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No, I can't agree with the blanket
statement that trading futures is very risky. It's like saying that driving is
very risky because you might have an accident. As long as you drive ( and trade)
defensively, the risk is minimal. Personally, I find stocks to be much more
volatile and risky. I speak from experience - just try getting out of Bre-X when
it crashes overnight from $45 to $2. That was the last stock I ever
bought.
As long as you choose your markets
carefully and employ good money management, then futures can be no worse than an
average risk. Personally, I stick to the indexes where I've whittled my risk
down over the years to a couple of ticks per contract in the minis. Now
that's not a lot of risk and, yes, I do occasionally get slippage of a tick in
fast markets. It seems like years since there was a limit down in the spoos. I
can't recall one since they doubled the daily limits a few years
ago..
My point is that futures are only as
risky as you make them.
Andrew
----- Original Message -----
Sent: Thursday, November 18, 2004 3:38
PM
Subject: RE: [RT] Commodities, especially
live cattle
Unfortunately, no markets are immune to these types of extreme events.
Taleb refers to them as 'black swans'. They're much more common than most
people and statistics assume and totally unpredictable. I'm not 'in
the know', but I think it comes with the territory. Trading futures is very
risky because of the leverage. At least cattle has a daily limit, so you know
you can't lose more than that in a day;) Although you might not be able to get
out and suffer even more limit moves against your position. Personally, I
don't trade markets with limit moves because I always want the option of being
able to get out if I want. I got trapped in lumber once and I've never traded
another market with daily limits again. I hated feeling totally helpless,
sitting there hoping that the market will come back just so I can get out. It
was awful. It wasn't even a lot of money, but I don't ever want to feel that
way again. Trading is risky enough, why add to it by getting into market where
you might not be able to get out. Plus, I think those limits are like magnets.
They're like sitting targets and those markets want to test them. In your
situation, you could hedge with an option. But, do they stop cattle option
trading during limit moves? Other ideas: trade less size, trade other markets
in addition to cattle to diversify. I hope this helps.
Trey
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