Commodity Futures Trading Advice & Trader Tips
Commodity futures trading refer to trading of futures agreements. These agreements are deals made to trade the primary commodities at fixed rates in the future. The rates are usually based on the existing or prevailing day rate. Similar to stock trading, commodity futures are traded in particular centralized trading markets like Globex and S&P.
Among the reasons are the following ones:
- simplicity of trading that enables anyone to do trading online or virtually,
- the present of high liquidity in the market due to huge trade volumes made daily,
- the stability of the market,
- right to own an underlying commodity where you can buy product at lower price during contract term,
- low rates of commission in comparison to trading underlying futures stocks,
- the ability to do trading at home with decreased in working capital,
- lower initial investment required,
- the availability of small futures that have narrow spreads and less account minimums,
- the presence of various underlying products in the market
There's a large increase in commodity traders trading futures contracts due to many reasons.
Most any trader may be able to trade successfully with profits via stocks, options or commodity futures trading. At the futures markets, the speculators and hedgers meet to predict if prices of will rise or fall in the future based on a particular market or currency index. Just like any market, commodities futures trading can be high-risk, however the potential to see both long and short term gains can be considerable.
There are different futures markets as well as strategies that a person can use to gain trader profits from commodity futures trading. Primarily, a commodity refers to the physical product whose value is decided by the forces of demand and supply. These forces include precious metals, energy, grains, and more.
The futures contracts are traded in a centralized market at a predetermined time based on prices rising or declining. In trading commodities, it can be strategic to also trade spreads or straddles. A straddle is created holding the same number of puts and calls with the same expiration date and strike price. The “calls” is where the trader expects that the price will rise while the “puts” is where the trader speculates that the prices will fall.
One more trader strategy in getting trading profits from commodity futures trading is called 'scalping' - Just like commodities, the prices of trade currencies in scalping are speculated to rise or fall. In the value of currency, the scalpers try to take short-term profits off the incremental modifications. As this is done repetitively, the profits will continue to grow in time resulting to significant total profits as all small profits are combined. In able to continue gaining trader profits, one must require strict discipline in order to continue making short-term and small profits while preventing large losses.
In the commodity futures markets, there are two main types of futures trading agreements available. The first type is called as commodity futures and requires physical delivery. The futures in this type include agricultural commodities. The second type is called as financial futures, which often require cash settlement. This type involves mutual funds, bonds, treasury notes, and the like.
Advice and Trading Tips on Profitable Commodity Options Trading
Trade commodity options are highly profitable. It can be more wonderful and great than stocks options because it brings risk management to an entirely new level and gives plenty of flexibility as well. Compared to index or stock options, strategies for trade commodity options can be exchanged with lesser margin.
Commodity futures options may also be used for speculative and income purposes. Margin rules allow use of lower capital for trading commodity options. The commodity options are substantial for complex options strategies with the help of brokers who use deep discount commissions, online trading platforms, electronic trading platforms, and electronic mini contracts.
Commodity options are just like with stock options when it comes to trading transaction. The only difference between these two is multiples of option premiums that each represents. Apparently, there are different advantages gained from commodity options that include low margins & high yields, lower commissions, low slippage, better hedging, no additional margin trades, call credit spread, and additional trades.
Most of the trading commodity options use margin rules where calculations are centered on all aspects of the trade. This can be advantageous to the trader. For instance, a trade that uses collar strategy will have lower margin compared to the same trade that uses indices or stocks directly. Lower margins will result to better utilization of capital as well as with higher profits.
With trade commodity options, the slippage per deal per trade is huge. However, in most cases, a trade option that involves the same currency size will result to low slippage. The slippage is even lesser with commodity options that are electronically traded like e-mini contracts and gold options. Most of the strategies with trade commodity options need some few adjustments or hedging during the span of a trade. The general rule for hedging or adjustment is going short or long of the principal to watch over if the principal is not in favor of the trade. E-mini contracts and futures provide the best method to hedge or adjust with low capital requirement.
Trading of commodity options do not have extra margin trades. With careful assessment of the current trades, possible extra trade opportunities may arise. These additional opportunities can decrease the overall margin that the trade requires.
Apart from the above mentioned advantages of trade commodity options, the trader must be aware that trading options as well as futures involve considerable risks of loss or gain that maybe or not suitable for all traders. Here is a useful list of tips that one can use for profitable options trades:
- Follow the trends in the commodity market as well as your natural instincts. As soon as you have chosen your trading system, stick to it.
- Do not overtrade and apply techniques of money management on your trading.
- Secure a position in the market wherein your profit goal exists.
- Avoid trading markets that has low capital and with volatile contracts.
- Establish trading plans prior to market opening. The plans must include objectives, exit points, and entry points.
- Maintain discipline by using technical signals such as charts. This will eliminate impulse trading.
- Cut losses short so profits can run.
- Do not overstay on a good market because there is a tendency to overstay on bad markets as well.
- Learn to trade from the short side and be patient.
- The broker and client must have rapport.
FREE Info on How to Trade CBOT Corn Futures for Profits
Throughout the history of mankind, corn had been considered very valuable because of the profits it brings. It is often referred as the other yellow gold. Apart from the profits that corn gives, it is also a great source of energy and food for man. Early Indians that migrated from the Eastern Asia were the ones who brought corn to America, in south specifically. During that time, Americans use corn plants as source for everything from making primitive beer to making clothes.
Next to wheat, corn is the second most cultivated plant in the entire history of mankind. Corn futures are one of the original grain future contracts. Its trading began during the 18th century in Chicago in America, the same time when cotton trading began. The role of corn market in the production of ethanol had increased its demand due to the high prices of petroleum products. According to experts, if the prices of crude oil stay high, ethanol is economically feasible to be added and produced to unleaded gasoline.
There are many different uses for corn as well as many different products made from it that people are not aware of. Among these products include cardboard, construction materials, adhesives, metal plating, lubricating agents, laminated building products, aspiring, and antibiotics. Because of these diverse applications and benefits, corn makes the corn options and corn futures market very important to the corn industry. Many knowledgeable farmers use corn options and corn futures markets to protect their crops against unfavorable price movements.
How many times in a day that an average American consumer uses a product made from corn? One can fill up his or her car up with ethanol combined with fuel. A soda during lunch time that is sweetened with a corn sweetener. Maybe you have a comforter or pillow made from corn fiber. There are the pot roasts for dinner that is fed with corned beef. Because of such benefits, the corn future contracts have been more popular because of their relative leverage and liquidity.
Since many of the commodities such as oats, soybeans, and wheat are being hit hard by the financial crisis of today, it would be a good opportunity to buy corn futures even if it is high in price. When we say corn futures, it refers to the exchange-traded and standardized contracts that a contract buyer agrees to take delivery from seller at a predetermined price, specific quantity of corn, and on a future delivery date. One can do corn futures trading at the Chicago Board of Trade or CBOT, Tokyo Grain Exchange or TGE, and NYSE Euronext. The prices of corn futures in CBOT are quoted in cents and dollars per bushel.
Producers and consumers of corn and grains can manage future price risks of grains and corn prices by buying and selling CBOT Corn futures and corn options. They can also use a short position to lock-in a future sale price for the corn being produced. Meanwhile, businesses that require corn can use long protection to secure the buying price for the commodity they require. The corn futures are also traded by speculators who assume that the price risks that protectors try to avoid in return for potential profits from substantial movement of corn prices. Many speculators buy corn futures when the prices are high and then sell futures if the futures price is low.
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