advice on futures investment

andyandy · 20th October 2006, 11:59 AM

hiya

i was reading up on futures for another thread - and i have a question about leverage - how is the percentage calculated? If I have $4000 for an initial margin what factors determine how big a contract i can enter into? Is it generally around 5%-10%? Does it fluctuate in volatile markets? Does someone have to prove extra assets to cover themselves?

the scenario i posted on the thread is posted below....do the figures make sense?

Quote:

it's 1968,

a bit of a gambler i take home $4000 after a good night at the casino, feeling lucky i decide to put some money into the stock market - i've a mate down the pub who tells me that commodities are the best way to get rich quick - so i decide to give it a punt. I find a broker and enter into a 5 year futures contract in sugar - with an initial margin of $4000 - buying at $0.15 per ounce for a total of 266,000 ounces ($40,000)
and low and behold my mate was right! The price of sugar in the five year period increases ~1200% and at the end of my contract, the $4000 i invested has made me $500,000. Flushed with success i decide that the stock market is the way to go - there's some fella called Soros I've heard of - what the hell? I'll put my $500,000 into his Quantum group.......

i cash out in 1997 with over $1 billion dollars......

just an example, i hope my figures make sense - i think they're all plausible....

basically zero to $billion in 3 lucky breaks......

sugar commodity price rises...http://www.financialsense.com/editor.../2003/0428.htm

Soros http://www.berkeley.edu/news/media/r...04_soros.shtml

How high risk high reward is futures speculation?

any interesting case studies/examples?

drkitten · 20th October 2006, 12:09 PM

Originally Posted by andyandy

i was reading up on futures for another thread - and i have a question about leverage - how is the percentage calculated? If I have $4000 for an initial margin what factors determine how big a contract i can enter into? Is it generally around 5%-10%? Does it fluctuate in volatile markets? Does someone have to prove extra assets to cover themselves?

That's almost like asking how much is the interest on a loan. "It depends." 10% is typical for most of the brokerages to whom I've spoken, but I'm also neither dead-broke nor a decabillionaire. Mr. Soros or Mr. Gates can probably get better margin requirements than I can.

Quote:

the scenario i posted on the thread is posted below....do the figures make sense?
How high risk high reward is futures speculation?

any interesting case studies/examples?

Well, as you pointed out, you cherry-picked the numbers to make unrealistically large sums. No one is that lucky in real life with real money. You also didn't account for the fees you would have had to pay, which (depending upon how you did it) would have cut into your profits.

But aside from the fact that it's totally unrealistic, it's completely realistic as far as I can tell.

This Guy · 20th October 2006, 12:12 PM

Originally Posted by andyandy

hiya

i was reading up on futures for another thread - and i have a question about leverage - how is the percentage calculated? If I have $4000 for an initial margin what factors determine how big a contract i can enter into? Is it generally around 5%-10%? Does it fluctuate in volatile markets? Does someone have to prove extra assets to cover themselves?

the scenario i posted on the thread is posted below....do the figures make sense?
How high risk high reward is futures speculation?

any interesting case studies/examples?

I once invested in silver via a leveraged account.

Been many years, but I believe the margin I was allowed was 75% ( I had to keep a 25% interest in the account).

This was around the time the Hunt brothers decided to dump their vast silver holdings on the market, and I took a beating. Lucky me

I suspect the margins are determined by a combination of securities regulations/markets/brokers. But that's speculation on my part.

20th October 2006, 11:59 AM	#1
andyandy anthropomorphic ape Join Date: Apr 2006 Location: up a tree Posts: 8,192	advice on futures investment hiya i was reading up on futures for another thread - and i have a question about leverage - how is the percentage calculated? If I have $4000 for an initial margin what factors determine how big a contract i can enter into? Is it generally around 5%-10%? Does it fluctuate in volatile markets? Does someone have to prove extra assets to cover themselves? the scenario i posted on the thread is posted below....do the figures make sense? Quote: it's 1968, a bit of a gambler i take home $4000 after a good night at the casino, feeling lucky i decide to put some money into the stock market - i've a mate down the pub who tells me that commodities are the best way to get rich quick - so i decide to give it a punt. I find a broker and enter into a 5 year futures contract in sugar - with an initial margin of $4000 - buying at $0.15 per ounce for a total of 266,000 ounces ($40,000) and low and behold my mate was right! The price of sugar in the five year period increases ~1200% and at the end of my contract, the $4000 i invested has made me $500,000. Flushed with success i decide that the stock market is the way to go - there's some fella called Soros I've heard of - what the hell? I'll put my $500,000 into his Quantum group....... i cash out in 1997 with over $1 billion dollars...... just an example, i hope my figures make sense - i think they're all plausible.... basically zero to $billion in 3 lucky breaks...... sugar commodity price rises...http://www.financialsense.com/editor.../2003/0428.htm Soros http://www.berkeley.edu/news/media/r...04_soros.shtml How high risk high reward is futures speculation? any interesting case studies/examples?
	__________________ "Contentment is found in the music of Bach, the books of Tolstoy and the equations of Dirac, not at the wheel of a BMW or the aisles of Harvey Nicks." Last edited by andyandy; 20th October 2006 at 12:03 PM.

20th October 2006, 12:12 PM	#3
This Guy Master Poster Join Date: Mar 2006 Location: On the corner of WALK and DON'T WALK Posts: 2,000	Originally Posted by andyandy hiya i was reading up on futures for another thread - and i have a question about leverage - how is the percentage calculated? If I have $4000 for an initial margin what factors determine how big a contract i can enter into? Is it generally around 5%-10%? Does it fluctuate in volatile markets? Does someone have to prove extra assets to cover themselves? the scenario i posted on the thread is posted below....do the figures make sense? How high risk high reward is futures speculation? any interesting case studies/examples? I once invested in silver via a leveraged account. Been many years, but I believe the margin I was allowed was 75% ( I had to keep a 25% interest in the account). This was around the time the Hunt brothers decided to dump their vast silver holdings on the market, and I took a beating. Lucky me I suspect the margins are determined by a combination of securities regulations/markets/brokers. But that's speculation on my part.
	__________________ I'm lost. I've gone to find me. If I should return before I get back, please ask me to wait!

20th October 2006, 12:09 PM	#2
drkitten Penultimate Amazing Join Date: Mar 2004 Location: Wits' End Posts: 21,647	Originally Posted by andyandy i was reading up on futures for another thread - and i have a question about leverage - how is the percentage calculated? If I have $4000 for an initial margin what factors determine how big a contract i can enter into? Is it generally around 5%-10%? Does it fluctuate in volatile markets? Does someone have to prove extra assets to cover themselves? That's almost like asking how much is the interest on a loan. "It depends." 10% is typical for most of the brokerages to whom I've spoken, but I'm also neither dead-broke nor a decabillionaire. Mr. Soros or Mr. Gates can probably get better margin requirements than I can. Quote: the scenario i posted on the thread is posted below....do the figures make sense? How high risk high reward is futures speculation? any interesting case studies/examples? Well, as you pointed out, you cherry-picked the numbers to make unrealistically large sums. No one is that lucky in real life with real money. You also didn't account for the fees you would have had to pay, which (depending upon how you did it) would have cut into your profits. But aside from the fact that it's totally unrealistic, it's completely realistic as far as I can tell.