Are buying and selling futures based on objective data?
"If you're simply a futures speculator, then yes, it does seem like gambling. If you're a farmer producing a few thousand bushels of wheat, futures can be a mechanism for you to hedge against certain kinds of market risk. Same if you're running a heating oil company, etc. I just read somewhere that the bad spring weather in South Dakota has prevented farmers from getting corn planted -- nothing is in the ground yet. This is ""objective data"" from which you might infer that this year's corn harvest could be late and/or smaller than normal. So maybe if you're a buyer for General Mills, you use corn futures to control your costs. In this case you'd have some idea based on experience what to expect for the price of corn, what your production line requires for input, how much you can charge for finished product, etc. These all factor in to the price you'd be willing to pay for corn futures." I own a gold mine and my cost of producing an ounce of gold is $600. Less than that, I lose money, anything over is profit. Today, at $1500, I sell futures to match my production for the next 2 years. I'm happy to lock in the profit. If gold goes to $3000, well, too bad, but if it drops to $500, I can still sell it for the $1500 as I mine it. I suppose I could also close out the contracts at a profit and still shut the mines down, but the point is illustrated. If you hold a future plus enough cash collateral it is economically equivalent to owning the underlying asset or shorting the underlying asset. In general financial assets such as stock indices have a positive expected return - that's the main difference between investing and gambling. There's nothing that special about futures, they are just another contractual form of asset ownership.  Well, one difference is that regulations or brokerages allow individual investors more leverage with options and futures than with straight borrowing. But this is more a regulatory issue than a conceptual issue with the securities themselves. In theory regulators or brokers could require you to hold enough collateral to make a future equivalent to buying the underlying. Let's ask another question:  Why do you buy X at price $Y? Here are some answers: Now, another question:  Are you guaranteed to get at least $Y worth of value when you buy X? Of course not!  A lot of things can happen.  Your car can be a lemon.  Your pedigreed Dachshund can get run over by a snowblower.  Or, the prices of the underlying commodity or security can go against your futures contract. You can raise your chances of getting appropriate value out of X by doing your homework and hedging your risk.  The more homework you do, the less of a gamble you're taking.
Okay, how good is my programmed test going to be if I'm new to trading? I thought the biggest flaw to algorithm trading is the people that write the code?  I am still trying to develop my own sense of swing reading with significant structure, price action, and other technicals. I was going to use the click-by-click, ninjatrader method to see what works best.   So, between your answer and my question. If I was going to buy data, from what stocks would be the best data to mine. L? It's a lot easier to trade a contract based on the forward value (a futures contract) of some commodity, than say constantly trade &amp; deliver 1000 barrels of crude oil.   Along those lines, it's also easier to trade an option on the forward value than it is an option on the actual commodity, especially if you have the ability to exercise the option This conversation is about energy futures, not generic securities. A moderately wealthy dilettante without a background in the subject is at an extreme disadvantage - since as a trader your edge is being able to identify market inefficiencies and profit from them, it's difficult to imagine being able to do this in a market you do not understand. Technical Analysis in general is something to be cognizant of, I don't use a majority of studies and consider them a waste of time.  I also use quantitative analysis more so than technical analysis, and prefer the insight it gives into the market. The markets are more about predicting other people's behavior, psychology. So if you are trading an equity that you know retail traders love, retail traders use technical analysis and you can use their fabled channel reversals and support levels against them, as examples. Technical analysis is an extremely broad subject. So I suggest getting familiar, but if your historical pricing charts are covered in various studies, I would say you are doing it wrong. A more objective criticism of technical analysis is that many of the studies were created in the 1980s or earlier. Edges in the market do not typically last more than a few weeks. On the other side of that realization, some technical analysis works if everyone also thinks it will work, if everyone's charts say buy when the stock reaches the $90 price level and everyone does, the then stock will go higher. But the market makers and the actions of the futures markets and the actions of options traders, can undermine the collective decisions of retail traders using technical analysis. The time horizon applicable to the price target is always specified by the broker or bank which published the research report.  You will find this information in the disclaimer, which is present on every research report. Usually it is 12 months, but some firms give 6 months price targets. However, you should never rely on the price target alone and always combine it with the following details (to name a few): Are the analyst's estimate above or below consensus estimates (or company guidance), did the analyst rise or lower its estimates. What is the rating on the stock (Buy, Sell, Hold...), when did he change his rating or price target.  Does the firm do business with the company? (which may influence a bullish tone and optimistic price target). "Ignoring the complexities of a standardised and regulated market, a futures contract is simply a contract that requires party A to buy a given amount of a commodity from party B at a specified price. The future can be over something tangible like pork bellies or oil, in which case there is a physical transfer of ""stuff"" or it can be over something intangible like shares. The purpose of the contract is to allow the seller to ""lock-in"" a price so that they are not subject to price fluctuations between the date the contract is entered and the date it is complete; this risk is transferred to the seller who will therefore generally pay a discounted rate from the spot price on the original day. In many cases, the buyer actually wants the ""stuff""; futures contracts between farmers and manufacturers being one example. The farmer who is growing, say, wool will enter a contract to supply 3000kg at $10 per kg (of a given quality etc. there are generally price adjustments detailed for varying quality) with a textile manufacturer to be delivered in 6 months. The spot price today may be $11 - the farmer gives up $1 now to shift the risk of price fluctuations to the manufacturer. When the strike date rolls around the farmer delivers the 3000kg and takes the money - if he has failed to grow at least 3000kg then he must buy it from someone or trigger whatever the penalty clauses in the contract are. For futures over shares and other securities the principle is exactly the same. Say the contract is for 1000 shares of XYZ stock. Party A agrees to sell these for $10 each on a given day to party B. When that day rolls around party A transfers the shares and gets the money. Party A may have owned the shares all along, may have bought them before the settlement day or, if push comes to shove, must buy them on the day of settlement. Notwithstanding when they bought them, if they paid less than $10 they make a profit if they pay more they make a loss.  Generally speaking, you can't settle a futures contract with another futures contract - you have to deliver up what you promised - be it wool or shares." That broad figure is rather useless on its own. People buy mostly things they need right away.  A useful analysis would a multi-variable one, graphing 3-way correlations of:  - price - profit margin - average half-life of the product  Maybe across a few separated categories, online vs brick-and-mortar, normalised towards the median and 3 standard deviations on each variable.  These would be some neat graphs if only the data was available. "No. Some grocery stores may discount specific products based on inventory to drive sales using ""loss leaders"" where the product is intentionally priced as a loss for the business. While commodity futures may impact some prices, I'm not sure one can easily extract the changes solely due to futures shifts." If financial modelling, projections and market research were effective enough that they could predict with certainty what the price would do tomorrow, then everyone would use those techniques, buy now and make relatively risk-free profit tomorrow though, right? The point of an efficient market is that the price at any particular point in time incorporates all of the information available to the market at that moment. Given that, the price should be just as likely to go up tomorrow as go down.   Whether it's reasonable to assume that the market is efficient is another question - at the very least though, I think it's reasonable to assume that people armchair investing at home don't have access to information that professional investors don't. "Futures are an agreement to buy or sell something in the future.  The futures ""price"" is the price at which you agree to make the trade.  This price does not indicate what will happen in the future so much as it indicates the cost of buying the item today and holding it until the future date.  Hence, for very liquid products such as stock index futures, the futures price is a very simple function of today's stock index value and current short-term interest rates.  If the stock exchange is closed but the futures exchange is open, then using the futures price and interest rates one can back out an implied ""fair value"" for the index, which is in essence the market's estimate of what the stock index value would be right now if the stock market were open.  Of course, as soon as the stock exchange opens, the futures price trades to within a narrow band of the actual index value, where the size of the band depends on transaction costs (bid-ask spread, commissions, etc.)." Context is key here. Futures don't really have to do with a time in the future in this context.  Futures are a capital market (futures market), just like Stocks are a market (stock market). Both capital markets have the ability to affect each other. Up until 30 years ago there was a separate use for the futures market, but in the days since they are MOSTLY used for stock derivatives (financial futures are the most widely traded contracts since 1980, hugely eclipsing the commodity futures that the market was designed for.)  So there is overlap and one affect the other, I'm not going to go into too much detail here but basically the futures market trades 24 hours a day, 6.5 days of the week and the  stock market trades 8-12 hours a day, 5 days a week.  So when the stock market closes, the futures market is still running will react and effect the broad stock market.  Hope that gets you started in your research "I'm far from certain, but I'll take a swing at it.  Equilibrium term structure models ""predict"" a term structure that we don't observe, and no-arbitrage models ""correct"" prediction to match reality.  An analogous place to look would be implied volatility surfaces.  Black-Scholes predicts a specific implied volatility surface (or rather, it assumes the surface is flat).  So I think a Hull-White-style no-arbitrage model might work by addressing the difference between predicted and actual surfaces.  Like term structure models, you'd take a set of observed volatilities and somehow plug them into BS so that the BS price didn't imply arbitrage opportunities within the observed set of options.  I'm not at all certain that I'm being clear, and there's a distinct possibility that I'm saying/thinking something stupid." I know I can not trade futures realistically (I never claimed I could). All I wanted was some exposure to commodities.  If I could just trade many of these things in an ETF like GLD or XLV, I would have done that.   On the topic of margin, I appreciate your explaining that to me. I admit readily that I could never invest in futures straight, but I would like to get into commodities and other types of investments. I have tried to look for value in the market, but I have not found many things I would put my money in. I have gone as far as to look through OTC ADRs to find some foreign value, and I found nothing. I just want to be able to trade in any market, and I would consider shorting, but I don't like to be too risky. I want to go long on positions, and it seemed like commodities may be a good speculation to LOOK INTO. Taking rough rice as an example, there are millions (if not billions) of people who eat rice to survive. People will always need oil to fuel their cars. People will always need electricity. So I guess what I am trying to do is look into things that allow me to profit, regardless of where equities are going. The only thing I want to do is trade the options of the futures, not the actual futures themselves. I hope I did not confuse you. If I can earn even $20 from buying an option at a lower price and selling higher, it would allow me to have a greater breadth of tools to use when the market may be overvalued. I don't see a contrast. It's really hard to predict which mutual funds will do well in the future. Predicting that ones which have done well recently will continue to do well works slightly better than chance. The WSJ article and Morningstar agree on all the objective facts, they just spin them differently. "There is no simple rule like ""you can/can't spend more/less than $X per person."" Instead there is a reasonableness test. There is such a thing as an audit of just your travel and entertainment expenses - I know because I've had one for my Ontario corporation. I've deducted company Christmas parties, and going-away dinners for departing employees, without incident. (You know, I presume, about only deducting half of certain expenses?) If the reason for the entertainment is to acquire or keep either employees or clients, there shouldn't be a problem.  Things are slightly trickier with very small companies. Microsoft can send an entire team to Hawaii, with their families, as a reward at the end of a tough project, and deduct it. You probably can't send yourself as a similar reward. If your party is strictly for your neighbours, personal friends, and close family, with no clients, potential clients, employees, potential employees, suppliers, or potential suppliers in attendance, then no, don't deduct it. If you imagine yourself telling an auditor why you threw the party and why the business funded it, you'll know whether it's ok to do it or not."