An Initiation To Commodity Futures Trading

How It All Began

Commodity futures trading, as we know it today, came about for the first time in Japan in the 17th century, where rice was being traded in future contracts. It was a period when farmers and buyers came together and decided to commit to each other future prices negotiated on suitable terms in exchange of grain for money. For example, a dealer would agree to buy a ton of rice at the end of the next month for a certain price from a farmer. This would be ideal for both parties, as the farmer would know how much he would get for his rice in advance, and the buyer could plan to raise the money he needed for the purchase. Contracts such as these became more and more popular and common, and were even used as collateral for taking loans. If the buyer could not take delivery of the rice, he could sell the contract to someone else. On the other hand, if the farmer could not deliver the goods, then he could hand over the contract to another farmer. Thus began commodity futures trading, as we know it today. 

What Are Commodity Futures?

Today, most of the futures commodity trading exchange are set up in a similar way.  Members of the exchange do the actual trading on the floor.  Stock stands for equity in a public company, and can be held as long as you want whereas commodity futures trading contracts have a specified life. In the past, people used commodity futures trading methods mostly to hedge risks and fluctuation in prices, or to take advantage of them, and not for actually buying into the commodity. The idea is that a contract requires delivery of a commodity within a certain predefined time period unless it becomes null and void. The person buying the commodity futures trading contract agrees to buy the specified commodity at a fixed price on a certain date. The person selling the commodity futures trading contract agrees to sell the commodity at a certain price on a certain date. As time goes on, the contract price fluctuates, and this brings about profit and loss in the trade. It is to be noted, however that, the delivery generally doesn’t take place. The contract is usually liquidated before its expiry. The entire trade is based on the idea that there will be no delivery, but we can speculate on the price of the underlying commodity at a future time to make money. Commodity futures trading and futures options trading is done all over the world now.

Different Types Of Commodities

There are many types of commodities that are traded in the international market.  These can be very broadly categorized into the following:

•    Precious metals like Gold, Platinum, Silver, etc.,
•    Metals such as Aluminum, Copper, Steel, etc.,
•    Agricultural products like Rice, Corn, Oils, Cotton, Wheat, etc.,
•    Soft commodities such as Cocoa, Coffee, Tea, Sugar, etc.,
•    Livestock like potbellies, cattle, etc.,
•    Energy commodities like Crude oil, Gasoline, Gas, etc.

If we include forex markets, it has been noted that volumes for futures
trading is far more (or many times over) than those of equity markets in
the US. This goes to show us the amount of interest that futures trading generates worldwide.

Trading Using Charts – Commodity Markets

An important component of commodity futures trading is using charts and charting software. We get an interactive and visual representation of the price action data on a chart. This is very helpful in giving us the right signals when we want to take a trade.

How To Use Charts

A good trader will always use professional charting software that give him the right tools, and are comprehensive in nature. Good software will give the discerning trader the variety of tools he requires for his daily trades. Some of the different types of charts that can be viewed by such software are candlesticks, bar charts, and open-high-low-close charts. Traders can (and often do) view these charts in many different time frames starting from as low as one minute to monthly and yearly as well.

In fact, most traders work with at least two or more timeframes when they are trading to get confirmation of a trade in more than one time frame at a time. They put in the indicators they want to use and check the filter to see what commodities result as trade possibilities. The biggest additional benefit of having charting software is to be able to incorporate your own custom indicators and oscillators that you can use in different time frames. Some software’s even allow you to build your own indicators by programming them into the software yourself. This flexibility makes having software for charting so useful and worthwhile.

Advantages Of Using Them

For commodity future traders and futures options traders, charts are exceptionally useful in determining the trades that they will take. Having technical filters help you short-list the commodities which are currently showing a buy or a sell. You can tell much more easily whether a commodity is trending or not. Simple tools such as it moving above a moving average with very large volume expansion can give you the signal you are looking for to buy into a commodity. It also helps you determine what commodities are concluding their trends so you can sell them if you have any lots. The data itself is easily available and many vendors add it at little or no cost as a package deal when you decide to open a broking or trading account with them.

Essentially, charts tell you when a commodity is trending for you to enter into a commodity trade or commodity option trade, give you stop levels, help you decide on a target for your trade, and give you an indication when the trend may be ending. Now, if these are not things worth having, then what are? Some comprehensive and popular software includes names like Metastock, Tradestation, and Advanced Get.

A visual aid is always easier to understand, and offers you the scope of being much more detailed in your study of any commodity. That is why charts are now the industry standard, and will make things much more easy for you if you too use them. At the end, you have to remember that these tools can only help you indicate a buy or a sell, but it is you who has to take the call and decide what you want to do.

Commodity Trading & Moving Averages

A key component of technical analysis and perhaps one of the oldest indicators around, moving averages are time-tested and affective indicators. There are many types of moving averages with varying indicators, but the primary purpose of all types of moving averages remains the same.  Their purpose is to reduce or remove noise from the daily price movements and attracted trends of stocks, commodities or any thing you can plot or chart. You can use them to trade the underlying futures or futures options markets.

Moving Averages: How Do We Use them?

Moving averages identify trends and trend reversals, give a measure of a commodities’ strength, and help you arrive at support and resistance levels. Essentially, moving averages are indicators with lag, which is to say that they do not identify new trends but are useful in trend following.  One of the most useful ways in which you can use moving averages as buy or sell indicators, is to have three moving averages running at the same time on the same chart. This idea is to have a short, an intermediate and a longer term time frame. When the first two move upwards and cross above the longer term one, it indicates an uptrend and one can buy. The reverse happens if the first two move below the third moving average. In that case, you can sell, as the commodity is in a downtrend.  A good example of this would be a 10, 20, and a 30 day period moving average, plotted on a commodity chart.

Moving averages are also used by traders to determine support and resistance of a commodity. When the commodity reaches a moving average and struggles to move above it, you might have found resistance. If a commodity stops falling at a key moving average, it can be deemed to have found support.  A prime example of this is a 200 day moving average, which is used to calculate long-term trend directions, and to find support and resistance in them.

Types of Moving Averages

There are different types of moving averages. The simplest one is the simple moving average (SMA), which is calculated by taking the normal arithmetic mean of a specified set of numbers. The exponential moving average (EMA) is calculated by giving weightage to more recent data.  The EMA is regarded to be a better moving average compared to the SMA.  Both of these moving average variants become very useful when used for trend following with moving average crossovers. Indicators such as the moving average convergence divergence (MACD) and Bollinger bands use moving averages as key components. The MACD shows the price divergence of two moving averages, by subtracting a 26 period EMA from the 12 period EMA. A third 9 period EMA is used to give us buy or sell signals when it moves above or below this MACD. Bollinger bands, so named after their creator, use two standard deviations plotted away from a 21 period SMA.

Whichever way you look at it, one cannot deny that using moving averages by themselves may not make you a millionaire in a hurry, but are brilliantly useful in helping you follow trends and plan your commodity trading and commodity options strategy.

Futures Options Trading Risks

The Risks Of Trading Futures Options

When people speak of future option or commodity option trading, they think of the risks involved. There are risks involved when buying and selling options. When buying an option, the risk is how much you paid for the options. There is limited risk involved in buying an option. In selling futures options, there is unlimited risk involved because if the option goes “in the money” you have the potential for unlimited loss.

For example, if the underlying futures market was trading at 3.00 and I sold a 3.50 call option, this option is not yet in the money. It is “out of the money”. If the futures hits 3.50, then the option is “at the money”. Once it goes beyond 3.50, it is in the money. If I sold the commodity option and the futures eventually goes to 5.50, then it has 2.00 worth of “real value” or intrinsic value. So we can lose more than we expected. Some people only buy options for this reason.

When buying futures options though, you are paying premium and this is risk as well. The chance that you will be in the money and recover your premium payment is the risk involved. There is unlimited profit potential with limited risk. But the disadvantage is that the options usually expire worthless. Leverage is the reason people buy futures options. You can control  the underlying futures with a smaller investment and less risk than by buying or selling the futures contract. I am paying a premium to do this and I am trading time as well. Meaning, I only have until the option expires to be correct, so time is a factor in futures options trading also.

Futures options sellers are trading the fact the an option will not be profitable for the option buyer before a certain time frame. Hopefully the futures option will expire worthless or lose value before the expiration of the option.

I will write about other techniques in another article. There are many ways to trade futures options. You can buy an option or sell an option or you can put on a credit spread where you do both.

Day Trading Commodity Markets

Traders who trade for a living are generally swing traders or day traders. If you are planning to day trade in commodities, then you need to get hold of a reliable trading system that gives good results consistently. Despite having such a system, there are a few things you may want to know about day trading in the commodity and commodity options markets.

Day Trading Defined

Those who trade and complete all their trades within the period of a day’s trading session are known as day traders. Day traders have to square off all their trades by the end of the 24-hour period. That is their time limit. If they hold their positions for any longer, they can then be called position traders, and not day traders. They are the most common form of traders to be found in commodity markets.

Day traders like to churn their capital on a day to day basis to maximize its return. They prefer not to lock in capital for extended periods of time. More often than not, they have very limited capital to leverage, and cannot afford to block it all. Speed is the name of the game where day trading in commodity futures is concerned.

Facts About Day Trading

It has been observed that you stand a better chance of earning money in day trading commodity markets if you are prepared to invest a bigger amount of money. This is because more money gives you the option to diversify your investment and manage the risks better.

An important component of commodity futures trading and futures options trading, is using charts that allow you to decide what you want to do. Secondly, those who follow trends taste success.

As in all things, there are limitations that day traders face. The most important being that they only trade in a single day’s session. Hence, they cannot let their profits run any longer even if they want to – they are limited by time. They prefer by choice to take the money and run. Time is money, and time is limited. Another issue that crops up at some time or another for day traders is their stops. They cannot have too large a stop for fear of losing a lot of money. Therefore, they have to keep narrow stops, and thus increase their chances of being whipsawed out of a trade early. Ask any old hand about being whipsawed, and they will tell you that it is a part of the game. Daily ranges also limit targets, as the luxury of hanging on is not available. Quick profits are targeted, and many a time commodity day traders have to get out of a trade at the end of the day having made very little or no money from it.

However, those that day trade are not to be under estimated at all. They truly form the volume numbers in the commodities market. Many intraday movements are because of day traders. They cause sudden spurts in commodity prices with heavy buying or selling. An integral part of the market, they form the backbone of the commodity market.

Swing Trading and Stock souk Investing Tips

What is Swing Trading and is it Right for You?

There are diverse types of trading or asset strategies that frequent next when trading stocks and shares. Day trading, enduring investing and swing trading.

Day trading as the name implies is trading over the stop of a day and final all your positions more willingly than the stock advertise closes. long-standing investing is intriguing a point that lasts a few years a la den Buffett.

Swing trading involves trading in stocks for short time of time, ordinarily a few days, in order to take improvement of a swing in the assess in force swing trading involves identifying an uptrend or a downtrend in a stock charge In an uptrend the highs are advanced and the lows are privileged too. Swing traders look for expected patterns in order to guess when a stock price will stop diminishing turn surrounding and start expanding once more.

Swing trading is all based on shrewd the risks opposed to the loot – if the risk is too qualified to any possibility rewards then there is no point in the skill There are a come to of criteria that must be met earlier a trade is positioned.

Stocksare normally trading elevated than $10 with a daily measurements of more than 500K shares, as such stocks are less legally responsible to be manipulated. To name a stock which is in an uptrend the dying price must be above the time touching middling and the 20-day undemanding heartrending normal and the daylight hours touching mode needs to be above the daylight stirring median.

There are a number of points to take into thoughtfulness when swing trading to limit your risks. Don’t authorize all your money in one go. If a stock gaps up 1 to 2%, then buy half the quantity you be set to trading. Wait to see if the price continues to rise or else investing more riches If the stock gaps up 2 to 3% then only advance 1/4 of the total amount you be going to trading.

If the share gaps up more than 3% then don’t disturb with the trade as the risk/reward ratio is not good a sufficient amount The aim when swing trading is to complete a be of advantage to of 5 to 10 % if you reach this (or if the trade turns in contrast to you and you start bringing up the rear riches then close the trade and look for a new opportunity.

Stop fatalities all makes sufferers the trick is to make sure your wounded are lesser than your gains. To make certain this you need to set stop wounded when you place your barter such that if the trade goes wrong the site will be involuntarily congested out. Given that in swing trading the gain purpose is in the area of 7% your stop loss must be set at something like 4%.

For more information on stock market investing or stock market investing advice, be sure to read more at “stock market for beginners“.

Make Money Trading Options By Learning Secrets of Successful Options Traders

You can make substantial amounts of money trading options. It doesn’t have to be the frightening thing that so many people make it out to be, although it’s true that options do carry higher degrees of risk than long-term investing in individual stocks. However, one of the best things about making money trading options is that you can make this money as a regular monthly income.

Options require some careful preparation. If you want to be successful, you don’t just dive in to these contracts. You must begin with a plan. How much money do you want to make per month? Options premiums can be tricky but if you are not sure that the position is going to move right away slower decay higher priced premium can be conscidered? Are you prepared to sell from your margin account if you need to? Somtimes you just need to take a break because if the market is not giving you’re not going to be able to take? These and other options-related contingencies answers must be known in advance by you.

Once you have a good trading plan you must test it because it’s easy to fool one’s self in the markets. You can look up review sites to get more information. Look at their commission fees and see what kinds of options trading they tend to specialize in. Are you sure you are comfortable?

Know the market that you are in at all times. Understand both the underlying assets that you are thinking of trading options contracts in, and know the general market. How will the current market affect your prospects? Should you go long or sell short? Should you use covered calls? Without understanding your market, you won’t be able to make money trading options.

If you want to consistently make money trading options, never put all of your eggs in one basket, as the saying goes for all investing. You can also diversify your options trading by trading different trading systems as once. Don’t ever put all of your available capital in the market at the same time, either. You should always risk just two to 10 percent of your investment capital at any one time. If you want to make money trading options, you first must prevent large losses, or any profits you make will quickly be wiped out.

When it comes to options contracts, never get out too early and never stay in too long. If you have just taken losses, don’t start panicking and getting out far too early on tiny price fluctuations. Likewise, monitor your strike prices carefully. Don’t become overwhelmed by greed in your excitement if you see profits being generated. Know when to take profits. Relax and play it smalrt and you could repeatedly make money trading options.

You can lock in your profits by the use of actual trailing stops or contingent trail stops. This is the best rational approach in a volatile market. Also, monitor break-even points–these are defined as prices at which the undergirding assets of the contracts have to shift on or before the expiration date in order to create an intrinsic value which equals the premium you paid when you bought the contract. You must have these in mind so that you know if you should be going long or selling short with the contract.

These are some of the important basics to how to make money trading options.

Finding out rate of stocks

You can come across stock prices of public corporations in scores of techniques. Financial websites give investors with dataon stock prices of various different corporations that can be used by stockholders. Quite a few financial internet sites nowadays give real time stock prices along with historical stock prices, and I believe Google started this trend trend and soon other financial websites followed. Online brokerage websites will provide investors with much more detailed facts about the stock prices than the free financial sites like Google or Yahoo.

If you would like to know the stock price of a firm in any financial web site, try to discover a quotes bar and enter either the symbol of the corporation or if the internet site permits the name of the firm. Most of the time as you type the corporation name; you should see the company name pop down below. If the firmappears as you are typing, just click on the corporation name and it will provide you that firm’s detailed financial knowledge. Knowing the symbol of a firm can cut time, and you can just enter it in the get quotes bar. When you are on the page of a company you will be provided with a variety of information including the stock price of the business. If prices are said to be real time, then the stock price was at that price at that specific time. Usually, most financial internet sites provide stock prices that are delayed by a minimum of 20 minutes.

You should be aware whether the stock price is a real time stock price or a time delayed stock price. While trading it is best if you know whether the stock price that’s listed is the precise stock price and if it is the price at which the stock is currently being traded or if the stock price is a pre-market hours stock price or after hours market stock price. When you trade stocks, it is best if you do it from your brokerage account and with the reports cataloguedthere rather than outdated information elsewhere. Online brokerages give the most up to date prices of stocks and also givehow several shares are being traded at a time.

Certain Tax Credits Help Investors

When you invest in anything, you are likely to have to pay taxes one way or another. If you invest in real estate, then you pay property taxes. If you invest in stocks, then you pay capital gains taxes. In the US, The Internal Revenue Service or the IRS collects taxes and enforces the internal revenue laws. It is an agency within the U.S. Department of the Treasury and is responsible for interpretation and application of Federal tax law. If you do not pay your taxes, then the IRS will not hesitate to collect from you all that you owe them plus IRS tax penalties and interests. Most people want to pay the least amount of taxes they can get away with which is why tax planning is such as popular service. There are plenty of free tax tips that you can learn how to keep as much of your hard earned money in your pocket as possible.

Property tax is an ad valorem tax that an owner has to pay on the value of the home being taxed. Property tax can be defined as “generally, tax imposed by municipalities upon owners of property within their jurisdiction based on the value of such property.” The taxing authority requires an appraisal of the value of the property, and tax is assessed as a percentage of that value. Forms of property tax used vary between countries and jurisdictions.

Now that property prices have declined significantly, the government is providing lots of incentives for people to buy properties or invest in real estate. They hope that new buyers will help raise home prices and save the real estate market. The new home buying tax credit, for example, gives a new homeowner a maximum of $7,500 tax credit or $8,000 if the home is purchased in 2009. This great tax credit is for either a single taxpayer or a married couple filing a joint return, but only half of that amount for married persons filing separate returns. The full tax credit is available for homes costing $75,000 or more or $80,000 if purchased after Dec. 31, 2008, and before Dec. 1, 2009. This first-time homebuyer credit is a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.

The Trade In Currency

The currency exchange rates are determined by the market. The currency is free-floating and as a result its rate is not fixed as was done before. The rates in the market are determined by the extent of demand and supply of the currency in the market. As a result, its rates constantly changed and fluctuated. Earlier the currency rate was based on the fixed exchange rate when a currency was fixed with reference to another by the government who could change or devalue this rate as and when needed. Between World War II and 1966 the Western European countries fixed the exchange rates to the dollar. The market based exchange was adopted later.

Whenever there is a change in the value of one currency, the exchange rate with another currency will change. When the demand for a currency increases and is more than the supply, it becomes more valuable. But when the demand is lower than the supply, the value of the currency declines. The increase in demand for a currency can be due to many reasons. There could be an increase in the transaction demand for the currency. Or there could be an increase in the speculative demand for the currency. The transaction demand is related to the level of business activity of the country, the employment levels and the gross domestic product (GDP). When more people are employed, the more will be the spending on goods and services.

Currency worth about $4 trillion dollars is traded every day. It is one of the largest markets in the world. There are a number of guides in the market to teach about foreign exchange market to persons who wish to invest in the market. Some of these are The Forex Training Video Course , Instant Forex Profit, The Magical Forex Trading, The Professional Forex Training, The Forex Assassin, The Forex Strategy Workbook and Auto Cash System.

The change in the demand for currency as a result of business activity is adjusted by the central banks by adjusting the available money supply. It is difficult for the central banks to adjust to the demand for money from speculation. They try to do this by adjusting the interest rates. With higher interest rates, there is an increase in the purchase of that currency. The demand for the currency increases. Currency speculation is considered to undermine the economy of a country as large currency speculators can unduly influence the exchange rates.

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