Commodities and Derivatives: 'Wannabe' wizards glimpse the future

AS DETAILS emerge of Hillary Clinton's huge successes trading commodities futures in the late 1970s, many investors are asking how they can do the same.

Mrs Clinton put dollars 1,000 to work in the live cattle futures market in 1979 and, with the help of a broker called 'Red' Bone, transformed her initial investment into dollars 100,000 in less than a year. Whether it was blind luck, trading skill, or something else, such an accomplishment captures the imagination of the 'wannabe' market wizard with only a small stake.

The often wild moves in the commodities futures markets means that is where players can win or lose most money in the shortest time. Live cattle futures haven't been exciting lately, but players in the coffee market have seen prices soar 25 per cent in the past two months, while potato futures have doubled.

Finding a way into the market is not easy in the UK, where trading futures and options by small investors hasn't caught on as it has in the US. And in the increasingly tight regulatory environment, the small investor is warned off the futures market at almost every turn.

A call to the London office of 'Red' Bone's old firm, Refco, isn't helpful. 'We haven't handled a retail account for many, many years,' says Chris Sayer, Refco's joint managing director. The industry has changed since Mrs Clinton's trading days, with much higher costs and tougher regulation, he says. These days, his firm deals only with experienced traders who have 'substantial' capital - millions rather than thousands.

Most futures brokers give a similar response. 'Regulations make it difficult to trade for the individual and expensive to set up,' says Martin Emery, of Sucden. And the risks for a small-timer are high. 'If someone comes in with pounds 100,000 and wants to speculate, that's one thing. But if someone comes in with pounds 1,000, I tell them that the 3.30 at Doncaster is a better bet.'

For the determined small operator, however, there are brokers who will deal; and there are stories of big successes. Charles Romilly, a broker at ECU Terminvest in London, tells of one client, a Norwegian postman, who spun dollars 5,000 into dollars 150,000 trading futures on the London Metals Exchange and bought a house for cash. 'Every broker has a similar story, but the odds of it happening are very long,' Mr Romilly says. The benchmark in the futures industry is that four out of five inexperienced private clients trading commodity futures will lose money.

ECU Terminvest will handle some small trades for a minimum round-trip transaction fee of dollars 32. But inexperienced traders are guided towards commodity trading advisers with a proven ability to make money consistently.

Although the futures market may be uninviting for the small investor, the share options market has a warmer welcome. The London International Financial Futures and Options Exchange (Liffe) has been fielding up to 1,000 calls a month since listing options prices on Ceefax last year and is seeing about 300 people a month go through its options training seminars.

There are signs that, shaking off their bad experience with options in the 1987 market crash, investors are coming back in force. 'Clients generally are becoming more knowledgeable about derivatives,' says Chris Butler, of Sharelink.

Share option dealing costs less than futures trading and involves lower risk when done properly, says Karin Forseke of Liffe. The risk of trading 'call' and 'put' options, which give the right, but not the obligation, to buy and sell the underlying shares, is limited to the amount paid for the options. Writing options against shares an investor does not own, known as 'naked' option writing, is as risky as the futures market.

'We are often asked who makes money out of options consistently,' says Ian Rankine, of London brokers Derivative Securities. 'It's the person who owns the underlying stock or has the resources to buy it.'

Small trader involvement still accounts for only 20 per cent of the UK option market. That could change on 18 July when new rules come into force for the London Stock Exchange, reducing the two- to-three week account period to 10 days. It is expected to be down to five days early next year.

'Brokers used to 30-50 per cent of their clients' trades done within the account period are beginning to realise that options are potentially big business,' says Ms Forseke.

people And here is why...
peopleStella McCartney apologises over controversial Instagram picture
Arts and Entertainment
Hayley Williams performs with Paramore in New York
musicParamore singer says 'Steal Your Girl' is itself stolen from a New Found Glory hit
ebooksAn unforgettable anthology of contemporary reportage
William Hague
people... when he called Hague the county's greatest
indybestKeep extra warm this year with our 10 best bedspreads
Life and Style
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?
Why do we like making lists?

Notes to self: Why do we like making lists?

Well it was good enough for Ancient Egyptians and Picasso...
Hong Kong protests: A good time to open a new restaurant?

A good time to open a new restaurant in Hong Kong?

As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

Paris Fashion Week

Lagerfeld leads a feminist riot on 'Boulevard Chanel'
Bruce Chatwin's Wales: One of the finest one-day walks in Britain

Simon Calder discovers Bruce Chatwin's Wales

One of the finest one-day walks you could hope for - in Britain
10 best children's nightwear

10 best children's nightwear

Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

Manchester City vs Roma

Five things we learnt from City’s Champions League draw at the Etihad
Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

Trouble on the Tyne

Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?