A Complete Guide to the Futures Markets

Schwager wrote this as a comprehensive reference on futures, covering market mechanics, fundamental analysis, technical analysis, trading systems and portfolio application. It has been revised, with the second edition adding coverage of options and of newer instruments.

The mechanics sections explain what a futures contract is, how margin works, how contracts are specified and settled, the role of the clearing house in eliminating counterparty risk, the relationship between futures and spot prices, and the carrying cost model that determines the shape of the forward curve. Schwager explains contango and backwardation through the underlying storage and convenience yield economics rather than as descriptive labels, which is what makes the treatment useful.

The fundamental analysis sections cover the supply and demand structure of individual markets, the data sources, and the construction of price forecasting models, with attention to the specific characteristics of agricultural, energy and metals markets.

The technical sections cover chart analysis, trend following systems, and the construction and testing of mechanical trading rules. Schwager is unusually careful here about the ways backtests mislead, covering overfitting, the selection of parameters after the fact, and the difference between a system's tested and realised performance.

The portfolio sections cover spreads, hedging applications for commercial users, and position sizing.

The book is long and reads as a textbook. The specific markets and data sources are dated, and electronic trading has changed execution and market structure substantially since the original edition. The conceptual material on carrying costs, on spreads and on the pitfalls of system testing has not dated.

Futures research director and author; co-founder of FundSeeder; creator of the Market Wizards series

The Market Wizards interviews are a primary record of how top traders actually operate, cited across the field.

FundSeeder