Diversifying Your Portfolio with Futures and Forex

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Diversifying Your Portfolio with Futures and Forex

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Title: Diversifying Your Portfolio with Futures and Forex

1
Diversifying Your Portfolio with Futures and Forex
Larry Dyekman Director, Communications and
Education National Futures Association
2
What Well Talk About Today

Why more individual investors are trading futures
and forex
What risks are involved in trading futures and
forex
How to conduct due diligence
What questions to ask before trading

3
What Well Talk About Today

How to look for warning signs of possible fraud
How to resolve disputes
Where to go for additional information

4
National Futures Association

Safeguard market integrity
Protect market participants
Help NFA Members meet their regulatory
responsibilities

5
National Futures Association

Registration
Compliance
Dispute Resolution
Education

6
Why More People Want to Diversify Their
Portfolios

Risk Management
Easier Access to Markets

7
What is a Futures Contract?
A futures contract is a legally binding
agreement to buy or sell a commodity or financial
instrument at a later date. Futures contracts are
standardized according to the quality, quantity
and delivery time and location for each
commodity. The only variable is price.
8
What is Forex?
Forex refers to trading foreign currency.
Retail customers generally participate in the
forex market as speculators who are hoping to
profit from changes in currency rates.
9
Most Commonly Traded Currencies
EUR Euro USD United States dollar CAD
Canadian dollar GBP British pound JPY
Japanese yen AUD Australian dollar CHF
Swiss franc
10
Trading Currencies
Forex transactions are quoted in pairs because
you are buying one currency while selling
another. The first currency is the base currency
and the second currency is the quote
currency. The price, or rate, that is quoted is
the amount of the second currency required to
purchase one unit of the first currency.
11
Trading Currencies
For example, a EUR/USD spread of 1.2170/1.2178
means that you can sell one Euro for 1.2170 and
buy one Euro for 1.2178.
12
Why Futures Trading is a High-risk
Venture

Zero-sum game
Volatility
Leverage
Margins

13
Why Forex Trading is a High-risk Venture

No central clearinghouse
No protection for your money in light of the
firms bankruptcy
Leverage
Margins

14
Margins

Initial Margin
Maintenance Margin

15
Deciding Whether to Participate in the Futures or
Forex Markets

Assess your financial situation
Assess your tolerance for risk
Conduct due diligence

16
Methods of Participating in Futures or Forex
Markets

Trade your own account
Futures Commission Merchants
Retail Foreign Exchange Dealers
Introducing Brokers
Have someone manage your account
Use a Commodity Trading Advisor
Participate in a commodity pool

17
Background Affiliation Status Information
CenterBASIC
18
What Youll Find in BASIC

Current and historical registration information
Disciplinary actions taken by NFA, the CFTC and
all the US futures exchanges
Financial information for futures commission
merchants (FCMs)
NFA arbitration and CFTC reparations cases

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28
Questions to Ask Before Opening an Account

What is your NFA ID number?
How long has your company been in business?
Where exactly will my money be held? And what
type of regular account statements do you provide?

29
Questions to Ask Before Opening an Account