Now is a great time to be an online futures trader! Technology has put tools and information never available before right at your fingertips. Internet-based trading gives you unprecedented speed, convenience, and control. And perhaps best of all, online technology provides unbeatable value to the individual trader.

While the advantages of Internet trading through Friedberg Direct are tremendous, it's important that you understand that having complete control over your trading account is hard work, and it can be time-consuming. It means educating yourself about financial principles and the economy. It requires staying on top of the news and monitoring your account conscientiously. And most of all, it means educating yourself about the futures markets. If you don't fully understand these basics -- or if you don't have the time or inclination to keep up with the markets and to monitor your account regularly -- or if you're just not comfortable having total control of your account -- then online trading probably isn't for you. Working with a full-service broker -- who can offer you one-on-one, personal guidance, mentoring, and assistance -- is probably a better bet. We'd be happy to help you find a suitable full-service broker if you so desire.

Remember, Friedberg Direct has been designed to serve experienced, self-directed traders who don't need the assistance of a full-service broker, so we don't provide investment, tax, legal, or accounting advice. And we never recommend specific trading strategies. While we do place substantial tools and information at your fingertips, being a self-directed trader means that you're calling your own shots, and you're fully responsible for your trading decisions and actions. Never forget -- with empowerment comes responsibility.

That being said, if you looking for a Full Service Broker to provide some guidance, please let us know and we will have one of our brokers contact you.

FUTURES TRADING EXAMPLE

To say that gains and losses in futures trading are the result of price changes is an accurate explanation but by no means a complete explanation. Perhaps more so than in any other form of speculation or investment, gains and losses in futures trading are highly leveraged. An understanding of leverage--and of how it can work to your advantage or disadvantage--is crucial to an understanding of futures trading.

As mentioned in the introduction, the leverage of futures trading stems from the fact that only a relatively small amount of money (known as initial margin) is required to buy or sell a futures contract. On a particular day, a margin deposit of only $1,000 might enable you to buy or sell a futures contract covering $25,000 worth of soybeans. Or for $10,000, you might be able to purchase a futures contract covering common stocks worth $260,000. The smaller the margin in relation to the value of the futures contract, the greater the leverage.
If you speculate in futures contracts and the price moves in the direction you anticipated, high leverage can produce large profits in relation to your initial margin. Conversely, if prices move in the opposite direction, high leverage can produce large losses in relation to your initial margin. Leverage is a two-edged sword.

For example, assume that in anticipation of rising stock prices you buy one June S&P 500 stock index futures contract at a time when the June index is trading at 1000. And assume your initial margin requirement is $10,000. Since the value of the futures contract is $250 times the index, each 1 point change in the index represents a $250 gain or loss.

Thus, an increase in the index from 1000 to 1040 would double your $10,000 margin deposit and a decrease from 1000 to 960 would wipe it out. That's a 100% gain or loss as the result of only a 4% change in the stock index!

Said another way, while buying (or selling) a futures contract provides exactly the same dollars and cents profit potential as owning (or selling short) the actual commodities or items covered by the contract, low margin requirements sharply increase the percentage profit or loss potential. For example, it can be one thing to have the value of your portfolio of common stocks decline from $100,000 to $96,000 (a 4% loss) but quite another (at least emotionally) to deposit $10,000 as margin for a futures contract and end up losing that much or more as the result of only a 4% price decline. Futures trading thus requires not only the necessary financial resources but also the necessary financial and emotional temperament.