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blackball

E-mini's As "long Term Investments"

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Hi:

 

I have heard that futures trading is a zero sum game but is this true? In the long run (I mean at least 10+ yrs) stock indices have a tendency to go up so if one were to supposedly open long futures positions and roll them over every 3 months (or longer) could you not capture the long term gains in the stock market (minus the dividends)? I was thinking of a basket of diversified e-mini futures to start (S&P500, Russell2000, Emerging Markets, Commodities, etc).

 

Taking it one step further might possibly be using a simple trading system like double crossovers on moving averages (i.e. 50 and 200 day) as buy/sell indicators. I've done some prelim back testing on this and it seems to work (yes we all love how backtesting results always turn out great :D )

 

I'm not talking about hitting a homerun so it would involve using "only" 3x leverage.

 

Thoughts?

 

Thx

 

Blackball

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I believe the term "zero sum" refers to the fact that there are fees associated with entering and exiting a position. Therefore, the price paid to the seller, from the buyer, will never equal the actual value of the product (the sum is less than zero). Direct costs associated with each trade might include your platform (brokerage) fee, commissions, data feeds, and the spread (between the bid and ask). And of course there are also indirect costs, such as internet fees, subscriptions, education, etc.

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Zero sum means for every person that gains in the futures markets on a contract another person/party has an equivalent loss. The net change in total wealth is "o". Just shifted from one party to the other.

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In the long run compound interest plus dividends is really what propels account growth something futures doesn't provide. Along with the fact that you have expiration, futures is looked at as more of a hedging vehicle versus a long term investment.

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Managed futures as part of a diverse portfolio makes sense, and some funds do very well with these. I guess it all depends on how you define "long term". For me month is pretty long term! ;-)

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If you want to trade them long term, then buy spy and hold. You'll get dividends ant not have to incur transaction costs since there is no roll. Zero sum is actually negative sum when you take into account transaction costs that are seen and unseen.

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Managed futures as part of a diverse portfolio makes sense, and some funds do very well with these. I guess it all depends on how you define "long term". For me month is pretty long term! ;-)

 

Ya managed futures is a whole other topic in itself, but managed futures vs owning futures is a viable option. if you want to invest I look to spot forex.

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Gotta say I have never run across anyone who approaches let's say the ES or TF with a long-term buy and hold approach. I agree with the above - there's other ways to accomplish this without all the trading costs that would be involved (not to mention the potential crazy leverage you might need to take) -- ETF's, etc.. .seem to be a more grounded approach. I'd even argue options on ETF's I think before I looked at holding an emini future as a long term investment.....short term trading and hedging - another story.

 

MMS

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Gotta say I have never run across anyone who approaches let's say the ES or TF with a long-term buy and hold approach. I agree with the above - there's other ways to accomplish this without all the trading costs that would be involved (not to mention the potential crazy leverage you might need to take) -- ETF's, etc.. .seem to be a more grounded approach. I'd even argue options on ETF's I think before I looked at holding an emini future as a long term investment.....short term trading and hedging - another story.

 

MMS

 

Spy's are cleaner in the set it and forget it sense, but you'll never beat the leverage that es or the big sp will provide you if you have enough equity to carry overnight. Hell, if you were fortunate to catch the low in march 2009 and add and add and add and add you'd be pretty well off. That is the type of trading that some of the legends in "Market Wizards" did.

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