J L Futures, Inc. is a full-service commodity futures brokerage firm with a 34-year history of providing service to our clientele. We pride ourselves on providing top quality service. We do not subscribe to computerized trading models, with which many commodity brokers claim success. (We believe the success they have is with their own commissions, rather than their client’s bottom line.) Instead, we use the conventional approach, which is to study the commodity trends and focus on the underlying fundamentals that provide a basis for these trends. After over 34 years of watching the market, we view the word “system” with a fair amount of skepticism, because we have seen for ourselves and heard from clients just how often these so-called “fail-safe” systems eventually break down and no longer work, usually resulting in financial loss to the customers. This is particularly true in today’s technical environment with the great reliance the public has on the Internet. For every “system” invented, there is quickly found a way to circumvent it. We are not discount brokers offering no more than a cheap commission. If you call for advice, we give it.
Would you buy your daughter a wedding dress at the “Dollar Store”? Would you entrust your brain tumor to a doctor who has freshly graduated medical school and has little surgical experience? No, you wouldn’t. Your daughter’s wedding day is special and you only have one brain. In the same vein, it benefits you to find an experienced professional to entrust with your financial needs. The old adage remains true: “You get what you pay for”. You have worked hard for your money, you want to entrust it to someone who knows what they are doing in the commodity markets.
Commodity futures trade is a zero-sum game. That means that for every winner there is an equal loser. Trading futures is not easy for the inexperienced; it takes a lot of work and analysis to decide when to buy and when to sell, if you want to profit. In this business, timing is literally everything. Only the seasoned traders know when to enter and exit markets, as borne out by the average overall success rate of those who trade commodities, which is a paltry seven percent. By average, the success rate we have with our clientele is 64 percent of the time when they follow our direction. We advise our clients at which point to enter the market. When we enter a trade, we use at least a 3-to-1 risk/reward ratio, which is based on our technical analysis. We do not trade against the trend, because it is a stupid thing to do. Our experience has taught us when to limit our risk and when to let our profits run. One of our major rules is to never to “take home” (let stand overnight) a losing position on the second night.
The commodity market is an auction market in its truest form. Individuals or corporations are bidding or asking for prices and this is occurring all over the world. The commodity market is a global market, not just a domestic market like it was when the commodity markets were created over 150 years ago. As the world becomes smaller in terms of trade (imports/exports), there are more countries wanting commodities produced in the U.S. When the futures market began in the 1850s, the primary commodities traded were food. Today, the market has expanded to include energies, currencies, precious and industrial metals, interest rates and fibers. There are primarily two groups of traders in the futures markets: the speculators and the commercials. The speculators are comprised of individuals, large traders and hedge funds, whose objective is to profit from price changes in various commodities. The commercials are in the business to purchase or sell individual commodities for the businesses they represent. The latter group is classified as “trend setters”. For example, a commercial may be a grain elevator that is in the process of buying grain from farmers and they need price protection until such time as actually they sell the underlying physical commodity.
Markets never go up or down in a straight line. Rather, they spend half the time trending and the other half the time in congestion. We believe that for every action there is an opposing reaction, such as: a market will move higher for three days and go down for one day. Prices paid for commodities are highly dependent upon three things: supply and demand, valuation of currencies, and interest rates. Seasonality plays an important role in supply and demand. For example, after harvest, there is generally more supply than exists prior to harvest. The value of the U.S. dollar’s role is that the price of all commodities are priced in dollar terms; if the dollar is high compared to all global currencies, then it only stands to reason that U.S. produced commodities may be higher priced than another country. Interest rates will have a direct correlation to the cost of storing and maintaining ownership; if interest rates are high, those parties storing the commodity may demand higher prices due to the “cost” of money.
With the popularity of computer trading and research, there is an entirely new group of traders we call “high frequency traders”. These individuals were born to the era of the earliest of computer games like “Pac-Man” and became proficient in the later versions of computer games that followed. They are usually educated at Ivy League schools and are now employed to trade the capital markets almost as if it were a giant game. They are primarily involved with the precious metals and currency markets, and they trade with enormous amounts of money, so it pays to be aware of their existence and the clout they carry. They dominate the stock market, where they gang up on certain stocks and drive them up or down. It is important to note that their computers can calculate the obvious place that buy-sell stops are located and these traders will take the markets to them just to stop you out. Because this trend occurred slowly over time, we were able to identify it as such and have consequently made important allowances in our trade to coexist with their tactics. We can do nothing to stop the practice, so we have learned to do certain things to protect our clients. For example, we do not place open stops in the market; instead, we use mental stops in order to avoid these high frequency traders. These are just a few of the things that a discount broker will not tell you or encourage you to avoid. A discount broker counts on the volume of his customers. As soon as one person washes out of the market, the discount broker will be on the phone, looking for the next customer to take the place of the one who has just bottomed out. You won’t find the discount broker in business for decades.