While we as a nation have been in the throes of financial crisis and seemingly arrive ruin, it has caused me to be all the more aware of the fragility of definite things we may have taken for granted. Most of us have viewed the large banking institutions, insurance firms and investment houses as being gorgeous powerful “rock solid” for a variety of reasons – maybe due to the assumed diversity of their portfolios, strong and adept management, or maybe just the fact of the longevity of many well known investment firms. Unprejudiced when we reached the point of feeling pretty top-notch about our methods of investing – along came the Enron scandal, and more recently large losses in 401K and IRA accounts, bailouts for AIG and the big-three auto makers, and the “Madoff” scandal. I can’t abet but consider that maybe it’s time we take a more “personal” and proactive stance toward our investment decisions, rather than turning our money over to the so-called professionals – which seems to be our propensity.

It seems the investment emphasis for the general public has, over the years, bumped along through various stages. Once-upon-a-time the stock market was looked upon as a type of investing practiced solely by the very wealthy, only the most “sophisticated” investors. During the late 70′s we began to hear of IRAs, then 401Ks and a large rush toward the mutual funds. The 1980′s saw the re-emergence of personal investing in the stocks – dotcoms, penny stocks, IPOs, day-trading and over-the-counter stocks, – by the general public. While these forms of investing are more available to us than ever, there continues to be one make of investment that many seem to avoid like a case of food poisoning and refuse to even consider – the “futures markets”. The dreaded “F-word” of investing.

Futures Markets Today!
Is this fabricate of investing right for the “non-professional” investor today? A few of the demographics depict some interesting details. For instance, the number of contracts traded in the energy markets increased approximately 69% from 1998 to 2004. The increase in the financial markets, such as Treasury Bonds increased around 169%. Also, in the financial sector, of the 949 million contracts traded during 2004 only around 1% were actually settled by delivery or cash settlement. Thus the majority of these contracts, over 90% were traded by speculators. This growing interest is reflected by the increase in the volume of contracts traded in the various market sectors, for example within the currency market, the number of British Pound contracts traded during 2004 numbered 4,070,827 – a 72% increase from unprejudiced a year earlier. These types of increases, across all market sectors, display that the futures- markets offer an unprecedented opportunity for profitable trading due to the increased liquidity and the sheer number of product offerings. It is also evident, that in increasing numbers, individual speculators are turning to this form of investment.

Trading futures was once plan of as the sole domain of only the “most sophisticated” of investors and of very large companies which needed to use futures to “hedge” their production costs against price changes in the market – thus establishing their production costs on “raw materials” into the future. With today’s increasing ability to trade these markets and monitor positions on-line and by using discount brokerages, these markets can be traded quite easily and with very obedient results. Often I’ve heard the old adage that you can lose your “shirt”, “house”, “family farm”, etc in trading the commodity markets, – the CTFC and NFA (watchdogs for the commodities industry) do indeed solemnly warn that because of the leverage involved in trading these markets very substantial losses are possible. Some may even say they are inevitable. But if this is true, one question still begs the asking, – if large losses are possible isn’t it also moral that large gains are very possible as well. While we can’t just “throw money” into holding a futures position as we might do with buying a stock issue (with itsy-bitsy or no risk), what prevents you and me from becoming a knowledgeable and competent investor or trader in the futures markets? Should we automatically assume that losses are inevitable and that the common person with some money to invest is incapable of learning how to trade these markets or how to limit losses should a market turn against his position? Of course not! This is what I propose in my trading method, “Transitional Analysis” and refer to on my website, (www.transitionalanalysis.com) – becoming a proficient and competent trader and taking advantage of this famous form of investing that is often thought of as a realm originate to only the most elite. The term “sophisticated” is most certainly an adjective used to describe an investor who has done the “home-work” on a particular market. One who, because of study and becoming knowledgeable in a certain market, can enter and exit a market position with “discernment”. As I talk to people who are involved in these markets or read the numerous articles available on trading futures, I often note the plethora of systems that propose a “mechanical” or “auto-pilot” type of trading. Isn’t this the mentality that has gotten us into the problems we face today – turning our hard earned capital over to those who we think are somehow better qualified to invest our money?
What is needed? A recent article in “Futures” magazine quoted a successful trader who had posted gains of 142% in 2008 as crediting his success to “a good trading system with sound risk management and markets that are active as hell.” During a year in which many experienced losses of 20% or more in their long-term investments a 142% gain is more than impressive.

Is futures speculation for everyone? Probably not. But for those who can embrace the challenge of becoming knowledgeable in the commodity markets, how they’re traded and how to practice the rules of sound money management there are potentially very good profits to be gained. I believe that education and “a good trading method” are key elements of successful personal investing, whether in the perceived safety of stocks and mutual funds or the more volatile and leveraged returns of the f-word, “futures”.