A future or forward contract is an agreement on price now for delivery of a specific product or service in the future.

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1 LESSON WHAT IS TRADING? Nothing would last for as long as trading has unless there was an absolute need for it. Consumers need things and producers make things. Trading is the introduction of these two parties at its most intimate level. WHAT IS A FUTURE? A future or forward contract is an agreement on price now for delivery of a specific product or service in the future. Real Life Example A farmer wants to plant X amount of seeds to harvest a corn crop. However, he wants to know what he can expect to make in terms of profit when the crop is ready to be delivered in 6 months. Forward contracts became necessary to satisfy the farmer s need to know what the profit margins are going to be. This allows them to plant more or less depending on what they can expect to gain. Another way to look at this example is a company that needs corn to produce their product. Kelloggs, for instance, has to hedge what they might pay for wheat in six months based on where it s trading at now. In other words, they want to figure out their profit margins in advance, for products they know they will be buying in the future. WHY TRADING? In the previous section we laid out why futures contracts are necessary and useful products. However, what about other contracts that are traded? Let s explore where others trade and engage in the financial and currency markets.

2 LESSON STOCKS Trading a stock allows investors to become involved in the success or failure of a company. It allows the company to raise cash to continue producing and making products. Trading has always been about an exchange. Whether you exchange ideas with your spouse or shares of stocks, we are always trading; each and every day. Companies wishing to raise money have, in the past, offered their company on the stock market to do so. Anytime that you buy shares of a company, you technically own a portion of it. Using basic fundamentals, the better and more profitable the company is, the better and higher the price should go. In summary, stocks are simply an efficient way to allow the public to invest in your company, raise money, and continue to compete and grow as a business. In future tracks we will lay out the short, medium, and long-term strategies that traders apply. In reality, many traders don t really care much about the company but rather how much the price of their stock is moving. Individual US stocks are mostly traded on the NYSE and NASDAQ exchanges. However, there are futures on stocks and stock index futures. Click ahead to our contract spec section on the various markets that trade and track the average of the entire index. FOREX Forex or Foreign Exchange is simply the relationship between different pairs of currencies. For example, the US Dollar (USD) is often the benchmark global currency that many other currencies compare against. Why are the Forex markets necessary? The main participants in this market are the larger international banks and central banks. However, there are also practical uses for hedging these currency relationships. For starters, importers or exporters of certain goods rely on what exchange rate they can expect to get for (or pay for) that particular good. The native currency of the country they are doing business in versus their native currency, effects profit. From a day trader s perspective, the movement of price is usually the only thing that matters. Click here to see some of the commonly traded currency pairs.

3 LESSON The places to trade and participate in Forex are on-line brokerage accounts. EBS and Reuters are the two main FX trading platforms, where these prices are reported. Traders have other options to trade currencies, such as currency futures. Future markets exist at the CME Group where many of the more liquid currencies are paired off. In our contract specification section, we list these products, together with other important information. Edge-ism Understand the WHY and the HOW becomes easier Whether you re trading futures, stocks, or forex trading has always been about an exchange. Whether you re exchanging ideas with your spouse or children, buying a house, buying a car, or a plane ticket, or simply just shares of stocks, we are always trading. WATCH THE VIDEO FOR THIS LESSON

4 LESSON 2 HOW TRADING AND THE INDUSTRY HAS SHIFTED Many of those who are reading this are doing so as a direct result of how the industry has shifted. Trading is now at the fingertips of anyone with an internet connection. The level of intimacy has soared in recent years. making it possible to view and trade markets on a computer screen with a simple internet connection. Years ago, there could have been up to as many as 4 middle men to execute an order or even get a quote of where the market was trading. On a trading floor was where buyers met sellers and while it seemed like chaos, it was organized. Orders would come in by phone off the floor to desk brokers, who would then get a quote from the pit and signal in an order to buy or sell. In the video tutorial we walk you through this process. In future sections, of this educational track, we begin to show you the advantages floor traders used. Moreover, we show you how you can adapt that on to the screen, in an electronic trading environment. THE PLAYERS + PRICE BUYS SELLS WO $$$ X LT 2 Exchanges: Where they facilitate this interaction between buyers and sellers. Brokers: How to open a brokerage account and how they facilitate trade. Trading platforms: (DOMs Depth of Markets ) and how they are now your connection to the markets.

5 LESSON 2 EXCHANGES Exchanges are the places where the interaction of buyers and sellers take place. In years past, they were physical trading floors. On those floors were trading pits that facilitated trade through a system called open outcry. In this system, traders would shout buy and sell orders, then keep track of their transactions or trades on trading cards. While some of these floors remain in operation, the volume has drastically shifted from the pits to the PC. These exchanges now have large facilities that host servers which track most of the trading data we interact with today. The major exchanges in the industry are the CME Group, Eurex, ICE on the futures side. And for the US stock market the NYSE and Nasdaq are the major players. BROKERS What is the Role of Brokers? Brokers play a vital part in our ability to participate in these markets. A broker is the go between you and the exchange. In fact, a broker connects you to the market, in a live and real time environment. Brokers establish margins, size of trade restrictions, and overall risk management of your funds. Follow the flow of your trade in this age of electronic trading: -- PRICE BUYS SELLS WO + PRICE BUYS SELLS WO $$$ X LT 2 $$$ X After you open a brokerage account, you gain access to a trading platform You can point and click on your trading platform to enter orders The order goes to a server at the exchange Both filled and resting orders, along with open positions, are reported back to your desk top WATCH THE VIDEO FOR THIS LESSON

6 LESSON 3 WHO TRADES THESE MARKETS? Investment Banks Hedge Funds Proprietary Firms Retail Traders Investment banks and hedge funds might take larger positions in the futures markets to offset exposure. They also might leg into certain long term stock investment ideas by initiating their exposure in these futures markets. Some of these banks and hedge funds also have shorter term strategies which include moving in and out of positions inter-day. As explained earlier, many larger companies that rely on grains or cattle, to produce their products, hedge the ever fluctuating price of these commodities. Farmers, for example have a vested interest of what the price of their crop is going to be in the future, solely in an effort to understand how much they should plant today. Proprietary firms (prop shops) have generally been associated with successful shorter term professional traders. In many cases, the firm backs or funds a trader and a profit split is worked out. Retail Traders Retail trading is where you don t necessarily want to be or stay. What typically defines a retail trader is a small account balance and/or a small position trader. There is absolutely nothing wrong with being a retail trader using that definition. However, there is a problem with trading like one. With any productor service in the consumer world when you pay retail you probably paid more. One of the goals of the Edge is to help you take your retail consumer techniques and apply them to a wholesale or professional trading style. WHAT DO I NEED? Opening a Brokerage Account To gain access to trading platforms, you need to open a brokerage account that specializes in the market you wish to trade. Brokers offer and support trading software, where you can place a buy or sell order directly from your computer (order type definitions). It s as easy as a point and click on a mouse or trackpad, where in the past a trader would had to physically stand in a trading pit and yell out a bid or offer. How times have changed a pit has now been replaced by a price ladder and a PC.

7 LESSON 3 Charting Software There are two main tools that are used to keep track of where markets are currently trading. First, are charting software platforms. Charting platforms allow us access to past and present data to chart where the market has been. Some of the software is very basic while others can be quite comprehensive. In the next educational track of this journey, we will discuss the myriad of tools and theories that make-up the functionality of a chart. We will introduce many chart patterns traders look for to help mold their opinions. Also, in the next track we will discuss various ways traders track the price fluctuations of a market. For example, a bar, candlestick, and FootPrint charts establish where a market is trading and also where it was trading in the past. BAR CHARTS CANDLESTICK Sticking with the theme of these educational tracks, we want to keep the simplicity of trading our mission statement. It s not what traders do, it s why they do it. FOOTPRINT Trading Platforms Many names are used to refer to this function. A front-end, price ladder, platform, depth of market (DOM). All of them connect you to the market by giving you the ability to place orders and trade. Markets have never been this real time, or live, then they are in this generation of trading. They have brought the ability to trade right into your living room. There are many distractions in the industry as to how to be a profitable trader. Education Saturation as we call it, creates an overload of paths to success in this business. Keep it simple and don t ignore the consumer skill set you already have, embrace it! WATCH THE VIDEO FOR THIS LESSON