The Complete Guide to Futures Trading: What You Need to Know about the Risks and Rewards

Preface

Futures are the investment of the twenty-first century.

At the beginning of the twentieth century, investing in stocks was considered a risky proposition for individuals, who were advised to stick to buying bonds. Now, over 50 percent of U.S. households invest in the stock market directly or indirectly through mutual fund holdings—even in retirement accounts. At Lind-Waldock, we believe writers of the twenty-second century looking back on the twenty-first will say the same about investment in futures.

Although U.S. futures markets began in the mid-1800s, they didn't have global significance until the 1980s, when companies and governments worldwide embraced the instruments as financial management tools. Futures markets have always been about price discovery and transfer of risk, so are ideally suited to environments of uncertainty and high volatility—an apt description of the past 30 years.

The collapse of the gold standard in 1972 led to free-floating currency exchange rates—and the first financial futures contracts, foreign exchange, at the Chicago Mercantile Exchange. Inflation throughout the 1970s and early 1980s led to record-high interest rates—and new futures contracts in U.S. Treasuries and Eurodollars. Stock index futures came into their own during the bull market of the 1980s, and were an inextricable part of the institutional investor's playbook within less than five years.

Now, futures are part of a savvy individual investor's playbook, too.

Technological advances—most ...