Futures

Overview of National Futures Association

The National Futures Association (NFA) is responsible for regulating and monitoring all futures activity within the United States of America and began operating in 1982.  The NFAs main responsibility is to register trading professionals (introducing brokers and commodity trading advisors). 

Role of the National Futures Association

The NFA's main responsibility is to protect investors in the futures industry and the organization accomplishes this by sending a commodity trading advisor through a vetting process.  This process includes a background check, fingerprinting, and extensive paperwork.  Once a trader is registered the NFA is responsible for monitoring the activities of the trader.  This monitoring includes random audits and tracking of complaints from clients.   While the National Futures Association is an independent agency, it does assist in mediation services between brokerage firms and investors.

Commodity Trading Advisor Definition

A commodity trading advisor (CTA) is a trading professional that manages futures and or options accounts for investors. The CTA is required to register with the U.S. Commodities Futures Trading Commission (CTFC). Due to the increase fraud activity in the financial industry, the U.S. government has passed new legislation to better track and monitor CTAs.

How to Become a CTA

There are three requirements to becoming a commodity trading advisor: 1. Pass the Series 3 exam 2. Register through the National Futures Association (NFA) 3. Register with the Commodity Futures Trading Commission

Series 3 Exam

The Series 3 Exam is a 120 question exam that consists of two parts: (1) rules and (2) market knowledge. A tester must answer 70% of the questions correctly to pass the exam.

Managed Futures Account Definition

A managed futures account (MFA) is an alternative investment strategy where an investor allows a professional money manager known as a commodity trading advisors (CTA) to invest funds in the global futures markets.  A managed futures account allows an investor to take part in the market on both a long and short side.  Managed futures accounts have gained popularity in recent years as investors look to invest globally in the bull markets of China and India.

Commodities Futures Trading Commission Overview

The Commodities Futures Trading Commission (CFTC) was founded in 1975 and is empowered by the U.S. government to monitor and regulate trading of futures contracts.  The CTFC is tasked with protecting American citizens from scams and abusive practices that take place in the futures industry.

Mission of the CTFC

The CFTC's mission is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets.

What is a E-Mini Futures Contract

An E-mini futures contract provides a trader the ability to buy the major indices on the Chicago Mercantile Exchange for a fraction of the cost of a full contract.  E-mini contracts are available for the S&P 500, S&P 400, Russell 2000 and the Nasdaq 100.  Each e-mini futures contract is valued at $50 US Dollars and the total cost of a contract is calculated by multiplying the per contract value of $50 x value of the index.  For example if the Index is trading at $1280 the value of one contract is $1280 x $50 = $64,000.  Each one point move in the S&P would represent $50.  You do not need $64,000 to buy the contract, your brokerage firm will have a margin requirement to hold this position.  The requirement can range from $3,000 to $6,000 per contract to hold positions overnight.

The U.S.

What are Interest Rate Futures?

Buying an interest rate futures contract allows the buyer of the contract to lock in a future investment rate; not a borrowing rate as many believe.

What are Index Futures?

Stock index futures are have recently become very popular and have a large number of contracts being traded daily. Index futures are created to replicate the performance of the underlying index that the futures contract represents. Index futures exists for many global stock markets such as the S&P500, DOW Jones Industrial Average, Russell 2000, German DAX, London's FTSE, French CAC40, and other established world markets.

Futures - Definition

A futures contract is an agreement to buy or sell a contract sometime in the future.  Futures contracts have been a part of tradable markets for hundreds of years and date back as far as rice grain futures in Japan.  Futures is truly a game of high stakes and big money.  A trader has the ability to hold enormous positions with very little money.

What are Futures Trading Pits?

You may remember seeing images of traders screaming at the top of their lungs and making all kinds of hand signals in order to place buy and sell orders on the floor of the Chicago Mercantile Exchange (CME).  There is a method to all of this madness and it is actually quite efficient.