trading oil future

Futures Trading – 3 Secret Tools of the Pro Traders for Bigger Profits

admin — Mon, 25 Jan 2010 18:13:03 +0000

Here we will outline three trading tools for bigger profits all futures traders can use.
These tools tend not to be used by many traders, but are heavily used by the savvy pro traders to enhance profit potential and you should consider them to in your futures trading.
Check them out for yourself and they will add a new dimension to your futures trading that could increase your trading profits to.
1. Gauging the pulse of the market
The “opening range technique is the ultimate filtering device for futures traders and is highly effective, as it allows traders to take the pulse of the market before entering it each day.
Say you have a buy signal from the previous days close, you can of course blindly buy the open, or you can use this filter.
Here is how it works:
1. Get the opening range and wait.
2. If prices are above the opening range go long with a market order
3. If they are not place a day order 3 ticks above the high of the opening range.
Here you are checking the pulse and strength of the market.
If prices move up your on board, if prices drop from the opening range you are kept out of a losing trade.
If your futures trading method is still telling you to be long, try again the next day. If your short of course, it’s the exact same in reverse.
Sounds simple? It is, but its very effective.
In our experience you can cut losing trades by up to 20% using this tool and it’s an excellent method for filtering your trading signals.
2. How to never a miss a big move
Richard Donchian’s four week rule outlined below may seem simple, but it is highly effective in catching big moves in futures trading.
We all know that most of the big moves each year in futures markets take place from market highs.
Most traders however want to buy dips to support and fail to get in on the big moves. This simple tool however will make sure you never miss a big move.
Here’s how it works.
Let’s assume you are looking at crude oil and spot a buying opportunity. Rather than buying a dip, wait for a new 4 week high and then take a long position.
You should only use this rule only in strong bull or bear markets, not ranging markets.
If you have a strong bull market, buy new four week highs and conversely, if you have a strong bear market sell new four week lows.
Its simple and a very effective tool try it out for yourself and see.
3. Intra commodity spreads
Again, another simple trading idea, which will give you risk reduction and staying power.
All you do is trade two different months in the same commodity
Your aim is to buy the month that is expected to increase most and sell another month to give you some risk protection.
Normally, the front month will move the most, so you buy it and sell a back month. This is known as a bull spread the reverse action in a bear market is a bear spread.
For example, the summer months are the strong ones in unleaded gasoline, so if your bullish buy them and sell a weaker back month as protection.
Spreading works particularly well in these futures markets:
Copper, energies, soybeans, wheat, coffee, sugar, cotton and all the meats expect bellies.
When using intra commodity spreads in futures trading, you need to take into account the general market trend and the strength of the spread. Spreading is great risk control vehicle and a way to get staying power an is a great tool for traders with small trading accounts.
All the above are simple tools, but don’t be deceived by their simplicity. If used correctly they can all enhance your futures trading and give you bigger profit potential.

Commodities Futures â the Best Contracts to Trade

admin — Mon, 25 Jan 2010 04:48:36 +0000

Here we look at the best contracts to trade, for long-term trend followers – and how to blend these commodities and futures contracts, to obtain good diversification – and great profit potential. We also reveal the one commodity contract, which any trader should be looking to trade.

One of the great advantages of commodity futures trading is the wide variety of un-correlated groups that you can trade.

The main trading groups are:

. Currencies

. Interest Rates

. Stock Indices

. Grains

. Meats

. Energies

. Metals

. Food and Fibre

The big moves only come a few times a year – and of course, in futures and commodities, itâs the big moves that make the big profits.

Single Groups or Diversification?

In futures, and commodity trading, this depends on the risk / reward you want – and the amount of capital you have.

If you trade just one or two groups, then your commodity and futures trading risk / reward in will be higher

The Best Contracts to Trade

We have outlined the best futures and commodities contracts below – based upon the following criteria:

. Liquidity, and investor participation

. Long term trends, over the last 30 years.

Currencies

A great market for long-term trend followers – all currencies exhibit long-term trends – as they reflect the underlying health of the economy.

A good place to start is the Dollar Index, which can be less volatile than the individual currencies – and is suited to long term position traders.

Interest Rates

Another great group – interest rates – considered âboringâ, by many commodity futures traders – but theyâre not! They have great long-term trends – with the best contracts being the T Bond and T Notes.

Stock Indices

The S & P is the one, most commodity & futures traders look at – but there are plenty of others. Good markets to trade include the DAX, NASDAQ and Dow Jones.

Energies

Energies are the biggest physical commodity group in the world – in terms of volume. The energies group exhibits good, long-term trends all the time.

All traders should start with Crude Oil, but for traders who really want to taste some action, check out Natural Gas â when trends come here, theyâre huge! A word of caution on this market – itâs only for futures commodity traders with deep pockets – and strong nerves.

Adding Diversity

The above commodity futures are all suitable for trading as individual groups – however with the contracts listed below, weâd only trade as part of a diversified portfolio – due to lower liquidity, and limit moves.

Metals

The main focus for speculators is on, Copper, Gold and Silver – however the White Metals of Platinum, and Palladium, have produced some of the best trends of recent years.

These rare metals are precious metals – but double up as industrial metals as well. Although trading volumes are thin, volatility and limit moves are frequent – for traders with deep pockets, these metals offer outstanding long-term trends.

Grains and Meats

Grains and Meats were big contracts for speculators in years gone by – but they have lost some of their shine. Speculators now trade more financials – however, Pork Bellies, Live Hogs, Feeder Cattle, and Live Cattle, still offer commodity futures traders great trends.

The grains are similar and the Soybean complex – Wheat, and Corn, are the markets to look at.

Food and Fibre

The markets to look at are Orange Juice, Coffee, Cocoa and Cotton. Cotton is probably the best market for long-term trend followers – but this is very much a personal choice.

Successfully Blending a Portfolio

Today, many traders simply focus on the financials (and currencies are the best group to trade) – however as you can see from the above, that commodity futures traders, have plenty of contracts from which to choose.

With the global economy expanding fast, thereâs one contract that looks a great long-term buy – the contract to buy, and hold, for huge gains. Itâs the CRB index – which is a basket of commodities – and it looks set to soar â because, commodities go up, based upon the huge demand from countries, such as India and China – check it out!

Great Opportunity for Oil Trading

admin — Sun, 24 Jan 2010 17:57:55 +0000

Crude futures had jumped higher on Friday on resurgent concerns about the Iranian nuclear energy row, as Israel’s deputy Prime Minister, Shaul Mofaz, said Tehran was playing for time.Iranian issue remains fluid and it looks like more sanctions will be imposed by the world powers and they will likely raise tensions over Iran,” said Victor Shum, a Singapore-based analyst at Purvin and Gertz.

Iran is the world’s fourth-largest crude oil producer and traders fear supply disruptions from the Islamic republic if tensions between Tehran and the West heighten over its controversial nuclear programme.

Tensions over Iran’s nuclear program helped push oil prices to record levels above 147 dollars per barrel last month.

Meanwhile, a new storm brewing in the Gulf of Mexico, where key US energy facilities are located, added to supply jitters, dealers said.

Daily chart shows that $120 is a good support level. Indicator is pointing up for oil.I will be interested to buy oil at around $122 – $123 and place a stop below $120.However do take note that FOMC will be announcing their interest rate decision tomorrow and oil inventory announcement on Wednesday, so we have to expect volatility.In my view ForexYard offers the best platform for retail customer who do not want to take too much risk in oil trading because they offer supermini oil contract. Value of $1 is only $100. So say you bought 100 units of oil at $122 and place a stop at $119.50, maximum potential loss is only (122 – 119.50) x 100 = US$250. Choose standard account in account opening.To open account at ForexYard, click here.

Financial Trading – So Many Markets

admin — Sun, 24 Jan 2010 06:08:13 +0000

Trading covers a multitude of sins, or at least a multitude of markets. Mention “trading” to a non-trader and they’ll probably think of stock and shares but there
are many other markets you can trade in. These include commodities, futures, indices, CFDs and options. They all have their pros and cons and some require specialized knowledge.
The most popular markets used by traders are stocks, commodities, futures, indices and forex. Some traders switch between markets, others stick to just one. Let’s highlight some of the similarities and differences between them.
Shares
In the USA there are over 40,000 shares so you have a lot of markets to choose from. You can’t deal in all of them so you need to home in on those that offer good trading opportunities using whatever trading methods you decide to use.
When buying shares you usually have to put up all the money at the time of sale. That might seem obvious but it’s not so with all markets. Some brokers offer a 50%
margin with shares which means you can trade to the value of twice the amount in your account. This seems like a good deal but if your shares start to go down you’ll get a “margin call” and will either have to put more money in your account or sell the shares at a loss.
Shares are normally traded in lots of 100. If you want to trade an expensive share – and some shares are very expensive, particularly in the US markets – you need a considerable amount of money in your account.
It’s not easy to sell shares short. Selling short is a strange concept to many people who think of buying shares at a low price and selling then at a higher price.
But it’s often easier to predict that a share will fall rather than rise so what you’d like to do is to sell it at a high price and then buy it back later at a low price. The net result is the same whatever the order of the deals – buy low, sell high.
However, you can’t sell something you don’t own so in order to sell shares short you must “borrow” them from your broker. This is not quite as straightforward as buying and not all shares are available for selling short.
Finally, share dealing takes place during market hours so if you don’t live in the country where they are being traded you must adjust your trading hours to suit.
Futures, commodities and indices
Commodities are goods such as corn, copper, crude oil, orange juice, oats, gold and wheat.
Technically, a futures contract is an agreement to make or accept delivery of a commodity on a certain day at a certain price. In practice this rarely happens unless you’re a manufacturer who actually wants the goods. The vast majority of futures traders are simply speculating on whether the price will go up or down and never take delivery of an item.
Futures contacts include commodities and also stock market indices such as the S&P 500, Dow Jones and the Russell. Indices are simply a composite of securities that provide an overall reading of the market or some section of it.
The S&P 500 (Standard & Poor’s 500) tracks 500 of the largest companies in the US market. The Dow Jones Industrial Average tracks only 30 of the largest and longest-established companies while the Russell 2000 is an index of smaller stocks.
Essentially, commodities and indices are futures and traded in much the same way although traders may use the terms interchangeably.
Unlike shares, futures can be sold short just as easily as they can be bought. Each futures contract has its own fluctuating price and many traders deal in just one lot contracts.
Brokers usually charge a flat fee commission per contract, often expressed as a “round turn” which is one buy and one sell transaction. This may be a few dollars,
often less than the value of a point or two on the contract. If you’re trading a long time frame the commission is negligible but if you’re day trading and scalping for a few points here and there it becomes a considerable part of the cost.
Futures brokers usually offer a margin of around 20% of the value of the underlying instrument so you can control $10,000’s worth of a contract for maybe $2,000.
However, the same rules apply – if you over-leverage your account you’ll receive a margin call or your positions will be closed at a loss. Margin and leverage are a double-edged sword.
Many brokers offer a demo account so you can get used to the trading platform and test your trading strategies before you put real money on the line.
Forex Currency Trading
Currency trading, foreign exchange or forex as it’s more commonly known, has fast become one of the most popular markets for private traders in recent years.
As its name suggests, it involves buying and selling foreign currency. The most commonly traded currencies are referenced against the US Dollar and are sometimes referred to as a “currency pair” even though you are only trading one instrument. For example, the GBPUSD is the UK Pound/US Dollar pair. A value of 1.7625 would
mean that the one Pound is worth 1.7625 Dollars. Other popular pairs include the Euro (EURUSD), the Swiss Franc (USDCHF) and the Japanese Yen (USDJPY) although there are others.
So unlike shares and futures, you don’t have a mass of markets to choose from, but there is variety within forex currency trading to give you a range of markets to trade.
The value of each pair differs slightly but the minimum movement – called a “pip” – is worth approximately $10. The GBPUSD has been averaging 100-150 pips per day
which would be $1000-1500. Many brokers let you trade half or even quarter-size lots which are useful when you’re starting out. Also, many brokers offer a demo account so you can practice before risking real money.
The total value of the forex market is worth trillions of dollars per day, far larger than shares or futures. It is also a truly international market with dealing
taking place all around the globe 24 hours per day from Monday to Friday. You can, therefore, trade at any time of the day or night at times to suit you. It’s worth noting, however, that the bigger moves generally occur during the US and European trading sessions.
You can sell short forex just as easily as you can buy and brokers offer highly-leveraged accounts too – but the same warning regarding margins apply here as well.
Brokers tend not to charge a commission for trading forex and you will often see adverts for “commission free” trading. However, they make their money on the spread which is the difference between the buying price and the selling price. The spread is usually between 3 and 5 pips although some brokers may offer a 2 pip spread on some pairs, and some less-popular pairs may have a larger spread.
Paying on the spread is particularly useful when trading mini lots. A 3-pip spread on a quarter lot will be about $7.50 whereas on a full-size lot it would be $30.
Again, the spread is more important when trading short time frames where you’re only aiming to make a few pips per trade. You need to build the spread into your trading system so you don’t overestimate the amount you might make per trade.
One interesting aspect of forex currency trading is that there is no central clearing house where absolute prices are quoted, unlike shares and futures. So it’s quite possible to see different brokers quoting slightly different prices for the same pair. As the market has become more efficient, this difference has reduced,
in most cases, to a few pips but it highlights the importance of checking that the data you are using for analysis is the same – or close to – that used by your broker for placing your orders.
The market you decide to trade will depend on many things, not least of all, your budget, but also how many markets you want to look at and what hours you want to trade. There are trading vehicles to suit all preferences and pockets.

Commodity Trading – A Brief Overview

admin — Sat, 23 Jan 2010 20:53:35 +0000

Commodity Trading is strictly speaking the trading of physical commodities – such as soyabeans, wheat, corn, gold, silver, cattle, oil etc. – or their futures contracts on the established commodity exchanges.
Farmers use commodity trading to lock in favorable prices prior to an ensuing harvest. Hence, there are real commercial reasons for trading in commodities. However, they are also traded for pure speculation by private traders seeking to make a commodity trading profit by speculating in the price movement over their chosen time-frame.
More than any other type of speculation, such as forex or stock trading, commodity markets involve a very high degree of seasonality. Hence, it is important that the trader be very aware of the underlying cycles affecting the market in question.
That said, commodity trading can be done successfully by giving a very high degree of emphasis to the price charts alone. The commodities trade extremely well according to technical analysis methods. For example, Fibonacci price retracements and time cycle analysis work extremely well on commodity charts. So too do other technical indicators such as moving averages, price gaps, support and resistance points, trendlines and so on.
Trading commodities can be an extremely volatile and unpredictable business because these markets are known for their sudden and sustained price surges and collapses. Compare a long-term commodity chart of something like soybeans or oil to any stock index and you will see the difference. Hence, it is vital in commodity trading that you are extremely disciplined in your approach and employ strict money management rules. A good stop loss order, placed in the market at the time you place your trade, is a must.
Traders also play the spreads between commodities, which is an extremely popular form of commodity trading, and which effectively multiplies the range of profit opportunities hugely. Examples of spreads is the wheat-corn spread, where traders speculate on the relative price of one to the other. Other spread opportunities occur in the price differentials between different delivery months of the same commodities’ futures contracts. Hence, you might buy the contract nearer to expiration and sell the one further out with the expectation that long-term prices of that commodity will fall with respect to near term prices.
Once you also realize that there are active options contracts in all the major instruments, it becomes clear that commodity trading is a very desirable niche within the universe of speculation.
As with all forms of trading, mental and financial discipline are key factors to success in commodity trading. Given their extreme volatility, it is paramount that you have a proven method before you ever speculate a single dollar in these often unpredictable markets.
You must also remember that these are real physical products involved, and they can literally be delivered if you fail to close out your position before the expiry of the commodity future or option contract. Otherwise, it can result in a truck pulling up outside your house with your delivery of soybeans, live cattle or cocoa – depending on what you have been trading. This has been known to happen!
That said, the opportunities present in commodity trading are huge and exciting. These are markets that see some real action, and you also have the pleasure of knowing that you are trading in real world items, which can give your trading a whole new meaning.

Donât Trade in That Suv Yet

admin — Sat, 23 Jan 2010 10:47:51 +0000

Â Â Â Â Â Â Â Â Â Gas prices continue to soar, your SUV gets 16 mpg, and your paycheck isnât increasing.Â Consumers feeling their pockets getting empty are starting to ask questions.Â Could the high gas prices just be temporary? If not, then I guess itâs time to trade the SUV in and get a fuel efficient vehicle, right?Â Actually that might not be the smartest idea.Â In order to answer these questions we need to understand the current SUV situation and determine what this means financially.Â Â Â Â

Â Â Â Â Â Â Â Â Â Â Â Sport Utility Vehicles (SUVâs) have become the norm for a vehicle purchase over the last 10-15 years.Â As many cars became smaller over this timeframe compared to the cars in the 1970âs, people became interested in sport utility vehicles and why wouldnât they?Â These vehicles have plenty of leg room, a large storage area, four-wheel drive, feel very safe due to their size, and are powerful.Â One of the biggest selling features is they provide a higher seating position allowing the driver to view more of the road and surroundings.Â

Not only did consumers have a desire for SUVâs, but they wanted larger SUVâs.Â The big three U.S. vehicle manufacturers, Chrysler, Ford, and GM, were making extremely large profits on these vehicles.Â The Ford Excursion, Chevy Suburban, Hummer, GMC Yukon, and Chevy Tahoe are the largest SUVâs on the market.Â These vehicles were being bought by families, shuttle drivers, and small business owners.Â Due to a tax break many small business owners and mostly anyone who could write off the vehicle as a work related expense became consumers for these enormous vehicles.Â They were able to write off almost the entire cost.Â This encouraged lawyers, doctors, accountants, and real estate agents to buy these SUVâs, when they really have no use for this type of vehicle.

Â Â Â Â Â Â Â Â Â Â Â The U.S. vehicle manufacturers and consumers were both happy until the one major flaw of SUVâs was magnified.Â These vehicles were gas hogs.Â Hurricane Katrina started to reveal this flaw in 2005 when this hurricane caused disruption to refineries.Â Gas prices soared above $3 a gallon.Â Prices would start to come down as the refineries got back into full production, but not down to where they were before the hurricane.Â This was due to the price of a barrel of crude oil rising to over $50.Â In 2004 the average price of a barrel of crude oil was $37.Â This brings us to July 4th, 2008 as the price of a barrel of crude oil is now over $145 and the price of a gallon of gas is over $4.Â

Â Â Â Â Â Â Â Â Â Â Â This has caused U.S. vehicles manufacturers to slow down and terminate some SUV lines which have been their most profitable over the last decade.Â Consumers are now buying small fuel efficient cars and hybrid vehicles.Â The problem for many consumers is they are looking to trade in or sell their SUVâs to purchase a fuel efficient vehicle, but there are not many takers for at least what the consumer feels is fair value.Â Typical supply and demand has caused very fuel efficient cars and hybrid vehicles to sell for the ticket price or above.Â SUVâs are selling way below ticket price since there are a lot more sellers than buyers.Â Vehicle manufacturers are overloaded with SUVâs and the dealerships canât sell the ones they already have on the lot.Â Â Â Â Â Â Â Â Â Â Â

Â Â Â Â Â Â Â Â Â Â Â Just this data makes it seem foolish to trade or sell a SUV at this time, but the financial numbers is what will really influence the decision.Â There are many different situations a consumer might be in.Â A consumer who is not able to afford fueling their SUV might need to trade their SUV in.Â Perhaps there is no loan against it and the value of the SUV is high enough to get them an equally or lower priced car.Â This means they directly cut down their gas expense and havenât changed their monthly budget.Â

Â Â Â Â Â Â Â Â Â Â Â Some examples using numbers can probably give everyone a general idea to help with their decision making.Â $30,000 is close to an average cost of a SUV.Â To set-up this example we will say John purchased a $30,000 SUV four years ago.Â With zero down and a 6% interest rate his payments are $580 a month and he has a current loan balance of $6000.Â Letâs also examine Joan who purchased the same year and model SUV for the same amount but her loan is paid off.Â Currently, a dealership is offering $9,000 for the SUV.Â Therefore each consumer has sunk costs of $21,000.Â Also this means John will have to use $6000 of the $9,000 trade in to pay his existing loan.Â His balance of $3000 will go towards his new purchase and all of Joanâs $9,000 will be put towards her new purchase.Â We will take a look at these situations in two different ways.Â Â Â

Â Â Â Â Â Â Â Â Â Â Â First we will look at the situations by monthly budget.Â Since car payments are monthly payments we need to determine how much money is spent on gas each month.Â We will use the current average U.S. gasoline price of $4 a gallon.Â Joanâs roundtrip to her full-time job each day is 30 miles.Â On the weekend she drives on an average 100 miles.Â Therefore, Joan drives 1,000 miles a month.Â At 16 miles per gallon she pays $250 a month.Â Currently she doesnât have a monthly car payment so her monthly total for gas and car payment is $250 a month.Â Joan is looking to purchase a car which is the same model year as her SUV.Â The car costs $15,000, but gets 27 miles per gallon.Â After her $9000 SUV trade-in her monthly car payment will be $116 (using 6% interest rate).Â Her monthly gas expense will be $150.Â This equates to $266 a month for gas and car payment.Â Her monthly expense for a car payment and gas is actually higher now which is mainly due to her only getting $9,000 for her SUV.Â

Johnâs roundtrip to his full-time job each day is 60 miles.Â On the weekend he drives 100 miles.Â Therefore, John drives 1,600 miles a month.Â John pays $400 a month in gas.Â If John purchases this same car, then his monthly gas expense is $237.Â After the $3000 John will be able to put towards his purchase, his car payment is $232.Â His total expense for gas and car payment will now be $469.Â John will actually save over $100 a month.Â However he was in the last year of his SUV payments and now his car payments will continue for five years.Â Â Â

Â Â Â Â Â Â Â Â Â Â Â The second way we will look at these situations is to determine the break even point.Â We can determine how many miles it will take in order to make up for the loss on the SUV.Â The loss on the SUV is not the $21,000 sunk cost, but the difference in trade-in value from the time before gas prices skyrocketed to the present time.Â The sunk cost has to do with trading in a vehicle for another one.Â We wonât use the $21,000 since we are strictly looking at if the SUV is worth trading in just to get better fuel efficiency.Â Before there was a large increase in gas prices, a typical SUV like Johnâs and Joanâs would have a trade-in value around $14,000.Â Now the trade-in value is $9,000 which equates to a $5,000 difference.Â In using cost accounting we need to determine the sale per mile and the variable cost per mile.Â The $4 per gallon gas price needs to be converted to a cost per mile since we need to get the break even point in miles.Â The sale per mile is just the SUVâs fuel cost per mile.Â This is $4 a gallon divided by 16 miles per gallon which equates to a cost of 25 cents a mile.Â The variable cost per mile is the carâs fuel cost per mile.Â This is $4 a gallon divided by 27 miles per gallon which equates to a cost of 15 cents a mile.Â Next we determine our contribution margin per mile which is the sale per mile of 25 cents minus the variable cost per mile of 15 cents which results in a 10 cents per mile contribution margin.Â Finally we use the $5,000 loss and divide by the contribution margin per mile of 10 cents which provides the answer of 50,000 miles.Â The break even point of 50,000 miles is the amount of miles that need to be driven in the car to recover the $5,000 loss on the SUV.Â Â To simplify the problem we simply converting both vehiclesâ cost of gas per mile and took the difference.Â Then we divided the loss on the SUV by this difference.Â It will take Joan over 4 years of driving the car to recover the SUV loss at her current usage and it will take John over 2.5 years.Â

Â Â Â Â Â Â Â Â Â The future of the gas prices is unknown which makes the future value of the SUV unknown also.Â However, we know the value of an SUV has dropped significantly.Â If we could have predicted this drop, then trading in the SUV before this occurrence would have avoided the $5,000 decline in value.Â The problem is most SUV owners couldnât make this prediction so they are presented with the situations we have examined.Â In these examples we only looked at the financial numbers which alone didnât strongly favor trading the SUV in for a car.Â Also, like in the stock market, it doesnât make sense to sell low and buy high which is currently happening when SUVâs are traded in for fuel efficient cars.Â When we consider the advantages of a SUV which have led them to their popularity over the years it doesnât make much sense to give these advantages up.Â Perhaps the next time a consumer is ready to buy a new vehicle they wonât purchase a gas guzzling SUV, but for current SUV owners it makes senseÂ to continue to enjoy the great features of these vehicles.Â

How to Trade Commodities

admin — Fri, 22 Jan 2010 05:38:04 +0000

The key to successful investing is developing your knowledge in the markets and to take things slowly and methodically. Commodities trading is no different. It is an exciting market which, if you are preapred to put in the time and effort, can be very lucrative, but always be aware that risks lurk in the shadows just like any other investment.

Physical Trading

Physical commodities trading is buying and selling the actual commodity itself not some sort of derivative instrument like a futures contract. There are obvious downsides to this method namely storage costs, insurance costs and shipping costs.

The physical market, for our purposes, focuses on those commodities that are easily stored, bought and traded for the average investor. These are such things as Gold, Platinum, Palladium and Silver.

The most popular method of trading such items on a retail basis is in the purchase of coins. There are many companies on the web that provide services for the purchase of coins for collectors and speculators.

The internet, of course, has given investors many options for the purchase, storage and trading of gold coins however, our favourite example of trading gold on the web is Bullion Vault. They allow the purchase and storage of gold in small quantities and have an efficient trading system. They hold $290mn of gold for clients and appear to have a very good reputation.

Leverage

If you didn’t know the term ‘leverage’ before the current financial mess, you do now. For those who need a refresher, here is how it works. Let’s say you buy £100,000 of gold and whomever you buy it off only needs you to put down a 10% deposit, £10,000. Let’s say gold goes up 10%. You now have gold worth £110,000, if you sell it now you pay back the £90,000 you borrowed and you get your original £10k back along with your £10k profit. Basically you have turned a 10% gain in the price to a 100% gain on your investment.

Obviously if the price dropped 10% you lose your money, hence the mess that some are in at the moment.

Physical Commodities on Leverage.

There are still some companies around that provide leverage on physical commodities across a range of products, however, the costs associated with trading, such as interest on loans, storage and insurance fees have made the product less attractive to the active trader. Having filled a gap in the market for some time the product was overtaken by some of the instruments mentioned below.

ETFs (Exchange Traded Funds)

More accurately described as ‘Exchange Traded Commodities’ these instruments take into account all the fees such as storage etc associated with trading. They trade like shares are liquid.

An Exchange Traded Commodity is an investment vehicle that tracks the performance of an underlying commodity or basket of commodities. ETCs work on exactly the same principle as ETFs – with the ETC tracking the performance of a single underlying commodity or a group of associated commodities. Single commodity ETCs follow the spot-price of a single commodity, whilst ‘index-tracking ETCs’ follow the movement of a group of associated commodities, such as cattle, energy or livestock.

ETCs offer the commodities trader a number of inherent advantages without the associated vagaries of trading an individual stock:

Direct exposure to the commodities markets – the value of your investment will rise and fall in direct proportion to the price of the underlying commodity.

Liquidity – ETCs are ‘open ended’ securities, which are created and redeemed on-demand. This means that the supply of ETCs is unlimited and that price changes will accurately mirror developments in the price of the underlying commodity.

Stamp duty & CGT – ETCs are not shares and so trades are exempt from stamp duty. Furthermore, ETCs can be traded within ISA accounts, allowing you to shelter your profit from Capital Gains Tax.Low dealing costs – ETCs are traded on the regular stock exchange, making them both accessible and affordable – they can be traded through your share dealing service for a commission.

Portfolio diversification – ETCs give broad representation across entire commodity sectors and different geographic regions.

Futures

A futures contract is an agreement to buy or sell your chosen commodity at a specific date in the future – at today’s prevailing market price. These markets are highly liquid and the contracts can be sold on again at any point before the final delivery date, i.e. the day when the farmer or miner will deliver the raw materials to the person holding the contract.

The producers and end-users are still present in today’s markets, but it is the traders and speculators who are now responsible for most of the volume that keeps the market liquid.The main benefit of trading futures is that you are making a direct investment into the underlying raw material and your future profit or loss is entirely dependent upon fluctuations in the underlying commodity price.

Going back to leverage, most futures trading is done ‘on margin’, which dramatically increases potential profits (and losses, remember).

Exposure to the commodities market can be gained from buying and selling companies whose business it is to mine, distribute or trade in commodities that you are interested in.

The shares are, generally, liquid and accessible for trading, the problem, however, is that there are many other factors that could effect the share price that may not have anything to do with the underlying commodity. These could be management issues, cash flow, macro economic issues and geo-political issues.

CFDs and Spread betting.

CFDs and Spread betting are easily accessible trading instruments which are essentially derivatives of many of the above, however spreads and dealing costs can be harsh to investors.

Technical Phrases

You will hear such phrases as ‘contango’ and ‘backwardation’.

Contango is a term used in the futures market to describe an upward sloping forward curve (as in the normal yield curve). One says that such a forward curve is “in contango” (or sometimes “contangoed”).

Formally, it is the situation where, and the amount by which, the price of a commodity for future delivery is higher than the spot price, or a far future delivery price higher than a nearer future delivery.

Backwardation is a futures market term: the situation in which, and the amount by which, the price of a commodity for future delivery is lower than the spot price, or a far future delivery price lower than a nearer future delivery. One says that the forward curve is “in backwardation” (or sometimes: “backwardated”).

Commodities trading has many aspects that set it apart from trading other markets and for those that become learned in the trading of the instruments it can be lucrative. Commodity traders over the last few years have seen huge swigs in price which have lead to large profits (and no doubt some large losses).

Currently the global market in commodities is in a state of flux. Gold, for example, is seen as a safe haven against inflation and uncertain times, hence it recent volatility.

Having worked in commodities for some years it was always noted that volatility is our friend, whether a price is going up or down there is money to be made, when commodities are flat there is not much action and the cost of trading out ways the potential profits.

For the foreseeable future volatility is definitely here to stay. Stock market issues and global recessionary fears on the one side and continued development of emerging markets using vast amounts of the world resources on the other, will see volatility in this market for many years to come. This, therefore, as a market to learn about and trade ,is a very interesting and potentially lucrative proposition.

As with all trading, however, there is a very real possibility that trading commodities, especially on leverage, could lose your portfolio a lot of money and you should be aware that it is highly risky. Do not risk more money than you can afford to lose and make sure you have a system that allows you to use limits and stops to contain this risk.

The online trading system available from HF Markets allows you to trade all of the above with assistance, if required, from a professional regulated broker who can guide your initial trading strategies and help you become familiar with trading this exciting area of investment.

How to Do Futures Trading

admin — Thu, 21 Jan 2010 17:29:45 +0000

Futures trading is the investment style of buying or selling futures contracts. Futures contracts have been used to manage cash market price risk for more than one century in the world. Unlike a stock, which represents equity in a company and can be held for a long time, if not indefinitely, futures contracts have specific time period. Futures trading allows a market participant to lock in prices and margins in advance and reduces the potential for unanticipated loss.Futures contracts trade in standardized units in a highly visible, extremely competitive, continuous open auction. In this way, futures lend themselves to widely diverse participation and efficient price discovery, giving an accurate picture of the market.There are two basic categories of futures participants: hedgers and speculators. In general, hedgers use futures for protection against adverse future price movements in the underlying cash commodity. The rationale of hedging is based upon the demonstrated tendency of cash prices and futures values to move in tandem. Speculators are the second major group of futures players. These participants include independent floor traders and investors. Independent floor traders, also called “locals”, trade for their own accounts. Floor brokers handle trades for their personal clients or brokerage firms.For speculators, futures trading has important advantages over other investments:Futures are highly leveraged investments–The trader puts up a small fraction of the value of the underlying contract (usually 5%-15% and sometimes less) as margin; Commission charges on futures trades are small compared to other investments–the investor pays them after the position is liquidated;Most commodity markets are very broad and liquid–Transactions can be completed quickly, lowering the risk of the time delay from the decision to the execution.Most trading objects are familiar to you–from crude oil to gold, from metal to grain, from treasury bonds to stock index.The basic requirement for beginners on futures trading is a futures trading plan, created according to his or her financial background, trading style and trading ability and so on. The capital you should have depends solely on your trading budget. If you take futures trading as a part-time job, then investing lower amounts for small profits can be the right plan. But if you want to make futures trading for your living, then you should invest much more. Keep in mind that futures prices are more volatile than stock prices. Remember it is margin trading and expanded more than 10 times as your normal investment. You need to ask yourself how much you can afford to lose. Be extremely honest with yourself about this, in fact, be more than honest so that you are sure to not overextend your budget.Here are some simple tips that will help you increase your profit potential and prevent you from losing money. 1. Understanding the basics of fundamental analysis and technical analysisWhen you do futures trading, it is very important to understand the difference between fundamental analysis and technical analysis. A quick explanation of the difference among the two types of analysis is: fundamental analysis focuses on the relationship of supply and demand while technical analysis focuses on price action and market behavior, especially on chart and technical indicators.2. Trading with the trend No matter which futures you are trading, you have to trade with the trend. As you know, the price will be changed when the supply and the demand have been changed. If no further factors occur, the trend used to be going on. However, trading with the trend is a complex principle as it depends on the trading style. A day trader may follow hourly trends as he trade according to minute changes in prices. On the other hand a long term investor or position trader may follow weekly, monthly or even yearly trends. 3. Minimizing the losses and running the profitMinimizing the losses means quitting the trade quickly when market is against you. As no one want to quit a trade in loss, it is the toughest decision to make.No one trading futures will want to quite a trade providing great profits. But remember to quit a trade as soon as you feel a negative trend. Meanwhile, running futures contracts when the trend is the same as whcih you wish.4. Managing the riskManaging the risk is most important to beginners. It is an essential practice for you to set up a stop order before you trade to evade big loss and move your stop order to preserve profit. Keeping hands off from highly fluctuating markets and investing in mini contracts, paying attention to surprise reports, diversifying trading fields are some of the practices involved. Always monitor national and international trends, especially pay more attention to relative contracts trends, you will make a success on futures trading. Visit SoloInvest and TradingSolutions to know more.

Futures – The Purpose, Types, and History of Future Contracts

admin — Thu, 21 Jan 2010 06:12:50 +0000

Futures are a mystery to most people, even some otherwise savvy investors. Ironically, futures (or their predecessors, “forward contracts”) are some of the oldest financial instruments known to man.

The Purpose of Futures

Futures are man’s attempt to conquer fate. That may be putting things a bit dramatically, but the truth is that man is rarely comfortable with uncertainty, and futures allow people to eliminate, or at least reduce, life’s ambiguities.

For example, when a 19th century farmer sold December corn futures in May, he knew exactly what price he would be getting for delivery of his crop, seven months ahead of time. This is the usefulness of futures.

Commodity Futures

The most common type of futures still stem from commodities. Corn, wheat, oats, soybeans, and sugar, as well as crude oil, natural gas, live cattle, and pork bellies are all examples of commodity futures. A farmer can sell a futures contract in order to lock in his price, and then buy back the same contract at a later date, either for a profit or loss, in order to avoid making delivery.

It is often impractical for a futures trader to either deliver or accept large quantities of corn or cattle, so most times; contracts are “closed out” in this fashion. For people who have an actual interest in the commodities (farmers on the sell side, large users of the commodity on the buy side), this can be seen as a form of insurance.

For people who do not have a real interest in the commodities, this is seen as speculation, or the attempt to profit by predicting price movements of the future contracts.

Financial Futures

In addition to commodities, future contracts for various financial instruments are also actively traded. There are futures for various stock indices, Federal Funds interest rates, and almost everything imaginable. The amazing thing about these futures is how accurate they tend to be.

As explained in the book, The Wisdom of Crowds, the large pool of participants in these markets create an almost supernatural, hive mentality that has an uncanny knack for getting things right. If the futures market anticipates a Federal Funds rate hike, then chances are, there is one in the works.

A Brief History of Futures

Future contracts evolved from “forward contracts.” These were handshake agreements made between 19th century farmers and large buyers of their crops or livestock. For example, a farmer might have agreed in May to deliver 5,000 bushels of grain to a miller in September, at a set price.

This cut down on the stockpiling by stockyards that created price disequilibrium – the stockyards would buy grain cheap when supplies were high, and then sell it for a huge profit later in the year when their supplies began to dwindle. Farmers and large buyers decided to create forward contracts in order to eliminate these middlemen.

Unfortunately, there were problems with forward contracts. For one, buyers and sellers had a hard time finding one another – unlike in the financial markets of today. And more importantly, buyers and sellers could each renege on prior agreements without much consequence.

Future contracts, by contrast, are standardized, which makes finding buyers and sellers much easier. And they are regulated by exchanges, who enforce the contracts, if need be.

The Modern Futures Market

Today, futures are traded in the world’s greatest financial marketplaces. Some of them include the Chicago Board of Trade, the Chicago Mercantile Exchange, ICE Futures, Euronext, the London Metal Exchange, the Tokyo Commodity Exchange, the New York Board of Trade, and the New York Mercantile Exchange (NYMEX).

Today’s most popular commodities include crude oil and natural gas, as well as various metals, such as gold, copper, silver, and platinum.

What are ETFs (Exchange-Traded Funds)

admin — Wed, 20 Jan 2010 17:11:22 +0000

You may have heard of ETFs. What exactly are they? Introduction Exchange-Traded Funds, or ETFs, are basically like mutual funds that trade on stock exchanges, with a few differences. They have many of the advantages of stocks while avoiding some of the downsides that mutual funds have.

Why Use ETFs Have you ever wanted to buy shares of an index like the S&P 500? You can’t do that directly but you can do it indirectly through ETFs. Those who supervise ETFs usually invest in the same stocks or futures that make up an index or commodity in an effort to make the ETF’s value per share track a certain index or commodity up and down. This allows anyone with access to stock trading the ability to easily trade indexes or commodities indirectly.

Example: SPY – SPDR Trust Series I: One of the most well known ETFs is SPY, who’s goal is to track the price and performance of the S&P 500 index. It will not be the same price as the index but its chart should have the same shape as the index, within one or two percent most of the time.

Example: QQQQ – PowerShares QQQ Trust, Series 1: The purpose of this ETF is to track the Nasdaq 100 index by buying and selling shares of the stocks that make up the index.

Example: EEM – iShares MSCI Emerging Markets Index Fund: This ETF tries to track the price and performance of the MSCI Emerging Markets index, which follows the performance of international stocks. This fund is non-diversified, which means it is has more risk built in as other funds because it is focused on a specific sector.

Example: USO – United States Oil Fund LP: This commodity ETF tracks the price of oil prices, West Texas Intermediate light, andsweet crude oil, to be exact. There strategy is to continually buying and selling futures contracts for oil, natural gas, and several other things. It is also non-diversified but a convenient way to make trades based on oil prices. Benefits of ETFs The main benefits of ETFs include diversity, the same tradability as stocks, low costs, tax efficiency, and transparency of assets.

What are ETFs ETFs are somewhat complicated to explain, but they are funds that can be structured in a few different ways. They are usually passively managed, which means the managers do not have to constantly decide which investments need to be bought and sold in order to increase the value of the fund. Instead, the managers simply have to make sure the fund tracks a certain index or commodity as closely as possible, which can be as simple as owning the stocks that make up an index and adjust the shares accordingly so that the price follows the index’s chart. Where to Find Them

You can learn more about ETFs at brokerages, offer a free stock screener, along with an ETF screener. Yahoo! Finance has good information that lets you view a list of the best performers in several different categories. For detailed information on day trading see our website: http://HowTheMarketWorks.com.