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Using Futures Chains for Short Term Trades

There’s no doubt that the market has been volatile as of late. In fact, a recent poll indicated that consumers are split pretty evenly between being bullish and bearish. Even more people consider themselves to be “neutral,” about 43 percent, in fact. This is the highest that that number has been in over ten years, according to market researchers. When market sentiment rates in at overall neutral, usually assets move sideways–in other words, there is generally no big ups and no big downs. This period can last for several months sometimes, and when that happens, investors generally do not make large amounts of money.

This time, things seem to be different. Yes, the stock market and other major markets are considered to be volatile. And, yes, investors are overall neutral about what’s going on.

But what this poll doesn’t seem to be taking into account is that not all assets are moving like this. In theory, that means that you don’t necessarily need to join in with the crowds and lose money. You can find assets that are moving, even if the direction is downward, and make a profit off of them.

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Look at crude oil futures, for example. Prices may have stayed within a dollar of where they currently are (about $100 per barrel) for the last week, but if you look at the chain of long term futures contracts, you can get a different picture. For the near future, things stay relatively the same, right around $100 to $96. But if you move a year away, suddenly things become very different. In May 2015, oil is currently valued at $91.01. Even further away, prices drop more. A December 2018 future is valued at $81.15.

Clearly, the market sentiment for crude oil is bearish. Long term investors fully expect oil to drop significantly in the coming months and years, almost $20 per barrel. Usually, something like this happens for a reason. The reasons don’t really matter that much if you are gauging sentiment, just knowing that they exist is far more important. If you know that something like this is going on and being prepared for, you can get ready and stage your trades so that you can profit off of it.

Futures contracts can be very expensive to take advantage of. There is usually a minimum number of units you can purchase at a time. It varies from broker to broker, but an agreed upon number is around 100 barrels. Next, you need to add on the contract fee. This usually involves investing a bare minimum of $8,500 in a case like this. That’s a $8,500 investment, and you will see nothing of it for the next four or more years. That means you cannot use that money for anything else during that time. If oil prices do not drop below that price, you will make a profit, but the odds are that your cash could be better spent in other places.

Binary options present a good alternative here. You can keep your money tied up for a far shorter amount of time, and you do not have to pay contract fees. The liquidity issue becomes tougher, but since the timeframe that your cash is in the market is shorter, this is not an issue at all. Instead of four years, you can invest your cash for less than an hour at a time and still make significant profits. For example, if you see that oil is dropping in price, you can take out a 15 minute binary, and make at least a 70 percent profit if your prediction is correct. These have more variance since it’s tough to extrapolate short term movement based upon long term anticipation, but when a trend appears, this is a good way to avoid the long term commitment and expenses by breaking it up into small and easily manageable chunks.

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