What You Need to Know BEFORE Opening a Brokerage Trading Account * * * IMPORTANT PLEASE READ ENTIRE DOCUMENT * * *

What does it take to start trading the Futures & Foreign Currency Markets? You’ll Need The Right Software, as well as a Brokerage Account: What is a brokerage account? A brokerage account is an account, very similar to a bank savings account, opened up for the sole purpose of trading the financial markets. • Your money is never at risk of loss, (or profits) until you enter, or make a trade. • Retail trading account reserves do not incur interest. • Brokerage accounts are not protected or guaranteed by the FDIC banking insurance program. • Profits are taxed at a lower 15% - 28% capital gains rate, depending on the market you’re trading. There are two primary types of brokerage accounts; leveraged, and non-leveraged. • Cash accounts: No leverage, $1.00 = $1.00 • Margin accounts: Leverage from 2% up to 200% or more. o A leveraged account, or margin account, is what allows you to trade large(r) asset classes with a small(er) account size, requiring you to only put down a small down payment (usually around 10%) toward the purchase of the asset. ▪ You control the entire asset, therefore gains and losses are calculated from the rise or fall from the value of the entire asset. o A leveraged account (Margin Account) is what allows you to make a large amount of profits/losses with a small(er) investment. ▪ Profits and losses are calculated as ROM (Return on Margin.) Personal Accounts vs. a professional account • A ‘personal’ account is considered a ‘non-professional,’ and will not incur the professorial trader exchange fee. • A ‘professional’ account is someone who has made trading their business. o Pro traders incur an annual exchange fee. o Expenses are tax deductible. o Usually will receive a lower commission on trades. • Most new traders start out with a ‘personal’ account, and later switch to the ‘professional’ account for tax purposes. There are different types of tax advantages you can use when opening brokerage accounts. • Standard, for profit, accounts. o No retirement tax advantages ▪ Pull profits out immediately, and buy shiny new things. • Tax deferred accounts, such as a traditional IRA, or 401K. o Pre-tax money is invested, and the taxes are paid when you withdraw the money during retirement. • Tax free accounts such as a Roth IRA. o Taxed money is invested, and there are no taxes paid when you withdraw the money during retirement. • If your trading for retirement, then we recommend, if you qualify, that you start with a Roth IRA account. • If your trading for income, then we recommend you start with a ‘personal’ account, with plans to switch over to a pro account as soon as prudently possible. o This only requires a deceleration, it does not require you to close and open a new account, unless you plan to trade as an LLC, at which point we recommend you simply open a new account. ▪ There is no charge to open a new account, you can have as many accounts as you wish. ▪ Many members trade for parents, loved one’s, friends and family, and can switch trading accounts directly from within the software. For our purposes here, there are basically three types of markets: • Stock market trading accounts • Forex or Foreign Currency trading accounts. • Futures & Commodities trading accounts Most retail traders try their hand at trading the stock market first. • Stock traders soon realize that it takes a large amount of capital to make a small profit. • Stock traders are penalized for going short; which requires them to pay fees, interest, and possibly even dividends. • They’re then introduced to what is called: Pattern Day Trading rules that highly restricts their trading venture. o Pattern Day Trader’s are required to maintain a minimum of $25,000 in their account at all times ▪ You are considered a pattern day trader if you exceed four (4) day trades within a five day period. ▪ You are also considered a pattern day trader if you buy and sell the same security within the same day. ▪ If you break these rules, your account is frozen for 90-days. (No trading!) • Although many firms, such as TD Ameritrade, claim to be commission free, they’re actually not, they still, currently, charge commission on options. (While other firms truly don’t; check the small print.) o We recommend the Track ‘n Trade Live Trading Platform ▪ Cleared through Tradier, which is truly commission free on all fronts, stocks and options both. • Most small account stock traders give up hope and stop trading after three months. o Too many restrictions, too small of profits, too large of an initial investment requirement, or their account gets frozen for 90-days and they give up trying…sad but true. More adventurous traders will try their hand at Forex, or foreign currency trading. • Traders basically profit from the price movement of the differences between two currencies exchange rates. • A big advantage to Forex trading is that there are no Pattern Day Trading rules. o You can buy and sell as often as you want, no restrictions to go long, or short. • These are highly leverage markets, with leverage from 100% to 400% o This means you only need a small amount of money to experience large profits, or losses. • Forex traders soon realize these are unregulated markets, with no exchanges, low volume, low open interest, and high commission rates--along with a lot of shady practices like dealing desks. o Most Forex firms advertise zero commissions and fees, but the fees are actually built into the spread, which is triple wide. (Nothing in this industry is free.) o Dealing desks are a way of life in the Forex market, meaning for every penny you lose, your broker dealer gets to keep your losses…this pits your broker dealer against you. o Your broker dealer actually profit when you lose, and not just from commission, they get to keep your losses. ▪ When you profit, they off-lay your winning positions to banks in the form of a hedge. o Most Forex brokerage firms are overseas, having moved there in an attempt to avoid US regulatory scrutiny. o That said, Forex is a great place to learn to trade, since you can open an account with a very small investment, and get your feet wet trading with real money. ▪ If you’re interested in trading Forex, we recommend the Track ‘n Trade Live Forex Platform, which clears your trading account through Gain Capital, one of the few remaining US clearing firms. The most committed, avid, and sophisticated traders will enter the commodity or futures market. • In our opinion, this is the most satisfying market to trade of all. • There are no Pattern Day trading rules, no penalties at all for going long, or short, and no interest or dividends to pay, with very low commission rates. • Traders profit from the actual increase or decrease in real goods, such as Gold, Crude Oil, Corn, Wheat, & Orange Juice, and can also trade the stock market indexes 23 hours a day; S&P, DOW, Russell, and NASDAQ. (Again, with no pattern day trading rules.) • These too are leveraged markets, to the tune of 60%, not the 100% to 400% of Forex, yet not the 0%-2% of the stock market; a nice happy medium. o This still means you only need a small amount of money to experience large(r) gains or losses. o The futures market also provides ‘mini’ contracts, specifically designed for small(er) investors & traders. • Trade options on futures as well, with highly liquid and very deep option chains. • The Futures market is regulated by US regulatory bodies such as the CFTC, as well as self regulatory bodies like the NFA. o Dealing desks, like you find in the Forex market, are actually illegal in the futures market. o All trades are made through an exchange, not a dealer broker. ▪ This provides a safe and secure environment where nobody’s trades are favored one over another. o Each trade is offset by another trader. Nobody gets to keep your losses, other than the trader who took the other side of your trade; there’s one winner for every loser. ▪ Trading on exchanges usually provides a higher number of participants, giving a large(r) degree of volume, open interest, and liquidity. • The futures market is where large or small traders trade; this is where you go when trading for a living. o The futures market has micro accounts for beginners, mini accounts for experienced traders, and full sized accounts for institutions and professional traders. o You can even trade all the major currencies in the futures market, so there really is no need to open a separate Forex account with another firm. o Don’t forget, you can trade the S&P, DOW, NASDAQ and Russell 2000 stock indexes 23 hours a day, free of pattern day trading rules. o It’s truly the best of all worlds. (In our opinion.) In the Futures market, you can trade all kinds of wonderful things. • It’s where you trade the stock indexes, such as: o S&P 500 o DOW o Russell 2000 o Nikkie o NASDAQ o Midcap 400 • You can also trade the worlds foreign currencies. (No need to open a Forex account too.) o EuroFX o Canadian Dollar o Japanese Yen o Australian Dollar, o Swiss Franc, o New Zealand Dollar o And many, many more… • It’s also where we trade the worlds physical commodities, the energies, metals, and food supply. o Gold, Silver, Copper, Platinum and Palladium o Crude Oil, Unleaded Gasoline, Heating Oil, and Natural Gas o Orange Juice, Cocoa, Coffee, Sugar, Cotton, and Rice o Live Cattle, Feeder Cattle, Live Hogs o Corn, Wheat, and Soybeans ▪ Soybean Oil, and Soybean Meal • We also trade the bond and note markets through the futures exchanges. o US 30 year T-Bond o US 10 year T-Note o US 5 Year T-Note o US 2 Year T-Note In our opinion, the futures market is the only place to be if you are serious about trading. • It’s the last bastion of true capitalism on earth today. • In my opinion, it’s the ‘best’ place to invest from a trading stand point.* • It’s really the only choice as far as we’re concerned. Many large Walmart style brokerage firms, such as TD Ameritrade, Scott Trade, Fidelity, and Charles Schwab will allow you to open your brokerage account, and trade all three markets, Stocks, Futures & Forex from one account. • In my opinion, this is akin to mixing Captain Crunch, Bacon and Eggs, and a slice of cheese cake into a single bowl, mixing them up, then pouring coffee, sugar and salt over the top and trying to eat it with a plastic spork from McDonald’s. (Yuk!) Our recommendation is to stay away from such firms. There are plenty of small boutique trading firms, known as IB’s (Introducing brokers) that specialize in helping retail investors reach their goal as independent traders, it’s basically they’re mission. Whereas the large Walmart style brokerage firms are more interested in just getting your money ‘under management’ where they can charge management fees and collect interest on your money, which is where they make their profits. • Large firms generally offer free-cheap-crappy browser-based order entry charts and software in an attempt to bait you into opening an account with them. Remember, it’s worth exactly what you paid for it, and in the long-run ends up costing you a lot of money. o The best, small boutique trading firms, will usually ask, or require you to buy a professional grade trading software platform. o They may offer a free platform for placing orders, but if you’re serious about being a trader, we don’t recommend you use any free trading software. o Usually, free order entry platforms do nothing but a disservice, and end up costing you more in the long-run. • Large TD Ameritrade style firms hire college kids, or hire foreign companies from India and Pakistan, individuals who have never traded a day in their lives, to teach you to trade, to provide trading advice, and support. o Small boutique firms are usually run by passionate professionals, who actually trade their own money and love to share their passion and knowledge with others, but usually for a small fee. (Again, you get what you pay for.) • Large firms have big ad budgets, lots of free giveaways, and slick advertising to entice you to open your account with them. o Small firms have small ad budgets, and usually rely mostly on word of mouth and solid reputation. • Free or low commission rates. o While the stock market has moved to zero commissions on stocks, they still charge commissions on options (currently). o The futures market charges a small round-turn fee on both position trades as well as options, it’s the only source of income for small boutique style firms. • Small firms will sometimes charge smaller commissions in an attempt to compete with larger firms, but this requires them to charge for services you might otherwise get for “free” from larger firms, such as training, advice, research, and software. o Some small firms even offer full service brokerage services; a dying practice in the retail trading world. • Large firms usually have long telephone menu systems in an attempt to keep you from talking to a real person on their help desk, which is usually manned by foreign contractors. o Small firms in the US, have actual humans, who generally answer the phone, and will usually provide a 24hr. trading desk. • Large firms usually have you open one account, and make you trade all markets, Stocks, Futures, Forex, and options from a single account, using the same crappy, Internet browser based order entry charts. o When you fail miserably, they will offer to ‘manage’ trade your money for you, in a fund with high fees, which has most likely never even beat the S&P 500 index. ▪ This is why they offer zero commissions, in an attempt to lurer you in, so they can eventually take over the management of your account and start charging fees. o Small firms will generally ask you to open one account for each type of market you want to trade. ▪ Dedicated stock market account, using dedicated professional grade PC based trading software. ▪ Dedicated Futures & Commodities account, using professional PC based live trading platforms. ▪ Dedicated Forex account, using PC installed software designed just for trading foreign currency. If you open your account with a small boutique IB brokerage firm, you’ll usually open up one trading account for each different type of market. One account for stocks, one account for foreign currency, and, or one for futures. This is usually done because they specialize in a particular market and usually the software they use is designed with that single market in mind. • It’s common to see small(er) boutique IB’s specialize just in Futures, and not even offer Stocks or Forex. • Most Forex only IB’s are not qualified to trade Futures & Stocks. • Most Stock’s only firms lay awake at night wondering what Futures, Forex, and Commodities even are… There are two different types of Futures IB’s you should be aware of. • Self Directed IB’s o These are larger, generally more stable IB firms, which have passed extra levels of compliance, and are also required to maintain a threshold of personal financial security in a private bank account to sure-up solvency. ▪ We recommend Gecko Financial Services, on the web at: www.GeckoFS.com • Guaranteed IB’s o Guaranteed IB’s are very small firms, usually a single individual, or very small number of highly skilled professionals, who specialize in a niche market, trading type, or style. ▪ Guaranteed IB’s are required to work under the license of a Self Directed IB, as it’s the self directed IB that is ‘guaranteeing’ compliance and solvency of the smaller firm, or individual. Keep in mind, IB’s never actually take possession of, or hold your money themselves at any point, they work strictly through exchange approved clearing firms, which are basically large banking style institutions, with names that you’ve probably never heard of, since retail traders are not usually allowed to open accounts with them directly; although there are some retail broker dealer clearing firms. It’s these exchange approved clearing firms who hold, account for, and mark-to-the-market each day’s profits and losses; they’re basically big accounting firms, and they’re who you’ll send your money to when you open an account with your chosen IB. We recommended the following Self Directed IB, and Live Trading Platforms: • Gecko Financial Services, Inc. (On the web at: www.GeckoFS.com ) o Gecko FS has been in business for over 10 years o They are partners with Gecko Software, Inc. which has been in business for over 20 years. ▪ Gecko Software develops award winning professional level, PC based, live trading platforms for Stocks, Futures & Forex, on the web at: www.GeckoSoftware.com • Track ‘n Trade is the professional live trading platform developed for Gecko Financial Services. o Track ‘n Trade has been recognized by Stocks & Commodities Annual Reader’s Choice Award seven times. • Find this award winning platform on the web at: www.TracknTrade.com o Simply install the two week trial of Track ‘n Trade, once the trial has concluded, click the box inviting you to open a live trading account with Gecko Financial Services, and follow the online instructions. ▪ Someone from Gecko Financial Services will contact you with details and assistance. ▪ Someone from Track ‘n Trade (Gecko Software) will contact you with details and assistance. ▪ It couldn’t be any simpler than that. • Continue working with www.CommodityTradingSchool.com for all your training and trading education. 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