Tips for Commodity Futures Trading For Beginners
When trading in commodity futures, traders should understand that although making the actual futures contract trading is similar to buying and selling of stock market shares, the trade is quite different. Contrary to the stock market shares trading, the futures trade involves buying and selling on margin. Only a fraction of the face value of the contracts is reflected as up-front, and this means that profits and losses are usually magnified.
The risk of leverage puts traders in danger of losing more than they have put in. For the average or beginners in commodity trading, it is recommended that they carry out an investment of about 3% to 10% commodities and this helps reduce the overall volatility of the market portfolio.
Volatility is what many investment managers regard as risk. If the volatility is low, it means that there are fewer risks that may be witnessed. When trading, there are a few tips, which can help you. Reputable traders in commodity futures base their trade on information from external environments. You will need to remain constantly updated of weather, the cattle on feed reports, the strengthening of the dollar and political events.
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These are aspects which will affect the commodity prices. You may also want to base your trading on trendlines, waves, and channels. When trading, you need to critically evaluate what the public experts say about the commodity market. It is advisable not to ignore the public experts. When you are trading fundamentally, you are more likely to make wrong conclusions based on particular information you get from the market.
If you are trading in soybeans and the market predicts that the crop yield estimates for the crop will be large, a trader may straightforward think that the price will drop or remain stagnant. But there are other factors which you need to consider. You can check the demand for soybeans and other products derived from the beans such as bean oil and bean meal.
Although the harvest may be expected to be abundant, on the other hand, if the demand is very high, then the prices may also go up. It is therefore imperative that you check all information that pertains to your contract. When you are engaging in multiple contracts, you need to scale off profits. If your position moves into profits, you should begin liquidating to get some profits.
This is because; you do not know when the price will move against you. It will be disheartening if all your futures contract market moves against you. You need to use a trailing stop to maximize profits on remaining positions. Good commodity trading trends can last for long but also you should remember that they do not last forever.
When there is break on the trend, you should not give back all your profits hoping that this was a temporally pull back. Although the trend may resume, you should not hold on to that assumption. You have to initiate a trailing stop and then not move further away. If it was surely a temporally pull back, you will have another opportunity to re-enter the market at even better price but later on.
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