Speculating - Summary And Review
A trader needs to know how to compute gross profit and loss for both uncovered and spread positions. Once that is calculated, the trader needs to know how to calculate return on equity, regardless of the underlying commodity, on pre-tax basis. The trader also needs to be able to compare the yields for taxable and tax-exempt futures.
The trader needs to know how to recommend specific trades given expected market conditions, as well as the best way to structure the trade.
A speculator sells 100 eurodollar September futures for $96.6650 and buys 25 eurodollar December futures for $96.6700. The September price then goes down to $96.6600 and the December price goes down to $96.6640. Contract values vary $25 per basis point. There is a 10% margin and a $50/trade commission for spreads.
- Which is TRUE of the basis?
- It narrows from -50 bps to -40 bps.
- It widens from -50 bps to -60 bps.
- It widens from -40 bps to -50 bps.
- It narrows from -60 bps to -50 bps.
- Which statement is TRUE?
- The speculator expects eurodollar contract prices to go up and short-term interest rates to go up.
- The speculator expects eurodollar contract prices to go down and short-term interest rates to go up.
- The speculator expects eurodollar contract prices to go up and short-term interest rates to go down.
- The speculator expects eurodollar contract prices to go down and short-term interest rates to go down.
- The gross profit realized upon exiting the position is:
- The return on equity is:
- If your client would like to ensure that the market is moving a certain direction before entering or exiting a position you might recommend a:
- Market order
- Fill-or-kill order
- Stop-limit order
- Good-till-cancelled order
- In a falling market, a speculator would employ pyramiding as a profitable strategy.
- A trader anticipates a decline in short-term interest rates and wants to lock in lower Eurodollar prices. She goes long 100 eurodollar futures contracts for $9,375. The rate on this contract is 6.25%.
Mutual Funds & ETFsLearn about the United States 12 Month Natural Gas Fund, an exchange-traded fund that invests in 12-month futures contracts for natural gas.
Options & FuturesCrude oil leads the pack as the most liquid commodity futures market, followed by corn and natural gas.
Mutual Funds & ETFsFind out about the PowerShares DB Commodity Tracking ETF, and explore a detailed analysis of the fund that tracks 14 distinct commodities using futures contracts.
Personal FinanceIf you're deciding whether to get a degree abroad, first do your research and talk to alumni who have completed the same program.
Investing BasicsA spot market is a market where a commodity or security is bought or sold and then delivered immediately.
Mutual Funds & ETFsFind out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
Chart AdvisorTraders are turning to these exchange-traded notes and exchange-traded funds to analyze key commodities and determine what could be coming next.
Credit & LoansU.S. students place 27th in math and 20th in science out of 34 countries. The United States must reform its education system or harm future economic productivity and global trade competitiveness.
Investing NewsNot sure where oil and gold are headed? The answer is complex.
Investing BasicsForward rate agreement (FRA) refers to an interest rate or foreign exchange hedging strategy.
The estimated volatility of a security's price.
The most basic or standard version of a financial instrument, ...
A security with a price that is dependent upon or derived from ...
A securities license entitling the holder to register as a limited ...
A transaction that can cancel out a forward contract that has ...
The security that is delivered by the short position holder in ...
If you are older than 59.5 and have been contributing to your IRA for more than five years, you may withdraw funds to pay ... Read Full Answer >>
If you are over 59.5, or separate from your plan-sponsoring employer after age 55, you are free to use your 401(k) to pay ... Read Full Answer >>
Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>