RISK OF LOSS IN FUTURES TRADING
THE RISK OF LOSS IN TRADING COMMODITY FUTURES CONTRACTS CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE IN LIGHT OF YOUR FINANCIAL CONDITION. IN CONSIDERING WHETHER TO TRADE OR TO AUTHORIZE SOMEONE ELSE TO TRADE FOR YOU, YOU SHOULD BE AWARE OF THE FOLLOWING: YOU MAY SUSTAIN A TOTAL LOSS OF THE INITIAL MARGIN FUNDS AND ANY ADDITIONAL FUNDS THAT YOU DEPOSIT WITH YOUR BROKER TO ESTABLISH OR MAINTAIN YOUR POSITION. IF THE MARKET MOVES AGAINST YOUR POSITION, YOU MAY BE CALLED UPON BY YOUR BROKER TO DEPOSIT A SUBSTANTIAL AMOUNT OF ADDITIONAL MARGIN FUNDS, ON SHORT NOTICE, IN ORDER TO MAINTAIN YOUR POSITION. IF YOU DO NOT PROVIDE THE REQUIRED FUNDS WITHIN THE PRESCRIBED TIME, YOUR POSITION MAY BE LIQUIDATED AT A LOSS, AND YOU WILL BE LIABLE FOR ANY RESULTING DEFICIT IN YOUR ACCOUNT. UNDER CERTAIN MARKET CONDITIONS, YOU MAY FIND IT DIFFICULT OR IMPOSSIBLE TO LIQUIDATE A POSITION. THIS CAN OCCUR, FOR EXAMPLE, WHEN THE MARKET MAKES A "LIMIT MOVE". THE PLACEMENT OF CONTINGENT ORDERS, SUCH AS A "STOP LOSS" OR "STOP LIMIT" ORDER, WILL NOT NECESSARILY LIMIT YOUR LOSSES TO THE INTENDED AMOUNTS, SINCE MARKET CONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE SUCH ORDERS. A "SPREAD" POSITION MAY NOT BE LESS RISKY THAN A SIMPLE "LONG" OR "SHORT" POSITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN FUTURES TRADING BECAUSE OF THE SMALL MARGIN REQUIREMENT CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. THIS BRIEF STATEMENT CANNOT, OF COURSE, DISCLOSE ALL THE RISKS AND OTHER SIGNIFICANT ASPECTS OF THE COMMODITY MARKETS. YOU SHOULD THEREFORE CAREFULLY STUDY FUTURES TRADING BEFORE YOU TRADE. THE PERFORMANCE RECORD THAT HAS BEEN PRESENTED TO YOU IS BASED ON HYPOTHETICAL PERFORMANCE. IT IS VERY IMPORTANT THAT YOU READ AND UNDERSTAND THIS STATEMENT ON HYPOTHETICAL RESULTS:
HYPOTHETICAL PERFORMANCE RESULTS
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY COMMODITY TRADING ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL COMMODITY TRADING PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR COMMODITY TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL COMMODITY TRADING PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL COMMODITY TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL COMMODITY TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL COMMODITY TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR COMMODITY TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL COMMODITY TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE COMMODITY MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC COMMODITY TRADING PROGRAM WHICH CAN NOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL COMMODITY TRADING PERFORMANCE RESULTS, AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL COMMODITY TRADING RESULTS.
ADDITIONAL POWERTRADE DISCLOSURES
All material provided by PTI is believed to be reliable. However, due to the number of sources from which we obtain information, and the inherent risks of distribution, there may be omissions or inaccuracies in such information and services. PTI , its owners, employees, and contributors take every reasonable step to ensure the integrity of the data. However, PTI, its owners, employees, and contributors, cannot and will not warrant the accuracy, completeness, currentness, or fitness for a particular purpose of the information contained in our products or services. Recommendations and opinions contained in our products and services reflect judgment, as applicable, of PTI as of the date hereof, are subject to change, and are based upon certain assumptions that could yield different results. You are cautioned there is no universally accepted method for analyzing financial instruments, including futures. Further, there is no guarantee as to the liquidity of the instruments involved in its analysis.
Neither the information nor the recommendations and opinions expressed herein constitute an offer to buy or sell any financial contracts, security, future contract, or derivative instrument. As a matter of policy, PTI does not give tax, accounting, regulatory, or legal advice to clients. A client should therefore consult their own advisor regarding the tax, accounting, regulatory, or legal implications of the recommended strategies before any transactions with your account.
Prior to opening an account the undersigned should contact the National Futures Association to further research the risks involved with futures trading. The National Futures Association can be contacted at: National Futures Association
300 South Riverside Plaza
Suite 1800
Chicago, IL 60606
Phone: 1.800.621.3570
National Futures Association
300 South Riverside Plaza
Suite 1800
Chicago, IL 60606
Phone: 1.800.621.3570
Email: information@nfa.futures.org.
This does not imply that the National Futures Association endorses this product or any products of PTI. This is not an offer to buy or sell futures contracts or financial instruments of any kind. Notwithstanding any communications between PTI and its customers and prospects to the contrary, receipt or use of any material provided by PTI, at any time distributed via any method, represents acknowledgement by such persons of this disclaimer and agreement with its terms and conditions.
COMMISSION ADVISORY
Beware of Websites Selling Commodity Trading Systems that Guarantee High Profits with Minimal Risks. The United States Commodity Futures Trading Commission (CFTC), the federal agency that regulates commodity futures and options markets in the United States, has witnessed an increase in the number of Internet websites fraudulently promoting commodity trading systems and advisory services. Among other things, these websites falsely claim that advertised performance results are based on real trading when; in fact, the results are based on hypothetical trading. The CFTC urges you to be skeptical when promoters of trading systems and advisory services claim that their products and services will earn high profits with minimal risks. You also should be forewarned that systems which trigger frequent trading signals as part of a day trading strategy can result in substantial commissions and fees.
NO TRADING SYSTEM CAN GUARANTEE PROFITS
Commodity trading systems typically are computerized programs that signal members of the public when to buy and sell commodity futures and options contracts. Systems produce buy and sell signals based on mathematical formulas and are typically based on technical analysis of trading data (trading volume and prices), as opposed to fundamental analysis (analysis of economic factors such as supply and demand). Trading systems that are based on technical analysis attempt to predict future price movements based on historical prices, price relationships and price trends. In deciding whether to purchase a particular trading system to trade commodity futures or options, members of the public should remember that no commodity trading system can guarantee profits. Whether or not a trading system is used, commodity futures and options are typically high risk endeavors.
HYPOTHETICAL TRADING RESULTS CAN BE UNRELIABLE
Many trading system promoters advertise their systems by reporting hypothetical trading results. Hypothetical trading results typically are based on trading simulations using historical price data or simulated "real time" computer trading. To obtain these results, trading system promoters typically pretend that they traded futures contracts at market prices that occurred sometime in the past. They then calculate the trading results that these purported trades would have achieved had they been placed, based on actual historical prices. These results often show impressive trading results and large net profits with only a few, small margin calls. Whether based on historical data or simulated "real time" trading, hypothetical results do not reflect the results of any actual trading. In other words, there is no actual futures account, no actual investment, no actual trading, and no actual profits. The results are purely the product of simulation. Hypothetical trading results have several inherent limitations:
20/20 Hindsight with Historical Results Since the trading systems that produced the results were not actually traded under real market conditions, the purported results fail to take into account market circumstances that affect traders and their decision making process, such as anticipated news events that could have an impact on the supply, demand or price of the commodity.
"Real time" Trading is not Real When marketing trading systems, some promoters claim that their systems have performed successfully in "Real time Trading." "Real time Trading" only means that the system has been tested using a live data feed, rather than being tested using historical market data. In "Real time Trading," however, no trades have actually been placed in the market. Performance results based on "Real time Trading" are merely a form of hypothetical results, with the same limitations.
Financial Limitations Hypothetical results may not adequately take into account the ability of a trader to absorb trading losses or to meet margin calls. Trading systems assume that the trader can withstand all losses generated by the system and can meet resulting margin calls. It is much easier to absorb a trading loss on paper (hypothetically) than to do so in reality. Many traders find it unacceptable to sustain several consecutive trading losses and/or margin calls. Moreover, in an actual trading environment, a trader's financial condition may change over time and affect his or her ability to continue following a trading system.
Not Tested Under Real Market Conditions Hypothetical trading results assume that futures contracts have been bought and sold at specific prices. Since these assumptions have not been subjected to actual market conditions, they may overestimate or underestimate the performance of a system. In addition, some market conditions may make it impossible to execute a trade. For instance, many systems assume that stop loss orders will be executed at their stop price. Under actual market conditions a stop loss order might be executed at a better or worse price, or not be executed at all. Further, actual market conditions include bid/ask spreads which might not be reflected in the prices used in hypothetical trading. Moreover, the actual execution of a trade could impact the price paid, especially in less liquid or illiquid markets.
Possible "Rigging" of Results A member of the public should be alert to the possibility that the system promoter manufactured results by selecting historical trades that would have yielded the greatest returns.
Trading and System Costs The profit claims of promoters may fail to take into consideration the cost of purchasing or leasing a trading system. While the prices of systems vary, many are sold for thousands of dollars. In addition, most of these systems require that the user obtain a data feed from a vendor. System promoters may also fail to take into consideration the impact on profits of commissions and fees charged by brokers in connection with futures and options trading. Such commissions can have a substantial effect on profitability, particularly when the system generates frequent trading signals. A user should take all of these costs into account because they raise the breakeven point in trading.
Because of these limitations, CFTC Regulations require that the presentation of hypothetical trading results be accompanied by a specific cautionary statement warning of the inherent limitations of these results.
FUTURES CONTRACTS ARE VOLATILE AND RISKY
Persons considering trading commodity futures or options should educate themselves about futures and options and realize that they may lose large sums of money. Remember: "If it sounds too good to be true, it probably is too good to be true." The following checklist should help consumers in deciding whether to use a trading system.
IS A FUTURES/OPTIONS TRADING SYSTEM RIGHT FOR YOU?
Do you have the financial ability to sustain trading losses and meet margin calls? When trading futures contracts on margin, you risk losing much more money than the initial margin amount. If the market moves against you, you may be required to pay additional funds. The use of margin creates potentially large exposures to loss.
Can you lose your entire investment and more without a change in your lifestyle?
Do the trading results sound too good to be true?
Are the advertised trading results based on actual trading or "hypothetical" trading?
Has any trader used the system in actual trading? If so, how has the trader fared?
Will the system promoter provide you with independent verification of the claimed trading results?
What is the total cost of the system?
Have you factored into your purchasing decision the impact of commissions and fees that can result from frequent trading?
What are the additional costs (data feed, etc)?
Not all system promoters are required to be National Futures Association (NFA) members or be registered with the CFTC. A call to the NFA (800 621 3570 or 800 676 4NFA) or the CFTC, or a visit to the NFA's website at http://www.nfa.futures.org/basicnet/, can confirm the status of a particular promoter.
Have you checked with the NFA whether the system promoter has been disciplined by commodity regulators? Questions concerning this advisory may be addressed to the CFTC's Office of Public Affairs at (202) 418 5080.
Commodity Futures Trading Commission
Three LaFayette Centre
1155 21st Street, N.W.
Washington, D.C. 20581
For other consumer advisories concerning possible fraudulent activity in the commodity futures and options industry, click on Consumer Alerts. The CFTC's website also offers general information about trading in the commodity futures and options markets. For example, the CFTC offers brochures on line, such as "Futures and Options What You Should Know Before You Trade" and "Glossary: The Language of the Futures Industry." To obtain this and other information, go to the CFTC site map. The Federal Trade Commission's Advisory Day Trading Ads: Cutting Through the Bull"
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