Like any class, course, or topic of interest, there are certain things that simply need to be memorized and known. Please get familiar with the below terms and facts as you will be seeing them often during what will hopefully be a long, fruitful career in the Trading Game.
Futures Contract Name
There are 3 components to the Symbol or Name for a Futures Contract. They are 1) The Underlying description 2) Month of Contract 3) Year of Contract. The month is the annoying part, and I have no idea why they do this, but they did. Effectively a letter represents each month of the year - The table is as follows:
F = Jan
J = Apr
K = May
M = June
N = July
Q = Aug
U = Sep
V = Oct
X = Nov
Z = Dec
So lets say you are trading Feb17 Gold: 1) Root Symbol for Gold is "GC". The Month of Feb is....come on...look above... right..."G". And the year is 17. Therefore the Symbol is:
Each future has a different Root symbol and you will see this throughout the platform. As I mentioned previously, you will pick this up naturally over time as you begin following these markets and using the platform for your studies. You will see for ease of reference that we always break the Futures we cover into sectors, and then all Root symbols are beneath it.
Next, Lets cover some Common Terms and phrases you will be hearing and using:
1) Going Long - This means you are buying something.
2) Going Short - This means you are selling something.
3) Options on Futures - An option is a contract permitting you to buy or sell. "The Right" to buy or sell a specific Future, at a Specific Date, and at a Specific Price. You pay a Price for this right. We will cover Options in much more detail later.
Types Of Orders You May Enter
You can specify the way you want your order to be executed by your broker. I'm not writing a text book here, so I wont get into all of it but primarily there are 2 types of orders you will use.
1) Limit Order - Only buy or sell at a Specific Price - "Buy 2 GCG17 @ 1205" - You will only be filled on your order if the seller agrees that price.
2) Market Order - You tell your broker to buy or sell at any price - You just want in or out, right now, this very second, regardless of price. As long as you are trading liquid contracts you wont get clipped too bad here. But if there is a panic and the market is really moving, then much to your chagrin, you may see your market order filled at a much worse price than hoped for.
The Rule of thumb, which you should primarily follow is: When closing a position use a Market Order. You want out? Get out..Don't dick around trying to squeeze an extra 10 cents out. What you will find is that by the time you finish typing in your limit order to squeeze 10 cents, the market just fell 2 points. So you then again type your limit order to sell 10 cents above the Bid, except this time its 2 points lower again.. Ooops, it just fell another point. - Get the drift here?
3) Stop Loss Orders - This is a much touted order which you should never use. A "stop" is a order in the market, telling your broker & therefore the whole world, exactly where you want to get out.
"Hey you...over there...Look at me...Over Here...This is exactly where I want to take my loss to protect myself, OK?... Thanks"
While the concept of knowing and limiting your loss is critical and absolutely needs to be part of your Trading program, using Stops is not the answer. It's like playing poker with your hold cards showing - Not only do the market makers see you, but so do the High Frequency Trading Algos - Because your broker sells customer information to them! - They know where the retail stops are layered and in the middle of the night they'll come right to your price, give you your loss you requested, and then bring back the Future right back where it was.
An example of what has happened countless times to traders is as follows:
You are Long the S+P and futures are up before you go to sleep. There is a positive vibe in the market and higher prices are anticipated tomorrow with positive news expected.
You wake up the following morning to see that your position is up 1% & you smile as you pour yourself a cup of Sanka. The smooth, rich taste envelops your taste buds and you are now ready to take a bite of the cinnabon you picked up at Whole Foods yesterday. But you know it gets your fingers all sticky, so you better check your account Profit &Loss screen first to actually see how much money you are up... should be about a grand. When you go to your portfolio, you don't see your position in there...?.. WTF?
It then hits you. You quickly check the intra-day chart and see that overnight there was a mini spike lower right beneath your stop price - it happened in less than a minute before bouncing right back - You now have yourself a $500 loss instead of a $1k gain, and you swear to God that you will kill this fucking market maker if you ever meet him.
Suddenly your coffee lost it's flavor and you realize the cinnabon is a sugary piece of carbohydrate garbage that makes you feel like a fat ass by the time you are done eating it.
So do us, and yourself a favor - Never use stop losses. Instead, purchase long dated options for your stop. They protect your downside just as a stop would, but they are in force for months. So these late night shenanigans perpetrated by the crooks, with the regulators blessings, will never impact you. Most importantly you ensure your tasty breakfast doesn't get ruined!