Page 111

trade decisions. The trick is to have access to these analyses and act on them before the masses do. Once the general public acts on this information by buying or selling futures, prices will move accordingly, not giving the late arrivals a chance to get in on the action. Of course bear in mind that the predictions made by analysis may turn out to be false or may be contradicted by other analysis. In that case, the early arrivals may not feel so smart after all. As a general rule, however, analysis carried out by reliable sources have a tendency to affect futures prices, as traders may not have any other good sources of information to base their buy/sell decisions on. At times analysis can even turn into self-fulfilling prophecies, fueling trader reactions based on nothing but the analyses themselves, even though some of them may have questionable quality.

Regulation

One of the greatest features of the futures market (or for that matter any modern financial market) is that traders (buyers and sellers) can come together from any part of the world and carry out their transactions without actually having to be present at the exchange’s physical location. Remember that the futures market is one big auction based on competitive bidding. The actual traders, however, are totally anonymous, working through brokers to place their trades. You may wonder how the anonymous traders can guarantee each other payment and delivery. After all, without such a guarantee the market could fall into chaos.

The guarantee comes from clearing houses. These are a network of powerful and well known financial and banking institutions which in effect back the entire trading process. Your brokerage firm may either have a clearing house or may have a close relationship with a clearing house through which all funds are coordinated. The clearing houses are …