, OPTIONS AND/OR FOREX IS NOT SUITABLE FOR EVERYONE.
The information contained in this Trading Guide for Beginners (“Guide”) is intended for residents of the United States.
The use of Guide by non-U.S. residents is done so under their representation that Guide is not a solicitation by World
Link Futures, Inc.
All materials in Guide are provided for lawful purposes only. World Link Futures, Inc. reserves complete title and full
intellectual property rights to all materials herein not otherwise protected or owned.
Guide contains examples designed to foster better understanding of futures, options and forex transactions and said
examples are not meant to convey trading advice or solicitation. Readers are advised that brokerage fees and
commissions may vary and that margin levels are subject to change. Trading in futures and options is governed by specific
rules and regulations as set forth by the Exchange, and these rules are subject to change.
Content of Guide is provided "AS IS," "AS AVAILABLE." World Link Futures, Inc. does not warrant the accuracy or
completeness of the information, text, graphics, links, or other items contained in Guide and World Link Futures, Inc.
expressly disclaims liability for errors or omissions in these materials. World Link Futures, Inc. makes no commitment to
update the information contained in Guide.
World Link Futures, Inc. expressly disclaims all liability for the use or interpretation by others of information contained
in Guide. Decisions based on information contained in Guide are the sole responsibility of the reader and in exchange for
using Guide, reader agrees to hold World Link Futures, Inc. harmless against any claims for damages arising from any
decisions that reader may make based on such information. Nothing contained in Guide constitutes investment advice, nor
does it constitute the solicitation of the purchase or sale of any futures, options or forex.
page 106
copyright
© Copyright 2010 by World Link Futures, Inc. ALL RIGHTS RESERVED. Except as otherwise noted, the content of Guide
including but not limited to text, graphics and icons, are copyrighted materials of World Link Futures, Inc. You may use
the content to learn about, evaluate or acquire services or products. You may not copy or display for redistribution to
third parties for commercial purposes any portion of Guide without express permission by World Link Futures. No part
of Guide may be reproduced by any means mechanical or otherwise for publication, re-posting or re-distribution other
than for personal use without express permission by World Link Futures, Inc. Copyright violators will be subject to fine
up to U.S. $1,000 per day over the violation period.
The following trademarks are owned by World Link Futures, Inc.: The blue and white rectangular WLF Network logo,
WLF Futures, Options and Forex Education Network ™, Beginning Traders Start Here ™ and Commodity Trading as a
Second Income ™.
The following trademarks and service marks are owned by Chicago Mercantile Exchange Inc.: CHICAGO MERCANTILE
EXCHANGE®, CME E-mini®, CME®, CME Group™, E-mini® and Globex®. The following are trademarks of The McGraw-
Hill Companies: S&P®, S&P 500®.
The following trademarks and service marks are owned by the Board of Trade of the City of Chicago, Inc.: CBOT®, CBT®
and Chicago Board of Trade®.
The following are trademarks of the New York Mercantile Exchange, Inc.: New York Mercantile Exchange®, NYMEX®
and COMEX®,
IntercontinentalExchange is a registered trademark of IntercontinentalExchange, Inc. ICE and ICE Futures U.S are
registered trademarks of IntercontinentalExchange, Inc. Coffee "C" and Sugar 11 are registered trademarks of ICE
Futures U.S., Inc. USDX is a registered trademark and marque deposee of ICE Futures U.S., Inc. Cotton No. 2 is a
registered trademark of ICE Futures U.S., Inc. U.S. Dollar Index is a registered trademark of ICE Futures U.S., Inc.
page 107

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futures options forex

Beginning Traders Start Here™

© 2010 by World Link Futures, Inc.

Although attracted by the potential to earn profit by trading, many

What is the advantage of being able to trade a variety of markets?

SELLING SHORT ENABLES YOU TO PROFIT

Hypothetical example of buying a futures contract.

Date: Nov 17, 2009

You will need cash in your account to

Date: Nov 30, 2009

Hypothetical example of selling a futures contract.

Date: Nov 6, 2009

You will need cash in your account to cover

Monitoring Margin Funds

Excess margin is reduced as:

Excess margin is increased as:

Cash in margin account: $15,000

Cash in margin account: $15,000

Cash in margin account: $15,000

Earning Interest on Your Margin Dollars

The recession of 2008/2009 convinced many people of the

Buying options on commodity futures has the chief advantage

OPTION PREMIUM = INTRINSIC VALUE + TIME VALUE

Hypothetical example of buying a call option:

March Wheat Call Option Prices

The dollar cost is calculated by multiplying the

Notice that as the strike price of the call option

Hypothetical example of buying a call option - continued:

Closing the Position:

Hypothetical example of buying a put option:

March Sugar Put Option Prices

The dollar cost is calculated by multiplying the

Notice that as the strike price of the put option

Hypothetical example of buying a put option - continued:

Closing the Position:

You’ll also find a free options on futures brochure in the

Hypothetical example of buying a bull call option spread:

June E-mini S&P 500 Call Option Prices

You are bullish on the market and decide to buy

Hypothetical example of buying a bear put option spread:

June E-mini S&P 500 Put Option Prices

Meanwhile, the revenue received from the sale

A covered-call write is a neutral-to-moderately

You can find a trade video on covered-call writing under the

Oct Cotton Call Options Oct Cotton Put Options

The delta of an option is a consequence of the time value of an option and it

Speculators desire to trade forex for the opportunity to profit from a

The forex market is over-the-counter meaning that trades occur over

EUR/USD (Euro / U.S. Dollar)

GBP/USD (British Pound / U.S. Dollar)

USD/JPY (U.S. Dollar / Japanese Yen)

USD/CAD (U.S. Dollar / Canadian Dollar)

You can find more information on forex trading under the

For example, a binary option that has percent payout

At right is an example of a one-hour binary call option

The EUR/USD current price is 1.3529. If you expect that,

At right is a one-hour binary put option on the EUR/USD.

The EUR/USD current price is 1.3529. If you expect that,

You can find more information on binary options under the

Day trading, whether in the futures or forex markets, means

Day trading has two major advantages. First, because positions