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Trading Futures In Your IRA

Futures trading is essentially buying and selling commodities (grains, cattle, OJ, etc) but in addition includes buying and selling contracts 0f foreign currency, precious metals, bonds, energy (oil/gas) and other items whose price fluctuates from day to day.  Futures traders make money by betting that prices will go up or down and trading the right to buy or sell at a given price and a set time frame.  You can trade futures in your self directed IRA.  However, while futures trading is not expressly prohibited in retirement accounts, there are a number of things to consider before executing trades.

Even though the IRS does not prohibit trading in an IRA, what you can and cannot do in your IRA will be determined by the custodian you use.  Many custodians or plan sponsors do not allow futures trading in your IRA and some just restrict trading certain commodities.  Most 401k and plan sponsors offer a limited selection of investment options.  In the same manner, many companies who offer IRA accounts place restrictions on types of investments to reduce their liability.  If you want to trade futures in your IRA or 401k, the key term is “self-directed.”  Self-directed accounts allow you to take complete control of your investment choices and typically allow futures and futures options trading.  You can also setup a proper solo 401k to be able to invest in many of these alternative investments.

In most cases, day traders make a large number of trades per week in order to generate a profit.  In order to trade a futures contract which are highly leverages, your broker will require that you keep a certain value of assets available in your account to cover all open trades, also known as margin.  Margin is not expressly prohibited by the IRS for IRAs, but have come under scrutiny in the last several years because some say they essentially use IRA assets as collateral for a loan which is an activity that is prohibited under IRA rules.  Traders should be extremely careful to get good advise from a competent attorney and follow all account rules to avoid losing the tax-protected status of their IRA accounts and incurring IRS penalties.

IRAs, 401ks and other qualified retirement plans are tax-protected, meaning that earnings in the account are not taxed immediately as they would be in a regular investment account.  Trading futures in an IRA or 401k allows you to defer your tax obligation and pay it over a longer period of time in retirement. If the account is a Roth IRA, you may not pay tax at all.  This is a great benefit to those who do well with futures trading.  However, futures trading can have a downside as well and if you have losses you cannot write off losses in retirement accounts like you could on your taxes.  This means that if you have a bad year you cannot deduct those losses from your taxable income and reduce the amount of tax you owe.  The National Futures Association warns that futures trading is very risky and as a trader myself I understand the pitfalls.  Therefore, if you chose to trade futures, choose a reputable broker and learn as much as you can about the processes and risks associated with speculative trading before you place your first order.  Also, get some training from a reputable trading education company.  Never trade with money you can’t afford to lose, and beware of any investment advisor or guru offering unrealistic profits or easy money.  Trading should not be looked at as a get rich quick scheme but should be looked at as long term wealth creation.

 

 

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How Will Ben Bernake’s Action Effect The Market?

Hey Traders,

On August 9, 2011, the chairman of the Federal Reserve, Ben Bernanke, acknowledged in what was perhaps the most stunning statement ever by a sitting chairman of the Fed… That the economy was not doing as well as they had predicted. No kidding Ben, welcome to the real world!

We hoped that the Fed wouldn’t do anything stupid like announce QE3 or that they will be dropping money from helicopters. Instead, the United States has just played its cards out to the world, saying that we are not going to be raising interest rates for 2 years.

What the chairman’s statement really meant to many traders, myself included, is that the US economy is not even halfway good. It is in the toilet! The Fed also stated in a very subtle way, that there is not going to be another huge bailout for the economy. That can only mean one thing in my mind, and that is the equity markets are going to continue to erode for the balance of 2011 and for most of 2012.
I suspect that we have seen a minor bottom in the equity markets as they have churned back and forth trying to stabilize after there disastrous losses in the past 13 days.

Everyone is euphoric about the price of crude oil coming down, but I suspect this is just going to be a correction in what will be a bull market when inflation kicks in. Other commodity markets are, in my opinion, getting closer and closer to making a bottom. I would pay particular attention to the Reuters/Jefferies CRB commodity index.

Here’s what I think is going to happen in the next few days: I think we will see more choppy, irrational and erratic market behavior that will rule the day. I think that investors who haven’t been using a structured approach are going to be scared to death at what is happening to their investment and will find them selves without a rudder in these tumultuous financial seas. Only by having a game plan in place, can you survive what I believe is going to happen in the future. In a nutshell, the balance of 2011 and 2012, will be more about capital preservation and less about growth.
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Here is an overview of the major markets.
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S&P 500
Monthly Trend = Negative
Weekly Trend = Negative
Daily Trend = Negative

Chances are we reached an interim low point yesterday. The Fibonacci retracement zone has been satisfied and this market is in a heavily oversold condition.
Continue to see choppy action overall for this index.
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SILVER (SPOT)
Monthly Trend = Positive
Weekly Trend = Negative
Daily Trend = Negative

Intermediate term traders should be on the sidelines and out of silver at the present time. OThe charts indicate more two-way market and a trading range.

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GOLD (SPOT)
Monthly Trend = Positive
Weekly Trend = Positive
Daily Trend = Positive

Short term, intermediate-term, and long-term traders should all remain long gold.

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CRUDE OIL (SEPTEMBER)
Monthly Trend = Negative
Weekly Trend = Negative
Daily Trend = Negative

Yesterday the crude oil market looked like we have put in the bottom in this market for the time being. We would not be surprised to see further two-way action and a further reflex rally.

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DOLLAR INDEX
Monthly Trend = Positive
Weekly Trend = Negative
Daily Trend = Negative

The dollar index continues to remain in a broad trading range. The index remains below its 200 day moving average while our longer-term remains positive.

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REUTERS/JEFFERIES CRB COMMODITY INDEX
Monthly Trend = Negative
Weekly Trend = Negative
Daily Trend = Negative

The trend for the REUTERS/JEFFERIES CRB COMMODITY INDEX remains negative. We want to watch this index very closely in the next 2 weeks, as we feel we’re very close to making a major cycle low in commodity prices.

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