Archive for the 'Commodities Trading' Category

Commodity Prices

Additional details of commodity derivatives, including who buys, sells and the detailed information on risks and profitability.
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Commodity Derivatives

History of commodity derivatives. Where did they start? How are they used now? What are the benefits of commodity derivatives and how are they bought, sold and in general, exchanged? Continue Reading »

What Are The Hottest Commodity Exchange Traded Funds?

Some of the year's hottest commodity exchange traded funds are kind of a no brainer. However, some are quite surprising. You should never jump to investment in a knee jerk reaction, but use all investing information along with trend and support resistance levels to gauge the value. Combining analytical tools and seeing what sticks on the charts is the best way to judge the investments you should be looking towards.
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Financial Instruments: Derivatives Are The Most Dangerous?

Now that we have moved onward from the 2008-2009 financial meltdown, investors are not only wary but also watching the legislation movements in Washington, D.C… Our financial instruments of the past seem to have become self-inflicted weapons. The topic of derivatives has come into play with numerous warnings about the dangers of continued greed that have caused our previous downfall.
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Commodities trading for dummies.

Commodities trading for dummies is a way to get the basic essentials of trading commodities without getting too far in depth. Commodities at their most basic are the raw materials that are used for products and consumer goods. These materials are divided into three separate classes of commodities, and these are metals, energy, and agricultural products. To be classified as a commodity for trading there needs to be three conditions that are met with these materials. A commodity must have a vehicle to trade on, it must be able to be delivered physically, and there must be enough buyers and sellers on the market to make it liquid. Before you start thinking about using commodities trading for dummies to make a fortune you must realize that this type of trading does involve risks. There is no guaranteed money maker, and you should never risk more than you can afford to lose on the commodities market.
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Volatile Commodity Derivatives
  • Volatile commodity derivatives have been responsible for making fortunes for investors
  • There are a number of commodity derivatives to choose from
  • Commodity options are a great way for you to make a big profit if the price of the commodity increases significantly

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Commodity Options Trading
  • Commodity day trading, options day trading, and other day trading types can be risky if not done properly
  • There are some tools that can help you, and these include options trading software that can help you choose trades that are ideal
  • A commodity trading broker can answer many of your trading questions

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Commodity Options Trading

Commodity options trading is one form of investment, and this investment involves more risks than many other types, but the returns are also higher. Commodity options trading is the buying and selling of options concerning commodities. Commodities are goods which are used in manufacturing, like wood, cotton, and others, as well as food stocks, such as grain including wheat, pork bellies, orange juice, and others. To understand commodity options trading, you must understand what commodities and options both are.

An option means that you have a right to buy or sell a specific amount of the commodity at a determined price, which is set now, at some point in the future. The intent is that the price of the commodity will rise or fall, and you will benefit from it. If you think that orange juice prices will rise, you would want an option to buy at the market price right now. If the price of this commodity goes up, you use the option to buy and then turn around and sell at the higher price, making a good return on your investment. With an option, there is no obligation though. If the commodity price does not go up, you choose not to buy. There is a premium paid for the option, which is determined by the parties in the trade. No matter whether you exercise your option or not, you do not get your premium back.

There are two specific option types, a call option and a put option. A call option is normally used when the option buyer believes that the commodity price will go up, and a put option is used when the belief is that the price will go down. In other words, an option to purchase is a call option and an option to sell is a put option, in the most basic sense. Options can also be long or short. An option that you purchase is a long option, and an option that you sell is considered a short option.

There are some things you should be aware of before getting into commodity options trading. Commodity futures charts can be a big help in commodity options trading. These charts can help you track and determine commodity risks, as well as expected future prices for a commodity. To start commodity options trading, there are a few things that you will need. You will need a trusted broker, a telephone or computer, and knowledge from research and commodity futures charts to help you make good investing decisions. You will also need to develop a trading strategy and guidelines, to help you minimize risk and maximize returns during your trading activities.

Commodity Futures Charts

Commodity options trading can be very confusing at first, and can involve high risks. The best way to start commodity options trading is to use a paper or dummy account with your broker at first, to ensure you are comfortable and understand the market before you risk your hard earned money. Trading commodity options gives you the opportunity to limit your risks if desired. Options may come due at the end of any month, and the specific due expiration date of the option is specified in the contract. Basically, commodity options trading gives you the right to buy or sell a specific number of shares in a specific commodity by a specified date, which is at some point in the future. Even though you pay a premium for this option, you are under no obligation to exercise the option, and instead can let it expire. When this happens, the only cost to you is the premium paid to purchase the option.

Commodity Markets

What are commodity markets? Commodity markets can also be called commodity exchanges, and this is simply an exchange where commodities are bought and sold for future delivery. The first commodity markets traded in agricultural products alone, but the modern markets trade much more than this, including gold, silver, oil, and others, for a total of 96 different commodities that are traded. A commodity market is an exchange for commodity traders where products that are graded and standardized are purchased and sold. Most of the trading done on these markets consist of futures contracts, which are agreements between two entities that the goods will be delivered at a specific time in the future for a price that is agreed upon at the current time. This trading allows both speculation and hedging. Hedging can help a trader hedge against severe losses if the market declines. Speculation allows the trader to gain if the market increases.

The commodity market is regulated by the Commodity Futures Trading Commission, an independent government agency established in 1974. The largest commodities exchange is Eurex, a European electronic exchange. The largest commodities market in the United States is the Chicago Board of Trade. Some critics of commodity futures trading believe that trading futures on the commodities markets makes the price of stocks more volatile thus inclined to wider swings.

The commodity markets are where commodities are traded, and this can include many raw materials and agricultural products. Most brokers and traders require an account. There may be minimum balances required for an account to be opened. Just like stocks, trading commodities requires licensing and regulation, and the commodity markets have trading in the United States dollar, the Japanese Yen, the Swiss Franc, the Euro currency, and other securities and currencies. Commodities can be traded online using various online trading systems and many brokers offer paper accounts to start with until the trader is comfortable enough to risk their money.

Any trader that is new to the commodities markets should use practice or paper accounts at first to get comfortable with the market and confident in their strategies before risking their own money. Even when there is confidence in the trading strategies and techniques on the commodity markets, a trader should never invest more than he or she can afford to lose. Commodity markets can be very volatile. This means high risks as well as potential for high returns. It is important that traders understand this before entering the markets, or severe financial losses can occur.

Commodity Futures Trading Commission

There are many different techniques and strategies used by traders who trade commodities on the commodity markets, and each trader has their own favorite indicators and equations, so it is important to find ones that work for them specifically. What works great for one trader or broker may not work well for another. The commodities traded on the market can be high risk, low risk, or in between, and this is important as well. Just like with stocks and other securities, the higher the risk factor is, the higher the possible returns may be. Commodities can be a great way to diversify any portfolio, but get to know the risks involved before investing. Any trader on the commodity markets will have risk management techniques in place to ensure no huge losses. These techniques should be followed consistently, helping minimize losses on the commodity markets.

What Are Commodities?

What are commodities? This word is used all the time in financial sections, but many people do not understand exactly what it entails. A commodity is a good that is normally sold and/or produced by a number of different companies and has the same quality regardless of which company sells it. There are ninety six different commodities that are traded on commodity exchanges throughout the world. What makes a commodity different from a product is that there is no product differentiation. Things like precious metals, agricultural products, and other raw materials are considered commodities.

A commodity can be any tangible good, but commodities that are traded in commodity markets are usually bulk goods and food products, including natural gas, gold, silver, oil, wheat, corn, oats, grains like barley and rice, coffee, pork bellies, beef, and others. The meaning of the term commodity has changed through the years, because the word traditionally meant a good that was subject to barter or sale, but the modern definition can include investment vehicles, like commodity futures. Commodities are only traded on commodity exchanges, just like stocks are only traded on stock markets, and these exchanges do much more than just facilitate the trade in commodities, they also enforce any regulations and rules in place to govern the trading process involving commodities.

There are two main commodity types, cash commodities and spot commodities. A spot commodity is a commodity that is traded right then on a spot market and is pending delivery, while a cash commodity is actually a commodity that is used in a futures contract. Before trading any commodities, a new trader on this market should know and understand the ups, downs, and volatility of that commodity. Grains are on of the oldest commodities traded, and they have been around for decades on the markets. Summer is the most volatile time for these commodities, and they include corn, wheat, and soybeans. Energy commodities are another group, and they include heating oil, crude oil, gasoline, natural gas. These commodities are very popular futures trades.

Metals are commodities that are traded every day. Precious metals are used to help hedge inflation, and they can also be used for the purposes of industry, construction, photography, and many other things. Metal commodities include copper, gold, and silver. Soft commodities are another group, and these consist of a number of food products and many industrial materials. These include cotton, sugar, cocoa, tea, and coffee. Livestock commodities are agricultural products that consist of meat only, such as cattle and hogs. These commodities usually have reliable trending patterns, because the production numbers can be estimated well in advance due to the herd statistics and breeding patterns.

Spot Commodities

Trading commodities can be just as risky as trading stocks or other securities. Volatility is one indicator of the risk each commodity poses, and the futures margin of the commodity will help determine the volatility of the commodity. The futures margin refers to the amount that the futures exchange will need as a good faith deposit or down payment for every futures contract that is opened. Some commodities are extremely active, while others may barely move over long periods of time, and these can include orange juice, rice, pork bellies, lumber, feeder cattle, and oats, so many traders stay away from these commodities even though they have a very low volatility and low risk, because they do not offer a chance to make much profit. Experienced commodity traders know the level of risk that they are willing to take, and they stick at or below this risk level to minimize any financial losses.