a standard contract for a commodity (for example, for gold) or a financial instrument (for example, for treasury bonds) with a delivery date for this asset in the future. For example, when an auto manufacturer needs copper for current operations, he buys it directly from the manufacturer. But if the same industrialist fears that in six months the price of copper will rise sharply, then he can fix it for the entire period somewhere around the current level by buying copper futures today. (This offsetting the risk of future price increases is called hedging.) If the price of copper rises over a given period, the profit from the futures hedge will offset some of the higher copper price at the time of the actual purchase. Of course, in the opposite case, that is, if the price of copper falls, such a futures hedge will become unprofitable. But then the automaker himself will buy copper at a lower price than the one he agreed to under the futures contract.

If hedgers like the auto manufacturer mentioned above take part in futures trading to reduce the risk of unwanted price changes, then traders participate in it, trying to capitalize on predicted price changes. In fact, many traders, given the choice between the futures and the corresponding cash markets, will choose to trade the futures markets for the following reasons:

1. Standard contracts. — Futures contracts are standardized (in terms of the quantity and quality of the underlying asset), as a result of which the trader does not need to look for a specific buyer or seller to open or close a position.

2. Liquidity. — All major futures The markets have excellent liquidity.

3. Convenience of opening a short position. “Going short in the futures markets is just as easy as going long. If in order to open a short position on a stock (when the seller of this stock actually borrows it) you need to wait for its price to rise by at least one tick, then there is no such restriction in the futures market.

4. Lever. — Futures markets provide a huge financial leverage. Roughly speaking, the size of the required initial margin is usually 5-10 percent of the value of the contract.

(The use of the term "margin" in the futures market is unfortunate, as it leads to serious confusion with margin for stocks. In futures markets, margin does not mean partial payment, because no actual asset transfers occur until the expiration of the contract. Here, margin serves rather (Given this remark of the author, further in the translation, the term "margin" in relation to futures markets is given in the established Russian equivalent: "collateral deposit".) Despite the attractiveness of the high leverage of futures markets for traders, it should be emphasized that this is a double-edged weapon. The undisciplined use of leverage is the main reason why most traders suffer losses in the futures markets. Generally, futures prices are no more volatile than the cash prices of the underlying underlying assets or many stocks, when viewed in the same capacity. Therefore, futures owe their reputation as a high-risk instrument mainly to the leverage factor.

5. Low transaction costs. - Transaction costs for futures transactions are very low. Therefore, it is much cheaper to reduce the overall risk of a stock portfolio by selling not the stock itself, but the equivalent value of the stock index futures contracts.

6. Convenience of offsetting. - A futures position can be closed with an offset or reverse trade for as long as the market is open, provided that it is not locked at the high or low limit. (In some futures markets, the maximum allowable daily price change is limited to certain limits. If free market forces in search of balance go beyond them, then the market simply reaches the limit price and trading practically stops.)

7. Exchange Guarantee. — A futures trader does not need to worry about the financial solvency of his counterparty in the transaction. All payments under futures contracts are guaranteed by the clearing house of the exchange.

Since, by their very design, futures markets are closely tied to the markets of their respective underlying assets, futures prices move almost in parallel with spot prices (the actions of arbitrageurs reliably prevent the occurrence of any long and significant discrepancies between futures and spot prices). Keeping in mind that futures trading is mainly focused on financial instruments, it turns out that many futures traders are essentially stock, bond and currency traders. In this sense, the statements of futures traders in the interviews published below are directly related to those investors who have never gone beyond trading stocks and bonds.

General concept of the interbank foreign exchange market

The Interbank Foreign Exchange Market operates twenty-four hours a day, literally following the movement of the sun around the earth from the banking centers in America through Australia and the Far East to Europe and finally back to America again. It exists to meet the needs of currency risk insurance companies in the face of rapid fluctuations in the value of currencies. (Uncertainty in the return of a foreign asset due to the unknown rate at which the foreign currency will be exchanged in the future.) For example, when a certain Japanese electronics manufacturer arranges to export stereo equipment to the United States on terms of payment in US dollars six months after delivery, it exposes risk that some depreciation of the dollar against the yen will occur during this period. If this producer wants to fix the delivery price in local currency (yen) in order to fully profit, then he can hedge by selling the equivalent dollar amount on the interbank foreign exchange market on the expected date of payment for the export transaction. Banks will quote this manufacturer the exchange rate for the required amount and date in the future.

Speculators trade on the interbank foreign exchange market, trying to make money on their predicted changes in exchange rates. For example, a speculator who expects the British pound to fall against the dollar will sell a British pound forward contract. (All transactions in the interbank market are denominated in US dollars.) A speculator who expects the British pound to fall against the Japanese yen will buy a certain dollar equivalent of the Japanese yen and sell the corresponding dollar equivalent of the British pound.

Michael Marcus - Don't Wait for the Second Coming of the Locust

Michael Marcus began his career at a major brokerage firm as a commodity research analyst. However, due to an almost manic craving for the stock game, he left his paid job to devote all his time to trading. After a brief and almost comical stint as a stock trader, Marcus moved to the Commodities Corporation, which hired professionals to handle the firm's funds, and became one of its most successful traders. In a few years, his profits exceeded the total income of all his other colleagues. And in ten years, he fabulously increased the company's account - 2500 times!

I met Michael on my first day at Reynolds Securities, where I was hired as a futures research analyst in place of Marcus, who had just moved to a similar job at a competing firm. During that period of both my and his professional development, we communicated quite regularly. When our forecasts of the direction of the market did not coincide, my arguments usually seemed to me more convincing, but then it turned out that Markus was right. Finally, he found a job as a trader, did very well, and moved to the west coast.

When I first came up with the idea for this book, I put Marcus as one of the first people on my list of people to talk to. At first he answered my proposal with consent, although not firmly. And a few weeks later he refused: the desire to avoid publicity turned out to be stronger than the natural inclination to participate in what he likes. (Marcus knew and respected many of the other traders I talked to.) I was very upset because Marcus was one of the best traders I have ever known. Fortunately, unobtrusive admonitions from our mutual friend helped convince Marcus.

By the time we met It's been seven years since we last saw each other.

The interview took place at Marcus' home in Southern California, a villa that is a complex of two buildings located on a cliff overlooking his private beach. The only way to get to the villa was through a massive gate (“a terrific gate,” as Marcus’s assistant, who explained the way to me, put it), which had every chance of withstanding the attack of a tank division.

At the beginning of the conversation, Marcus seemed somewhat indifferent and even withdrawn. This low-profile manner only reinforced the impression of his story about his fleeting attempt to become a stock trader. But he immediately perked up as soon as the conversation turned to cases from his trading practice. Markus considers the period of "ups and downs" at the beginning of his trading career to be the most interesting. This is what our conversation focuses on.

How did you first become interested in futures trading?

I was then, one might say, a man of science. In 1969, as a member of Phi Beta Kappa and one of the best in my group after graduating from Johns Hopkins University, I received a scholarship from Clark University to prepare a dissertation for a Ph.D. in psychology and did not think about anything other than teaching. It was then through our mutual friend that I met this guy, John. He assured me that every two weeks he could double