Diversifying Your Portfolio with Futures and Forex

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Diversifying Your Portfolio with Futures and Forex
Larry Dyekman Director, Communications and
Education National Futures Association
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What Well Talk About Today

• Why more individual investors are trading futures
  and forex
• What risks are involved in trading futures and
  forex
• How to conduct due diligence
• What questions to ask before trading

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What Well Talk About Today

• How to look for warning signs of possible fraud
• How to resolve disputes
• Where to go for additional information

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National Futures Association

• Safeguard market integrity
• Protect market participants
• Help NFA Members meet their regulatory
  responsibilities

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National Futures Association

• Registration
• Compliance
• Dispute Resolution
• Education

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Why More People Want to Diversify Their
Portfolios

• Risk Management
• Easier Access to Markets

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What is a Futures Contract?
A futures contract is a legally binding
agreement to buy or sell a commodity or financial
instrument at a later date. Futures contracts are
standardized according to the quality, quantity
and delivery time and location for each
commodity. The only variable is price.
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What is Forex?
Forex refers to trading foreign currency.
Retail customers generally participate in the
forex market as speculators who are hoping to
profit from changes in currency rates.
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Most Commonly Traded Currencies
EUR Euro USD United States dollar CAD
Canadian dollar GBP British pound JPY
Japanese yen AUD Australian dollar CHF
Swiss franc
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Trading Currencies
Forex transactions are quoted in pairs because
you are buying one currency while selling
another. The first currency is the base currency
and the second currency is the quote
currency. The price, or rate, that is quoted is
the amount of the second currency required to
purchase one unit of the first currency.
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Trading Currencies
For example, a EUR/USD spread of 1.2170/1.2178
means that you can sell one Euro for 1.2170 and
buy one Euro for 1.2178.
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Why Futures Trading is a High-risk
Venture

• Zero-sum game
• Volatility
• Leverage
• Margins

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Why Forex Trading is a High-risk Venture

• No central clearinghouse
• No protection for your money in light of the
  firms bankruptcy
• Leverage
• Margins

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Margins

• Initial Margin
• Maintenance Margin

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Deciding Whether to Participate in the Futures or
Forex Markets

• Assess your financial situation
• Assess your tolerance for risk
• Conduct due diligence

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Methods of Participating in Futures or Forex
Markets

• Trade your own account
• Futures Commission Merchants
• Retail Foreign Exchange Dealers
• Introducing Brokers
• Have someone manage your account
• Use a Commodity Trading Advisor
• Participate in a commodity pool

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Background Affiliation Status Information
CenterBASIC
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What Youll Find in BASIC

• Current and historical registration information
• Disciplinary actions taken by NFA, the CFTC and
  all the US futures exchanges
• Financial information for futures commission
  merchants (FCMs)
• NFA arbitration and CFTC reparations cases

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Questions to Ask Before Opening an Account

• What is your NFA ID number?
• How long has your company been in business?
• Where exactly will my money be held? And what
  type of regular account statements do you provide?

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Questions to Ask Before Opening an Account

• How much of my money will go for commissions,
  management fees, etc.?
• How can I liquidate if and when I decide I want
  my money?

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Warning Signs of Possible Fraud

• Expectation of large profits
• Promise of low risk
• Seasonal trades

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If a Dispute Arises

• Civil Suit
• CFTC Reparations
• NFA Arbitration/Mediation

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NFA Arbitration Program

• No attorney is necessary
• Do not need to allege a rule violation
• Non-industry arbitrators
• Written submission option

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Additional Resources

• NFA publications
• www.nfa.futures.org
• www.cftc.gov
• www.finra.com
• Futures exchanges

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Websitewww.nfa.futures.orgInformation
Center1-800-621-3570 1-312-781-1410800 a.m.
500 p.m. CTMonday - Friday
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Questions?