So, much of the information on this site may appear to most people as gobbledygook if they aren’t traders.  Since non-traders are our main readership, we thought it would be helpful to occasionally explain what the heck we are talkin’ about.  Uh, ya think?  LOL!  So, anyway, here is the low-down on selling short and buying long.  It’s pretty simple, actually.

Y’all already know what ‘buying long’ is.  It’s the regular old way to make a profit.  Buy low, sell high.  You buy something at as low a price as you can, and then you sell it for more.  It’s called “marking up”.  Retailers do it all the time.  You hopefully do it when you buy and sell a house.  Pretty simple.

Selling short is just as simple, but since most of us don’t sell short on a regular basis, it’s more unfamiliar to us.  Say your next door neighbor has been working long, tough hours.  She really needs a new car, but she doesn’t have the time or energy to shop for one herself.  She tells you what she wants…a 2008 Toyota Prius.  She wants to pay no more than $16,500 for the car.  You say, sure, neighbor.  You can buy that car from me for $16,500!  Then you find the exact one she wants that someone, terrified of the Prius recalls, is willing to sell for $13,500.  You buy that car for $13,500 and sell it to your neighbor for $16,500 and you made the difference for your time.  So, you sold a car that you didn’t own, then bought it for a lower price and profited by the difference.

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“The Business” radio show on KCRW offers an interesting inside look at futures markets (you know…pork bellies, heating oil, uranium), and the new opportunities coming soon to buy futures in popular entertainment receipts — more specifically, the movies. The proposed Cantor Exchange, seeking approval from the Commodity Futures Trading Commission for a possible launch in April, would let traders ‘bet’ on the domestic box office receipts of an upcoming movie, and buy or sell those bets (contracts, to be specific) with other traders.

Beyond the fun and profit, the proposed exchange also claims to provide an innovative new way to increase financing support for film production. Of course, the Motion Picture Association of America doesn’t see that benefit, and is lobbying to block the new exchange. They claim the initiative would tarnish the reputation and integrity of the movie industry.

If you’re particularly gifted at guessing domestic box office receipts for major films, it might be time to start saving those pennies to enter the market.

NOTE: Futures conversation begins about six minutes in.

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This setup is truly amazing!

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Lots of people ask me this when I tell them we trade futures contracts.  They assume they might be like stocks.  However, they are pretty different. A futures contract is a standardized contract to buy or sell a specified commodity of standardized quality at a certain date in the future and at a market-determined price (the futures price). The contracts are traded on a futures exchange. Futures contracts are not “direct” securities like stocks, bonds, rights or warrants. They are still securities, however, though they are a type of derivative contract. Understanding  the origin of futures contracts certainly helps to explain what they are:

The Dojima Rice Exchange in Osaka, Japan c. 1914

Aristotle described the story of Thales, a poor philosopher from Miletus who developed a “financial device, which involves a principle of universal application.” Thales used his skill in forecasting and predicted that the olive harvest would be exceptionally good the next autumn. Confident in his prediction, he made agreements with local olive-press owners to deposit his money with them to guarantee him exclusive use of their olive presses when the harvest was ready. Thales successfully negotiated low prices because the harvest was in the future and no one knew whether the harvest would be plentiful or poor and because the olive-press owners were willing to hedge against the possibility of a poor yield. When the harvest-time came, and many presses were wanted all at once and of a sudden, he let them out at any rate he pleased, and made a large quantity of money.

The first futures exchange market was the Dōjima Rice Exchange in Japan in the 1730s, to meet the needs of samurai who – being paid in rice, and after a series of bad harvests – needed a stable conversion to coin.

Hopefully, this helps to explain what we trade.  For more information, attend a live seminar near you, a Thursday evening 7 pm MDT webinar or check with us.  We can email you links to videos or send you a DVD.  Remember, Market Mover Trading only exudes pressure on the market; never pressure on you!

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