Importance of Futures | Podcast Episode #284

0:07
Hey, I’m Ryan Mallory and this is my swing trading the stock market podcast. I’m here to teach you how to trade in a complex ever-changing, world of Finance, learn what it means to trade, profitably and consistently managing risk, avoiding the pitfalls of trading. And most importantly, to let those winners run wild, you can succeed at the stock market and I’m ready to show you how, hey, everybody, this is Ryan.

0:32
Mallory with swing trading the stock market, and we’re going to talk about Futures we’re going to talk about the importance of them, how it relates to the overall Market. Once the indices open, how much importance should you put on the Futures? And today’s email comes from a person.

0:47
We’re going to call it Daisy. A good old southern redneck name here. Daisy rights? Hello Ryan. I hope you are doing well, just a quick question. Do you follow the pre-market, Futures and yields? I find myself. Looking at the pre-market. Futures on the indices a lot and a good amount of time the Teachers don’t necessarily act out when the Market opens the same way that they traded in the pre-market.

1:10
Also, on Bloomberg news, they always seem to be talking about the yield curves. Etc is essential to know about yields regards Daisy. Alright, Daisy, good question. We’re going to get to that and more. But first, what am I drinking? I’m drinking first call, Cask strength, first called Cash drink.

1:27
This is a Kentucky, Straight Bourbon whiskey. And to the eyeball, it’s got this like light brown funniest looking color to it. And to the nose. Oh man, this sucker burns. The nose. Pretty good at strong ethanol. Holy cow.

1:42
That really burned, pretty good. Also, you smell a little bit of this almond flavor to it. Don’t know if I picked up too much on that before and other Bourbons. But to The Taste you got this like licorice flavor, like strong strong, licorice flavor, little bit of corn, little bit of vanilla.

2:00
And to be honest I don’t know if that’s the best combination. I really don’t. Like the licorice flavor, much. Each and any of my drinks. And for a finish again, that ethanol comes right back, very mild kick at the end, not a ton of spice. I would say the smell has more of a kick than the actual finish, which is not something you usually see.

2:20
There’s not a lot of redeeming features to it for one. I don’t like the ethanol finish, I don’t want to ethanol smell. The color is a little bit on the light side into the taste. I mean, I don’t like licorice. Now again, it comes down to, you know, a waters for Three would I rather drink water at a gathering?

2:38
Then this stuff. No, I would probably still drink this stuff. I have a hard time giving it more than a 56 and that may be a little bit on the generous side. 56 is about as high as I can go. Oh, by the way to us, 53.6 percent alcohol, which is part of the reason why it’s getting a little bit higher of a score, a hundred and seven point two proof but that’s about all.

2:58
I can give it that’s only positive thing going in its favor first call Cask strength definitely wouldn’t buy it. Definitely wouldn’t. I might be gifting this to a friend or something here hoping that they like it better than I do. All right well back to Daisy’s email. So really the gist of this podcast is about yields and Futures first off, Futures are really an extension of regular trading hours.

3:20
Now, it’s two different Arenas, you can be a Futures Trader, you could be at equities Trader, but if your equities Trader doesn’t make you a Futures Trader and if your training future is doesn’t make you an equities Trader, right? So it’s two different areas, but if you’re simply aspect, Our futures, it’s going to give you a good idea of how the markets going to open for the most part.

3:40
Futures are traded 24, 5 Monday through Friday. Now, they closed down on Friday and open up Sunday night and I say 20 45, but yet, there’s only one day before it really doesn’t trade but for most the Sunday, it doesn’t trade either. So I say twenty four five, but it’s kind of like twenty four, five and a half. But if you trade Futures, it requires a lot of margin.

3:57
You’re essentially leveraging yourself quite a bit. If you’re trading Futures, that creates a lot of issues when it comes to risk and you really don’t want to be putting your yourself into that position. I know that when I traded Futures in the past, it’s been a long, long time that I’ve traded Futures. It was a lot more stressful.

4:12
I felt like at any moment, I could capitulate. And I know I say that about stocks all the time always assume that you can blow up your account and that’s true. But with Futures it’s like every given second I felt like I could blow up my account I don’t like that feeling. I know everybody’s different from a risk standpoint but I always felt like you just trading open me up to capitulation at any given moment and that was really the reason when you saw back in 20 from the covid.

4:36
Crisis, when the futures for oil or crude went to – I was very much tempted to buy a central. I’d be buying it and they would be paying me to buy crew to take delivery of. It was the last day of the contract. It’s trading at – thirty-seven dollars for a barrel of oil.

4:52
Now, the problem is that I didn’t have a place to store like a thousand barrels of oil. I think that’s what it is. It’s a thousand barrels of oil that you have to take delivery on. Where would I put that at? I couldn’t put in my backyard in have a swimming pool. I could just, you know, empty it into and then even if I did have a place to store it, how do I sell it?

5:10
After I take delivery of it. Like my just gonna go down to the local Refinery and say hey you guys want some oil I picked up some you know the last time boil 1 – how about you guys give me $50 a barrel you know in theory it sounds like it could have worked out really good and maybe it could have. But in that particular moment, when oil went – you’re having to make a split-second decision because it was right before the Futures market closed.

5:32
So I didn’t do it. I mean you know if I knew it was going to do that, And one day, maybe I would have a plan in place. But oftentimes the market doesn’t give you a repeat at something really phenomenon driven and that was certainly the case when crude oil went – so there’s a lot of Leverage there, a lot of opportunity to blow up your account.

5:51
I would definitely say a new Trader should never trade Futures, it’s just so much risk to it, even experienced Traders, I don’t feel comfortable trading Futures. Because again, I think it’s very easy to blow up an account because the amount of Leverage that you’re playing And with but, you know, / Daisy’s question here, Futures are an extension of regular trading hours when the regular trading hours, which is 9:30 a.m. eastern till 4 p.m.

6:15
Eastern shuts. Down the Futures keeps trading, it’ll shut down for a little bit. And then open back up at 6:00 p.m., that’s an extension of what’s already happened on the day, but it’s just through a different Financial vehicle. Now at 9:29 and 59 seconds, if you’re seeing the futures for the S&P 500 up, 100 points, is there a good chance that That next second that the S&P 500 is probably going to reflect about 100 Point Gap higher.

6:41
Yeah it is because once the regular trading hours, opens those to tend to reflect each other quite accurately. But now a lot of people will get futures confused as being some kind of crystal ball to where they’ll look at the Futures in the morning. He says o Futures are up 50 points on the S&P 500 or on the S&P futures contract.

6:59
And so we take from that. Oh, the S&P 500 is going to finish up 50 points on the day. No. No, that’s definitely not how it works. It’s just showing you what it’s currently trading at at that particular point in time as if it was an extension of regular trading hours.

7:14
And then as you get closer to the market open, it’s going to better reflect. What? It’s likely to open up at. So it like I said, 9:29 a.m. and 59 seconds of its trading 100 points higher than yeah. And that next second is probably going to open up right around that hundred point mark, but it’s not a predictor of the future because once the regular trading hours come about, you could have a huge Sell the news event where all your Traders are selling and to that Gap higher.

7:39
For the S&P 500 drives down, the S&P 500, and it drives down the Futures as well. Every second every minute. Every day is a new data input for the market. There’s nothing out there. That predicts the future and the Futures despite their name are not predicting.

7:54
What the markets going to do the next morning. It’s Tony at that moment in time where the S&P 500, is at what people are willing to pay to have a contract on the S&P 500 same thing with like the meadow. As in the grains like if you get a contract on gold, that’s where gold Futures are trading at at that particular Moment In Time.

8:12
Same thing with silver, or if you’re getting Hogs, or if you’re getting orange juice, or if you’re getting anything Futures related, it’s the price that you’re willing to pay at that particular moment of time. If the S&P 500 is trading 100 points higher in the middle of the night.

8:28
Could that change by 9:30? Absolutely. But at that particular time, that’s where the S&P 500 futures contract. Is that. Now, you’ll also See through the evening certain things that can affect the Futures. Like if there is something here in the United States that causes a big sell-off.

8:44
Let’s say a terrorist attack happens or you have a war that breaks out unexpectedly. Yes, that’s going to affect the Futures, Russia and Ukraine when that broke out that caused a huge impact to the Futures Market. In fact, every night around 8:00.

9:00
You start having the Asian markets opening up in depending on how they’re going to do is going to have an impact on the future. Archers market and then starting at about 2:00, your European countries. Start to open up their regular trading hours at 2 p.m. you might see a spike of some kind. But at 3:00, oftentimes, you’ll see big Market reversals to the upside, or to the downside and it completely wipes away whatever the Futures Market had been doing up until that point.

9:23
In fact, during this huge market sell-off, we’ve seen some of the biggest moves happen, right? When you European markets open, and that impact that it has to the Futures Market drastically impacts the way. At the markets, eventually going to open the next day during our regular trading hours.

9:40
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10:04
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10:24
You always hear about on CNBC or Bloomberg. They’re talking about inverted yield curve. Is it important? Yes, it’s important because the market deems it important. Now, this year, I’ve paid more attention to the And I ever have in all my years combined last year, I was paying attention to him but nowhere near the amount that I’ve been paying attention to him this year, CPI reported Consumer Price Index.

10:45
That’s what measures inflation, right. We all talked about that. These days, it’s the big economic report that comes out each month. Huge. I’ve paid more attention to the CPI report than I ever have in all my years combined, same thing with the producer price index, the PPI, and why is that?

11:00
It’s because it’s what matters to the market. The markets trading and big way. Ways off of what that CPI report does because it impacts what the fomc statement will eventually say, or what the feds going to do in regards to interest rates?

11:22
So, the CPI matters, now if we’re in a bullish market and we’re not worried about inflation, inflation is tame, it’s around one and a half, two percent, the CPI report, really matter at that point. No not unless there’s like some major spike in it, but the cpi-u report usually doesn’t have a massive impact on the market.

11:45
It’s not until it becomes a problem that the market cares about it, yes there may be times where we have two percent inflation Jason where the CPI might matter for some one-off reason but by and large it’s never meant as much as it does right now or at least in recent history.

12:01
We knew they weren’t raising rates. They were going to keep them at zero. There was really no. Reason to get worked up, I think was back in 2020 where they said oh we’re not even thinking about thinking about raising rates until 2023.

12:19
Well they’re definitely thinking about it or fact they’re heavily in the action or in the habit of raising rates on a very regular basis. Right now, every six weeks, 75 basis points. The last two looking to make it another 75 basis points.

12:51
So what do I do? I go to cash. I don’t have any sense of urgency to go jumping back into this market. Not until something resolves itself here. So any case, if you enjoyed this podcast episode, I would encourage you to leave me a 5 star review. Please keep sending me your questions too, is tell me your stories. Tell me where you’re from, what you’re dealing with, what is the most perplexing problems that you deal with as a swing trader, as an investor, as anything?

15:57
So make sure to keep send me those questions, ryan@shareplanner.com. Thank you guys, and God bless. Thanks for listening to my podcast. Swing trading the stock. Market. I like to encourage you to join me in the ship under trading block, where I navigate the stock market, each day with Traders from around the world with your membership, you will get a 7 day trial and access to my trading room including alerts via text email and WhatsApp.

16:20
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16:37
Please feel free to email me at ryan@shareplanner.com all the best to you and I look forward to creating with you soon.