Online Commodity Trading Strategies
The Oldest Market
Here in the U.S. it began more than 150 years ago at the Chicago Board of Trade with the first agricultural futures contract. In 1982 options on futures was introduced, and in the 1990's exchanges introduced electronic trading. Futures trading is now a 24 hour, seven days a week enterprise, and undoubtedly the main reason you are researching it. Like all financial instruments, the futures market is highly regulated, but not by the SEC. From crops such as corn or wheat, to oil, gold, and currency, commodities get traded on the futures market. Rice was undoubtedly the very first commodity traded at the original market of the Chinese.
The SEC administers and enforces the federal laws that govern the sale and trading of securities, such as stocks, bonds, and mutual funds, but they do not regulate futures trading. The federal agency that does regulate futures trading is the Commodity Futures Trading Commission. With limited
exceptions, the trading of futures must be executed on the floor of a commodity exchange. Similar to broker-dealers that are members of the National Association of Securities Dealers, Inc. or some other self-regulatory organization, all firms and individuals who trade futures with the public or give advice about futures trading must be registered with the National Futures Association (NFA).
Two Kinds of Commodities Traders:
Hedgers and Speculators
Commercial hedgers are corporations and sometime individuals, that seek to ensure the stability of a given commodity by taking a position in the commodities market. Take peas for example, and the hedger, a food processor who cans them. If pea prices go up the hedger ends up having to pay the farmer or pea dealer more. Because it is basically a cash commodity, to protect himself against higher pea prices, the processor can "hedge" his risk exposure by buying enough pea futures contracts to cover the amount of peas he expects to buy. Since cash and futures prices do tend to move in tandem, the futures position will profit if the price of peas rise enough to offset cash pea losses.
Speculators are the second major group of futures players. These participants include independent floor traders and investors. A speculator is a person, or more likely an institution, that purchases or sells the commodities based on factors other than simply analysis. Whereas investors will focus, by and large, on detailed analysis.
The Pro"s and Con"s of Speculating
Your Futures Can Be Prosperous
Since most individual traders are speculators, here is a list of some of the advantages and disadvantages of the futures market over other investment possibilities.
1. The possibility exist that a person can make more money faster in the futures market, because the speed of prices tend to change faster than stocks. Conversely, bad judgment can cause one to suffer greater losses than traditional investments.
2. Futures are highly leveraged investments. The trader only puts up about 15-20% as a margin, yet still being able to ride the full amount of the contract. Unlike stocks where at least 50% of its value has to be put up, and the investor pays interest on the difference between the margin and the full contract value.
3. For the most part there is no inside trading. Everyone has the same insiders information on the weather, for example. This is an open outcry market, very public, which insures a fair outcome.
4. Commission charges on futures trades are small compared to other investments, and the investor pays them after the position is liquidated.
5. Most commodity markets are very broad and liquid. Transactions can be completed quickly, lowering the risk of adverse market moves between the time of the decision to trade and the trade's execution.
Futures Software
Let us assume that you have some knowledge or you wouldn"t be researching the market. Any training you receive should be for technical analysis, or you are just wasting time and money. As far as software platforms, the following suggestions I strongly feel are necessary for any software to be useful.
1. It must be able to offer live streaming technical data. (Otherwise the program is merely educational)
2. The platform should defiantly include candlestick charting.
3. Visually it has to be large enough for all the data to be seen easily. (Many of the online brokerage"s technical data is to small to be useful)
4. It must be cost effective. (Most good systems can be purchased for between one and two hundred dollars)
These are just a few ideas for tools that you can utilize to increase your chances for success. I don"t profess to being an expert, but I do know of some. I obviously don"t have the time to go into all the details now, but at my site Market Mentalist you will find all you need to know about investing online. There is access to some of the top trading systems available including Forex software, books, newsletters, and Forums. Also you will find the most up to date articles on Online Trading, including additional information on Commodity Trading Strategies
. Whether you are an inquisitive novice or a seasoned pro Market Mentalist offers the online investment resource you just might be seeking
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