If you're new to trading, or thinking about
trading then you should read this. Most of the text below was copied from the
Commodity Futures Trading Commission's web site and edited for use on our
site.
NO TRADING SYSTEM CAN GUARANTEE PROFITS
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, you should remember that no commodity trading system can guarantee profits. And, whether or not a trading system is used, commodity futures and options are typically high-risk endeavors.
HYPOTHETICAL TRADING RESULTS CAN BE UNRELIABLE
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" 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. (Note: When we use the
term "real time" trading results on our web site, we are referring
to actual trades issued to and possibly traded by our subscribers and/or
brokers, although not necessarily traded by us personally. We say
"possibly" traded by our subscribers because although every
subscriber gets the same recommendations, we cannot possibly know what
trades each subscriber actual takes since we are not privy to that
information. We are not referring to "simulated" results. We are
one of the few commodity trading advisory services, as far as we know,
who post our actual monthly results of our issued signals, on our web site.)
- 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.
- Trading and System Costs -- You should take into account, certain costs that are not included in results reported such as the costs of purchasing or leasing the system, data download costs, if applicable, and the impact on profits of commissions and fees charged by brokers in connection with futures 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 break-even point in trading. (Typically we use $75.00 - $80.00 per trade as a cost per trade estimate.)
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. You will therefore see that cautionary warning statement on various pages of our web site, if hypothetical results are presented.
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?