Futures

1
Futures Options Give You a Powerful Trading
Advantage in the Booming Commodity
MarketsVictor AdairSenior Vice President /
Derivatives Portfolio ManagerMF Global Canada Co.

• Calgary Resource Investment Conference
• April 12 13, 2008.

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Program Outline

• About MF Global Worlds leading broker in
  exchange traded futures and options
• My Macro Market Opinions
• Why I like to trade Futures and Options
• How I trade / manage risk
• Markets I am watching now
• Questions

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Disclaimer

• This presentation is for information purposes
  only
• Trading derivatives (futures, options, forex)
  involves risk of loss
• Investments can go up as well as down and involve
  the risk of loss
• Past performance will not necessarily be repeated
  in the future
• MF Global Canada Co. is a member of the
• Investment Dealers Association
• Canadian Investor Protection Fund
• Toronto Stock Exchange
• Montreal Exchange
• Winnipeg Commodity Exchange

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MF Global Ltd. formerly Man Financial

• Worlds leading broker in exchange listed futures
  options
• 130,000 active accounts financial institutions,
  industrial groups, hedge funds, asset managers,
  professional traders, private clients
• Operates in 12 countries on more that 70
  exchanges 3,200 employees
• Daily average volume of 8 million lots, more than
  most of the worlds largest derivatives exchanges
• NYSE listed MF

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MF Global Canada Co.

• Leading Canadian futures options broker
• Full service futures options, stocks bonds,
  foreign exchange
• Online futures FX trading platforms
• www.mfglobal.ca
• www.VictorAdair.com
• Vancouver, Calgary, Saskatoon, Winnipeg, Toronto,
  Markham, Montreal

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Macro Market Opinions

• Then
• Credit Boom Asset Boom High Risk Tolerance
• Many years of low interest rates / easy money
• Moral hazard
• Reaching for yield / dont want to be left behind
• Borrowers and Lenders - pushing the envelope on
  risk
• NOW
• Lenders less willing or able to lend
• Borrowers less willing or able to borrow

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Macro Market Opinions (cont.)

• Commodities A Demand Driven Bull Market
• Common cause rapid demand growth / supply
  shortages
• China changed everything
• Dr. Michael Berry Quality of Life Cycle
• Commodities as an Asset Class
• Funds are in the commodity markets like never
  before
• Record open Interest and Volume in exchange
  traded futures
• Will Commodity Bull Market Continue? Yes, but
  with Wild Volatility!

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Macro Market Opinions (cont.)

• Inflation / Deflation?
• US credit crisis induced slowdown deflationary
• Monetary action inflationary
• Credit tightness deflationary
• Fiscal action bigger budget deficits
  inflationary
• Rising food/fuel prices consumers squeezed
  deflationary
• Demographic trends in West deflationary
• US, UK, CAD easing inflationary
• ECB, China steady/tighter deflationary
• De-coupling? Will the Rest of the World
  continue to grow if USA goes into a real
  recession? No deflationary.

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Macro Market Opinions (Cont.)

• We are all currency speculators now
• 6 years of US weakness 6 years of commodity
  market gains
• Currency trends overshoot then make V shaped
  turns
• Current dramatic differences between ECB Fed
  policies may precipitate the end of the Euro
  rally
• Short term Bullish/Bearish Mood (Risk Appetite)
  in financial markets is determined by the
  question Is the credit crisis over?

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Why I Like To Trade Futures and Option Contracts

• Mike Campbell interviewed Jim Rogers on
  Moneytalks Radio in October 2003
• Jim said, The best way to trade commodities is
  with futures contracts. But most retail traders
  use way too much leverage.
• Following that interview I wrote Five Reasons
  Why Futures Contracts Give You a Powerful
  Advantage posted on www.VictorAdair.com

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Why I Like to Trade Futures and Options Contracts
(cont.)

• Efficient
• Transparent
• Pure Play
• Variety
• Leverage
• Easy to go short, open 24 hours, regulated market

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What is a Futures Contract?

• Specified unit of trade with an expiry date
• Example June 2008 Gold Futures Contract
• 100 troy ounces / specified quality and delivery
  location
• First Notice day May 30, 2008
• Value of the contract at 900 oz 90,000
• Minimum initial performance bond, approx. 4,000
• Leverage 221

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How I trade

• I develop Global macro opinions
• I may be100 in cash or up to 4x leverage
• I read a lot of different research
  www.VictorAdair.com to form my opinions
• Im not a day trader but I watch the markets all
  day
• Opinions necessary (you have to have the
  courage of your convictions) and dangerous (you
  have to give up quickly when proven wrong)
• I try to anticipate a trade before it is time to
  make the trade then Im ready when its time to
  pull the trigger
• I need a technical confirmation that my opinion
  may be right before I execute

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How I trade (cont.)

• I trade like a mercenary (Dennis Gartman) when
  markets change I change
• I challenge consensus what if the popular
  idea is wrong, has run its course?
• I try to judge the mass psychology who has a
  weak / strong position in the market?
• Changing psychology not math moves markets
• All markets are spreads try to think like a
  spread trader what is X worth relative to Y?
• Markets are inter-related but relationships
  change
• Options Current I.V. relative to history - Use
  alone or in combination with futures

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Managing Risk

• I know practically nothing and cannot predict the
  future
• Most likely risk my opinion is wrong
• Anything can happen
• Patience sitting in cash is OK
• Add to winners, never add to losers
• I know where I will get out (if Im wrong) before
  I get in
• Write down my reasons

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Managing Risk (cont.)

• Max loss 1 2 per trade / use low leverage
• Accept that most of my trades may lose money
• No big losses, occasional big wins
• Relationships between markets change, but markets
  always influence one another
• Be aware of my prejudices foundation of all
  opinions
• See 22 Trading Rules www.VictorAdair.com

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Yield on US 30 year Treasury (falling IR boost
asset prices)
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Dow Jones (falling IR boost asset prices)
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US Dollar Index not always a bear market!
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Commodity Index 6 years of a bear market in US
6 years of a bull market in commodities
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Commodity Index Vs. US Dollar Index
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Gold Now thats been a heck of a Bull Market!
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Crude Oil another fabulous Bull Market!
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Euro Currency Vs. US Endgame approaching?
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US Dollar Index Psychology is extremely
negative. Time for a turn?
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Euro Vs. British Pound Could be the Canary in
the Coalmine for a turn higher in the US
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Euro Vs. Japanese Yen Risk thermometer, week to
week ups and downs very similar to ups and downs
of G7 stock markets
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New Zealand Dollar Vs. Japanese Yen another risk
therometer, look at the break in the summer of
2007 another canary?
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Canadian Dollar Vs. US Dollar match this with a
commodity index chart overdone at 110.00
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Canadian Dollar and Commodity Index
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Shorter term Gold a rally up through 950
resumes the major up-trend. If 950 is resistance
look for new correction lows
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Gold Reciprocal are we pre-programmed to see
bull markets? If this becomes a bull market then
gold is falling in price
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Gold / Crude Oil all markets are spreads. What
is X worth in terms of Y?
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Gold / SP 500 another spread
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Copper Does copper have a Phd in economics? A
rally through 4 would be pretty impressive
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Platinum Power shortages at S. African mines
drive prices higher in a market with low
inventories
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Crude Oil Are Investors piling into the
energy markets? Has rising global demand been
cause for more than doubling prices in 15 months?
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New York Gasoline another commodity at all time
highs
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Minn (Hard Red Spring) Wheat supply shortages,
volatility, dis-connect with cash markets
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Corn global demand for better food, ethanol,
funds, new all time high prices
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Rice food riots, hoarding, front page news, can
a top be far away?
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Deere Company Another way to play the
Agricultural boom
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Potash Corp of Saskatchewan WOW!!
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US bonds Vs. SP 500 Bonds catch a bid as stocks
fall the classic flight to safety
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Philly Bank Share Index started to fall from all
time highs before the credit crisis became
front page news
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Philly Housing Sector Index Could this be
showing signs of bottoming in the face of
relentless bearish news from the housing sector?
47
Starbucks Is the consumer cutting back on
non-essentials?
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Vix CBOE Volatility Index
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Chicago Mercantile Exchange it has been a
tripple play on rising stocks, commodities and
exchanges
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Summary

• MF Global is the worlds leading broker of
  exchange traded futures and options
• The Credit Boom produced an Asset Boom a great
  Appetite for Risk.
• Futures markets give you a Powerful Trading
  Advantage
• Opinions are necessary and dangerous
• How I trade / manage risks
• There are great trading opportunities in a number
  of markets