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Insiders Still Reap the Rewards

Although legislation and regulations have been enacted to keep the markets fair, the fact is that insiders are still the big winners in futures and options trading. By insiders I mean commercial traders and pit brokers. The good news is that futures trading still represents the last bastion of capitalism - the place where anyone with persistence, discipline, and some knowledge can make it big.

The bad news is that it's getting harder and harder to win as the markets become more competitive and as insiders grab onto opportunities before the general public has had a chance to do so. Fortunately, the basic rules of profitable futures trading still apply.

Therefore, if you follow the rules, you will improve your odds of success, even though they may be less than they would have been 15 years ago.

Your Odds of Success Are Worse Now than Ever

I'm certain that this assertion will cause many of my readers - particularly those who are professionals in the futures industry - to bristle. But my opinions are based on good, solid, and lengthy experience. Can I prove what I'm saying by using hard statistics to back me up? No, I can't. But my experience counts for something, and it tells me, without a doubt, that there are fewer winners today, on a percentage basis (i.e., out of the universe of traders), than there were 15 or 20 years ago.

Believe me, I'd like it to be otherwise, but I just don't see it. The question is why. The answer is severalfold. First, there are many more green traders today than ever before. They've been attracted by the lure of advertisements for trading courses that pander. They've been promised that they can make a year's worth of income in the futures markets by starting with only a few thousand dollars. And they've been shown how they can generate several hundred percent of their money by buying heating oil call options for a seasonal play. None of the above is true. Still, they come to the markets like lemmings to the cliff.

Second, the markets today are more volatile than ever before. S&P futures trading is so volatile that a 500-point daily range ($1250) is commonplace. Given the fact that many traders have less than $5000 in their accounts and they want to trade S&P futures, the odds of their making money are slim to none.

Consider also the wide swings in virtually all other markets, and you have the necessary ingredients to small-trader ruin.

The third reason is based on an overabundance of information. While you may think that today's computer power and intensive research has helped create better traders, I disagree. The reality of this situation is that it has created an excess of information, which thoroughly confuses the novice trader and undermines discipline. The end result is that the average trader today is more confused and actually less educated than the new trader of 15 or 20 years ago. While good information is important, an excess of information will likely lead to confusion and obfuscation, as opposed to clarity and direction.

The fourth reason is that when traders finally do have profits in a trade, they are often scared out or stopped out of the trade(s) before the big move has taken place. Again, this is a function of volatility. While the nimble and experienced trader can use volatility to his or her advantage, the average trader and the new trader are only hurt by it.