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The world of futures trading has changed forever.

FuturesOne Vice President Sterling Smith is right on the cutting edge of these changes, and experienced these changes. In his new work, Sterling Smith's Guide to Trading in the New World , he looks at these changes, their implications and ways to handle them. Spanning everything from inter-market relationships to risk management, this new work is a must read for new traders and market veterans alike. Go here to get your COMPLIMENTARY copy today.

Internal and external forces have reshaped the futures trading marketplace. In this Friday educational issue of Fastbreak I am going to take cursory look at these and what traders need to do in order to operate in the new environment.

Speed of the market place.

Futures markets were always though to be fast moving markets, and this was mainly to the leverage that is provided in futures trading. Measured in real dollars, however the price of many commodities were actually less volatile, than that of many stocks. While week over week studies still bear this out, in the inter-day volatility of many commodities has increased dramatically. Yesterday, gold managed a down and up move of $34 in a span of about two hours. The yearly range for gold in 2001 was about $43. In 1995 the yearly range was $37.  Gold accomplishing in two hours what took a year to do, not that long ago, now that is a change in velocity.

With the open outcry pits quickly losing their influence in many more places, computerized trading has not only come to the execution side of trading, but "black box" systems are coming into play. Computers move much faster than people do and this is yet another factor that adds to the overall velocity and volatility that we are now dealing with.

Clearly these hot potatoes have to be handled differently.

Size of the marketplace.

The markets now are lot bigger than they were, bigger in both volume and ranges. The growth of commodity trading funds has brought about a large increase in volume and open interest to many markets. The funds have changed market behavior markedly, and learning to adapt to this, is in my opinion a key to trading successfully going forward.

Let's look at how big the funds have become in terms of participation. I am using corn as an example as it large, old and basic market. In the March 28^th net non commercial position was just under 295,000 contracts, going back three years to March 22, 2005 it was only 49,000, and of important note, both 2008 and 2005 represent net long positions. Of further note the small speculator/no reportable size has remained largely unchanged at about 85,000.

What this tells me is that commercial participants were largely left has the sellers of last resort. Money comes into the funds and seeks a home, in order for the funds to acquire this growth somebody obviously has to sell it to them. With the size of the non reportable positions barely changing that leaves only one group big enough to meet the demand.

Of course there is other side of the commercial side, the commercial users of corn like ethanol plants, has the funds buy they are forced to aid in this chasing up of the markets.

So we now know part of what has driven corn prices from the March 2005 price of about $2.15 a bushel to the new record high price of $6.00 a bushel. It was not entirely the funds driving up price, ethanol and a weak US currency had their fingers in the pie to, but along with that we had near record corn production last year as well.

One important thing here is learning how to cope with the 800 lbs gorilla when decides to get in or out of the market, especially when he decides to get out.

Globalization has also changed the rules of the game, as most markets are nearly 24 hour a day affairs. The old thinking that the night sessions are low volume places occupied by non professional traders is simply not the case anymore. One needs to look at the entire session to get a full picture of what is happening.

Mind in the marketplace.

I am not talking about what the market is thinking, but about what YOU are thinking. Naturally with corn prices up nearly three fold in three years and that creates a lot of excitement and a willingness to participate. But by the same token these giant markets and a changed landscape bring a whole host of new potholes to avoid.

First of all it has never been more important to have fully developed and implemented trading plan. You need to have set time frames set in on which you are basing your analysis. From what I have seen either very long term ( being in the same positions for weeks, months and in a couple of cases with me, years) or the frequent use of hourly charts for shorter term ideas.

Second, you must have solid risk management practices in place, or you will find yourself going on the very painful agony to ecstasy back to agony roller coaster, which will very quickly become a judgment clouding exercise in futility.

Third, you need to look at market correlations, and pay particular attention to things that simply do not make sense, or signs of a coming change of trend, much like what we may be seeing in the possible bottoming of the US Dollar.

Fourth, a lot of old rules and ideas simply do not work anymore; many old chart patterns have lost the consistency that they once had. Some old favorites like the COT reports and Seasonals still have some use but many of the older theories have also lost their value, but some parts still work.

The markets still afford huge opportunity, coupled with an equal amount of risk. The key right now isn't being the strongest, biggest or smartest participant, they key is being the one best able to change and adapt to the new world we are trading in.

REPRODUCTION OR REBROADCAST OF ANY PORTION OF THIS INFORMATION IS STRICTLY PROHIBITED WITHOUT THE WRITTEN PERMISSION OF FUTURESONE AND STERLING J SMITH. THE INFORMATION REFLECTED HEREIN IS DERIVED FROM SOURCES BELIEVED TO BE RELIABLE; HOWEVER, THIS INFORMATION IS NOT ASSURED AS TO ITS ACCURACY OR COMPLETENESS. OPINIONS EXPRESSED ARE SUBJECT TO CHANGE WITHOUT NOTICE. THIS MATERIAL AND ANY VIEW EXPRESSED HEREIN ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED IN ANY WAY AS AN INDUCEMENT TO BUY OR SELL COMMODITY FUTURES OR OPTIONS CONTRACTS. FUTURESONE AND ITS OFFICERS, DIRECTORS, EMPLOYEES AND AFFILIATES MAY TAKE POSITIONS FOR THEIR OWN ACCOUNTS IN CONTRACTS REFERRED TO HEREIN. TRADING FUTURES INVOLVES RISK OF LOSS. DO NOT DUPLICATE.

This publication is strictly the opinion of its writer and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way assured. No assurance of any kind is implied or possible where projections of future conditions are attempted.

Futures and options trading involve risk. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. In no event should the content of this market letter be construed as an express or an implied promise, assurance or implication by or from FuturesOne or Sterling J Smith that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance.

The world of futures trading has changed forever.

FuturesOne Vice President Sterling Smith is right on the cutting edge of these changes, and experienced these changes. In his new work, Sterling Smith's Guide to Trading in the New World , he looks at these changes, their implications and ways to handle them. Spanning everything from inter-market relationships to risk management, this new work is a must read for new traders and market veterans alike. Go here to get your COMPLIMENTARY copy today.