Have Retail Investors Missed the Boat?
This is a question that is at the front of nearly every retail investors mind in recent days, certainly those who have spent the past five years or so on the sideline. Looking at the broader market, with the recent headlines celebrating the fact that the S&P 500 has crossed 1,800 and the Dow Jones has crossed 16,000, many have been left star struck and standing flat-footed, questioning whether or not it is worth it to continue along with this market at its current levels, or to even get involved at all assuming they missed the 28% rally this year.
It's not hard to find a reason why one might second-guess a decision to invest in equities. Simply tune into any one of the numerous financial networks and you will find no shortage of pundits speaking to the "dark" days ahead, and the inevitable market correction that is right around the corner. That's not to say that they are necessarily wrong, as they could very well be right. Let's not kid ourselves, we are all a little weary and gun-shy after what we experienced in 2008 and 2009. However, this fear should not serve as an excuse for simply throwing investing by the wayside. That is the beauty of what sites like TheStreet.com brings to the retail investor...education and insight on alternative opportunities.
So my answer is, "no", retail investors have not missed the boat. There are always opportunities in the market, it just requires one to understand that they may need to alter their trading plan to include markets and opportunities that they have not previously considered. One of the many reasons that I was eager to be a contributor at TheStreet.com and assist in the launch of the Futures section of their site is because I believe that futures, as well as options on futures, are becoming increasingly more popular amongst the retail investing community. And as a result, I believe that it is imperative that education on the proper usage of such instruments is and remains readily available to the retail community.
Through organizations like FuturesANIMAL and online brokers such as tradeMONSTER, TDAmeritrade and TradeStation, the trading of futures and education relating to their use is more accessible to the retail trader than it has ever been. Therefore, we, as retail traders, would be doing ourselves a disservice if we did not at least explore the advantages, and risks, that futures have to offer. Some of which include, but are not limited to:
Liquidity (risk: some more eccentric contracts may be less liquid)
Dampened volatility and ability to trade an index through such products at S&P 500 futures, Dow futures and NASDAQ futures versus individual stocks.
Higher leverage via different margin requirements than securities accounts (risk: more leverage means enhanced profits AND losses)
Generous commission schedules through a wide range of online brokers
Favorable tax treatment for shorter term traders (consult a tax professional for specifics as it relates to the individual)
A wide range of products from equity indices, to precious metals, to commodities.
In addition to these advantages also comes the ability to hedge portfolio risk, capitalize on markets regardless of direction, as well as the ability to make speculative directional plays. Any one of which could certainly present itself as an opportunity given the proper market conditions where one might be fearful of an impending drop and is seeking protection, or may be interested in capitalizing on a range bound market with no specific direction in mind.
To summarize, futures provide the retail investor with a number of different tools to remain nimble with the market, and to assist in mitigating fear around "bubbles", "tops", "bottoms" and any vernacular that you want to associate with a reason as to why you would not invest. With that said, please understand that the objective of this article is not to convince you to drop everything that you are doing in your securities account and to run full bore into the futures market, quite the contrary. Rather my goal is to challenge the retail trader to expand their trading spectrum through exploration and education, in a constant search for new opportunities. However, remembering that with any investment there is always risk. This certainly applies to the world of options and futures, which could mean that they may not be suitable for all investors. Therefore, make sure that you are properly educated on any product before putting real money to work.
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