New Market Breeds New Traders

Stock market volatility is a given risk among investors, but the level of movement that can occur on any given day seems to have jumped in the wake …

Stock market volatility is a given risk among investors, but the level of movement that can occur on any given day seems to have jumped in the wake of the recession as trades are driven less by conventional indicators and more by algorithms. Experts say to get an edge in the new market investors must be willing to trade futures in a 24-hour global market that presents more opportunity for gain. Futures and foreign exchange trading is seeing a $4 trillion daily volume, and the new-generation trader is taking advantage of this rather than remaining hitched to a small window of trading in the traditional markets.  For more on this continue reading the following article from TheStreet.

Equities, currencies, oil, bullion, and Treasury yields are all being affected by midsession cash market moves that fail to follow through in the proceeding session. It’s back to the January opening prices for S&P 500 as the up-and-down moves continue.

As boring as it seems, regurgitated headline news and volatile reactions continue to dominate the daily process of finding fair value. No new signals are forming either long or short on global asset classes. The EU Summit and global interest rate decisions will be key. Last week’s surreal economic releases printed 3 standard deviations higher than expected, which will now be subject to revisions next month.

Traders who are not connected to the 24-hour global market can find it frustrating to wait for regional cash markets to open.

It is becoming clear that as much price action occurs in the futures market as in the regional cash market, and those traditional investors who are standing on the outside looking in while the futures trade adjusts to daily swings in fair value may be constantly missing the bulk of movement on any given day.

In the wake of the financial crisis, the market seems to have a short attention span, and much trading is algorithm-driven. We now see in one day trading action that once would have taken place over one month.

The consequence has been the evolution of a new breed of global market trader that understands and trades a range of asset classes and is willing to change tack on short notice in reaction to changing market dynamics.

New-generation traders focus on international markets, and how market correlations can be traded ahead of the 9-to-5 cash markets via futures contracts. These traders are able to use 24-hour market access and cross-border trading patterns in different asset classes to complete their work before regular traders even start to read the news headlines.

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When the talking heads say, "Futures are in the green today," the savvy trader has already found a way to access the momentum.

One- and four-hour charts are being used more often in setting trend and momentum reads instead of daily and weekly reviews, which cannot keep track of new-generation momentum flows.

The near-term chart views allow the new-generation global trader to establish positions before each regional cash market opens.

Unfortunately for most, taking the leap of faith and moving toward a new system of trading will be too daunting a task, but just as options and exchange-traded funds emerged and developed, so futures contract trading will draw traders and investors into a new world of 24-hour market access.

New-generation traders will cast their eye on overseas equities to see how the dollar is reacting, or look to the impact London Libor rates have on Chicago futures markets, or observe how NYMEX oil trading is affecting order flows in commodity-based currencies.

The world of futures trading is already a reality and is happening without the time constraints of Grandpa’s 9-to-5 market.

For those unwilling to take on the learning curve of futures trading or for those who just cannot find the time to access the 24-hour global market, the world of managed futures is starting to get mainstream media attention.

Futures, forex and commodity trading offer access to the largest global markets, which generate more than $4 trillion in combined daily volume, according to the Bank for International Settlements.

Futures markets allow for the global exchange of goods and services in different currencies 24-hours a day, allow producers to hedge forward contract commitments, and allow speculators to offer liquidity as part of the cycle of global commerce.

This daily process creates a global marketplace with high momentum where managed futures can track the ebbs and flows of international trade and risk tolerance across each regional time zone.

The exponential growth in managed futures over recent years has been matched by the decline in managed equity funds.

Institutional investors looking to maximize portfolio exposure continue to increase their use of managed futures as an integral component of a well diversified portfolio.

With the ability to go long or short, managed futures are highly flexible financial instruments with the potential to profit from rising and falling markets. Managed futures have virtually no correlation to traditional asset classes, enabling them to enhance returns as well as lower overall volatility.

Managed futures diversify beyond the traditional asset classes as an alternative that has achieved strong performance in up and down markets alike.

They invest across a broad spectrum of asset classes with the goal of achieving solid returns and reducing volatility via a near-term outlook.

When used in conjunction with traditional asset classes, managed futures may reduce risk while at the same time potentially increasing returns in bull and bear markets, boasting decent long-term track records despite economic downturns.

This article was republished with permission from TheStreet.

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