Here’s the deal……
The Treasury bond – or T-bond – futures market is a global cash monster with a market value of more than $47 trillion!
There are ways for a start up entrepreneur….heck even a seasoned entrepreneur can make money in this market
I know what you’re thinking: “Yeah..that sounds great Marc, but what about someone with limited cash and smarts”!
Listen…… I started trading T-bond futures as a newlywed, when my bank account was so small I was actually charged a minimum balance fee each month. Not having much cash didn’t stop me.
And in the “smarts” department I wasn’t captivating the scholarship boards either!
I was an average student in school.
However, I developed a passion to learn as an entrepreneur, and that made all the difference.
I learned about the T-bond market from a successful entrepreneur, the same way you’re going to learn from me.
My friend showed me how to trade without having to move to Chicago or New York (where two major exchanges are physically located).
On top of that, he showed me how to limit my downside risk by using a strategy professional traders use.
I’ll show you the same technique in today’s post.
I’m not an idiot….
I know there are a lot of seasoned, street smart T-bond traders with very, very deep pockets ...
These professional traders love it when “sheep” (new or super small speculators) enter the market.
But the T Bond market is a fairly level playing field. You have the same opportunities to make a living in this business as they do.
There are ways to make money and trade this market if you have limited resources too.
Granted, a much easier way to trade T Bond futures, and with much less risk, is with exchange traded funds (ETFs – Google it and you’ll find a ton of them)
But there are contracts specifically designed for smaller speculators called “mini” contracts. These were not available when I started trading.
But in order to walk into a $47 trillion market and remove money from the table, you’ll need to understand how the game is played. And you can’t learn everything about it in 15 minutes.
Let me repeat….. you can’t learn everything about it in 15 minutes! It took me about 24 months, and 5 or 6 hours a day to gain a basic understanding of the futures market.
You’ll need to understand how the game is played by successful professional traders who consistently remove profits from the market.
When you open a trading account with a commodity brokerage, you’ll see a lot of “fine print” in the application.
But it’s the same amount of fine print you would see when you open a bank account or buy a piece of property.
Don’t let the fine print discourage you from starting this business and making money!
Don’t kid yourself. There’s a risk of losing money in this business ... and I’m not going to pull any punches. But I’m here to tell you ... this business has less risk than most businesses.
I’m writing this week’s post from our winter home outside of Orlando.
On the front page of the Orlando Sentinel this morning, there was a story about a man from Poland who’d purchased a motel near Walt Disney World.
This gentleman purchased the motel for close to one million dollars. He’s owned it for about a year – and the business was (in his words) “breaking even.”
Last Friday, he was robbed at gunpoint by a 20 -year-old kid with a 357 magnum handgun. If you’ve ever looked into the barrel of a 357 magnum, you know how terrified the motel owner must have been.
Anyway, the motel owner was still shaking a week later – and so he decided to build a bullet proof encasement around his check-in counter for protection in the future.
That is my definition of a HIGH RISK business opportunity.
Things like this are not going to happen when you’re trading T -bonds.
Granted, there could be some stress and fatigue when you trade in a market as large as this – unless you’re superman or superwoman with no emotional connection to money . But, hey, at least you won’t be investing a million dollars into a venture that might break even ... and be scarred for your life after staring down the barrel of a 357 magnum!
As I said, there is a financial risk trading T-bonds.
But I’ll show you what the pros do to limit risk, and how some of them manage their profits too.
The bond market – also known as the debt, credit, or fixed income market – is a financial market where participants buy and sell debt securities. The size of the international bond market is an estimated $47 trillion+ .
What the Heck Are T- Bond Futures, and How Do You Trade Them?
A futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying asset at a certain date in the future at a pre-set price.
The buy or sell date is called the delivery date or final settlement date. The pre-set price is called the futures price. The price of the underlying asset on the delivery date is called the settlement price. The settlement price normally converges toward the futures price on the delivery date.
Stay with me ...
A futures contract gives the holder the obligation to buy or sell an asset like corn, gold, currencies, or, in this case, Treasury bonds.
Both parties of a “ futures contract” must fulfill the contract on the settlement date. The seller delivers the asset to the buyer – or, if it is a cash-settled future like T- bonds, cash is transferred from the futures trader who sustained the loss to the one who made the profit.
It’s that simple.
To exit the commitment prior to the settlement date, the holder of a futures position has to offset his position by either selling a long position or buying back a short position, effectively closing out the futures position and its contract obligations.
Futures contracts – usually just called futures – are traded electronically on almost every financial exchange in the world with a system called GLOBEX.
The exchange's clearinghouse acts as counterparty on all contracts, sets margin requirements, etc.
You’ll find current futures settlement prices in just about every national newspaper that has a finance section and on any viable financial website.
An Insider Trading Secret
Amateur traders in practically every financial market usually become intoxicated after a large winning trade. What’s more, they often become arrogant and feel bulletproof. (Believe me, I’ve been there and done that!)
As a result, they don't know how or when to stop and take their profits .
But seasoned pros approach the market with a calm, deliberate assurance. On top of that, the most successful traders have learned that the markets are predictable ( to a degree). Every market tends to move in cycles, trends, and “ waves.”
The insider trading secret that many T-bond traders use is pretty simple to understand. The idea is to leverage your positions through a series of four trades. Then you remove your profits and start over again ... small.
A Hypothetical T- Bond Trade
Okay, now let's do a hypothetical trade using this insider trading secret.
I’ll base these trades on 2007 data.
If you can picture an inverted (upside-down) pyramid in your mind, you’ll have an idea of what this trading approach is all about.
Let’s say that you believe T-bond futures are going to rise dramatically because of tension in the Middle East, massive mortgage defaults, or some other reason. So you buy one June 07 T-bond futures contract “ at the market” (the current market price). This is the first of four series of trades.
Your assumption proves correct – and the June 07 T-bond futures contract takes off.
The next step is to sell one June 07 T-bond contract “ at the market” – and when that order is filled, you buy two June 07 T-bond contracts. This is the second trade in a series of four.
Okay, the T-bond market continues higher, and now you sell the two June 07 T-bond f utures contracts at the market.
When that order is filled, you purchase three June 07 T-bond futures contracts at the market. This is the third trade in a series of four trades.
Do you see the pattern here? On paper, it’ll look like an inverted pyramid.
Each time you increase the number of contracts that you buy or sell, your profit or loss will increase exponentially as well.
In this hypothetical trade, we have so far completed three trades in our four -trade series.
Now we're going to sell all three June 07 T-bond futures contracts at the market. When that order is filled, we’ ll buy four June 07 T-bond futures contracts at the market.
In the real world, markets do not go straight up or straight down indefinitely. But for this hypothetical example, let's say the June 07 T-bond futures price continues to surge.
So, finally, we’ll sell all four June 07 T-bond futures contracts at the market – completing a series of four trades.
Now we're going to remove most of our profits from the market – whether it’ s $5,000, $10,000, $20,000, or whatever – and put that money into a separate account.
Then we're going to do another series of four trades. But each time, we're going to start over again small. And that’ s an important thing to remember.
Most amateur traders “ let it ride” – like they’ re high rollers in Las Vegas. (And 95% of the people who gamble in Las Vegas lose – and most of them lose a lot more than they’ re willing to admit to.)
But we're approaching T-bond futures trading like a professional. A professional trader leaves the table with some money in his pocket – whereas amateurs usually leave shell-shocked and broke.
The insider secret and trading strategy that I’ve outlined today has probably produced more millionaires than any other system.
And keep in mind that we were using minimal trading positions in our example.
Top traders use this insider technique by trading hundreds of contracts in each four-trade series before they remove all their profits ... and start over again small.
That’s exactly how to make money by trading T-bonds like the big boys .
This strategy also enables you to limit your risk, because you won’t be “pyramiding” your positions indefinitely. You’ll have a very specific way to limit your open positions .
T rading T-bond futures won’t be an ideal business for every entrepreneur. (For one thing, some trading capital is required .)
And, make no mistake about it, there’s a lot more to understanding this market and business than what I’ve shared with you today. That’s why I’ve included a bunch of additional resources for you at the end of this issue.
But you can make money – a lot of money – whether T-bond prices go up or down. It’s definitely worth looking into.
Quick Start Insight
The first thing to do is to check out a top financial website or pick up a national business newspaper like The Wall Street Journal or The New York Times. Check out the financial markets section – and, specifically, the T-bond futures quotes.
Start paper trading! That’s right. This is one of the few businesses that enable you to test your skills before you invest a nickel. Just for fun, imagine that you have $50,000 in your trading account. Then keep track of your positions to see if you’re making a profit.
After you’ve paper traded for a month or two you’ll begin to understand how people make money in this business.
When you feel you’re ready to start trading for real, simply open a trading account at any of the brokerages listed below or search the Internet for reputable firms.
I hope that helps.
Market Wizards: Interviews With Top Traders,
by Jack Schwager
The New Market Wizards,
by Jack Schwager
Trade Your Way to Financial Freedom,
by Van K. Tharp
Reminiscences of a Stock Operator,
by Edwin Lefevre
by George Angell
Winning in the Futures Markets,
by George Angell
Elliott Wave Principle,
by Robert Prechter Jr.
Commodity Trading Manual,
by the Chicago Board of Trade
All About Futures,
by Russell Wasendorf Sr.
Hot Commodities: How Anyone Can Invest Profitably in the World’s Best Market,
by Jim Rogers
Escape to the Futures,
by Leo Melamed