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Archive for the ‘Commodities Trading’ Category

One can find commodity brokers located in most cities. You can find a good futures broker through referrals of people known to you. With the increase in the usage of Internet, you can find literally thousands of online commodity brokers. There are online directories which you guide you to most of the brokers or you can come across them through a simple search. Online brokerage firms, just like the conventional ones, are of several types. You can choose a full service brokerage, if you want to trade in several markets. In such cases, you can work out your trading strategy in close cooperation with your broker. Full service brokers are popular among those who are new to futures or commodities trading. They offer you great advice on investments and provide you with data on several areas. A good full service brokerage firm will also keep you updated on the latest happenings in the market from time to time. This way you can feel secure that your money is being invested in the right place and commodity. A full service online broker will cost you more because of the number of value added services they provide you with.

You can also find many online discount brokerage firms. These discount brokerage firms allow you to make all the decisions on trading. All one needs to do is to call them up, place an order, and the online discount brokerage firm would pick it up and execute it. The advantage with discount brokerage firms is that they allow you to conduct your own research on products. The disadvantage being that unlike full service brokerage firms, they don?t offer additional facilities. They are a good option if you are fairly confident of your trading abilities.

One can also find several online introducing brokers, who specialize in futures trading, through a well-known established firm. These brokers can offer you the same services as a full service firm and are found spread across usually in smaller cities.

Once you have located your preferred online commodity broker, give him a call and have a detailed discussion with him. Ask the right questions to elicit responses that you were looking for. It is always preferable that you do a little bit of search to equip yourself with the basic knowledge of commodities trading, so that you can ?talk the talk? with your online commodity broker.

The following few lines will discuss about the commodity tips for new investors.

Not only do a lot of these commodity tips apply to commodity trading, but they also apply to other forms of trading and investing as well. Read the commodity tips below to find where you may be able to improve.

Sometimes the best trade you can make is no trade at all. You are not trading for the sake of trading, you are trading to make money and improve your lifestyle. If the signal says to stay away from the trade, then stay away from the trade! Do not force it and end up putting yourself in a no-win situation when trading commodities. You have heard other tips such as do not drive angry, do not go to bed angry, etc. Well, this rule of thumb should also be applied towards online commodity trading! When your emotions are running high, you are more likely to make mistakes. You are not performing at your best because you are not fully concentrating on the task at hand. If you are angry or emotional in any way then do not trade!

These Commodity tips of this nature state that you must diversify by trading different families of future contracts. You must look for some of the least correlated groups and invest in those in order to diversify your portfolio. The point is to look for high probability trades to invest in. That means that they would not work every single time, so do not take it personally when they do not. If something changes with the signal, do not stay in the game in hopes that things will go your way again.

If you receive a so called hot tip via mass email or find out about a hot commodity from the media, then it is probably too late. Profits have already been made, and if you jump in now you are only going to lose money. When you lose on a trade, accept responsibility, learn from it and move on. Not only commodity tips, but all other investing tips will tell you the same thing. There are no guarantees and you will lose from time to time. You knew when you analyzed your investment options, and starting investing, that you would lose money at times. As long as you are winning overall, that is what counts!

There are many more commodities tips available online. You must continue to research as much about trading commodities online before you begin and remember to paper trade first before you begin placing trades with real money. You will be glad that you did! Finally, there are some well established and experienced websites are providing these commodity tips to their clients. For more information and details, please do not hesitate to visit their valuable website.

With the threat of recession looming large, GDP growth looking anemic and inflation is touching new height every fortnight, should you consider investing your hard earned cash into the stock market? Or more importantly, is trading a wise choice considering such a stormy climate? If you looking for a new way of investment, look no further than online commodity trading and you can earn rich rewards depending on your investment, knowledge, risk taking ability amongst other things.

How do you do commodity trading?

Simple, you choose any good online commodity trading software and start investing. Yes, it is really that simple. However, you must ensure that you are aware of the techniques, terminology etc involved in trading commodities. Today, online commodity trading is a convenient and easy way to reap profits from an industry that is fast becoming very appealing to almost everyone. With online commodity trading software you can not just watch how the commodities you have invested in grow, but also analyze new trends, devise strategies, amongst other features.

What commodities to invest in?

With food and crude prices touching an all time high, the current market sure may not look as attractive to an outsider, but ask the futures traders who find it a challenging task to make money when the going gets tough. So, if you invest in crude, oil, gas you can benefit from the skyrocketing prices that are expected to further intensify as the quest for newer oil sources gets impetus. So also, if you have heard of the latest food crisis, investing in agriculture stocks will help you make money as the price of food prices soar.

What Commodity companies can you consider investing in?

While there are many commodity leaders, there are some companies that show promise. Of course, you should only invest in them if you have done your own research and should never go on advice alone. For online commodity trading in agriculture, especially seeds etc, Monsanto is a world renowned leader. The company spends much time and effort in innovating ways for agrarians to increase their produce. And because food grain demand is on fire now, Monsanto is reaping rich dividends with this rise in demand.

Another company that manufactures chemicals and produces seeds for various food grains is Syngenta. With its innovative ways, Syngenta has managed to help farmers increase their crop yield. Also, the company is witnessing a tremendous growth in sales and annual earnings due to the rising prices of these commodities. Both Monsanto and Syngenta are good stock choices for a serious commodity trader.

What are the other commodity trading options?

After food, the next most favorite sector for commodity traders is energy. Alternate sources of energy are hot investments in a world driven by global warming threat. However, before you invest you must be completely sure of your choice and be able to back it up with analytical data. Also, Mosaic, Potash, Agrium are other companies witnessing an increasing interest leading to high gains in sales and earnings. These fertilizer companies will benefit from the rising prices of food.

Traditionally, commodity trading in petroleum products was a place where only the elite, super traders dared to venture. With barrels holding 42 gallons each and a contract minimum of 1,000 barrels, delivering oil was a task best left to the professionals. However, the petroleum trading landscape has undergone some dramatic changes over recent years.

For decades oil prices were stable, then in the mid 1970s the industry exploded. Technological advances and the political landscape contributed to the uncertainty, lack of stability, shortages and rising prices. Nearly 30 years later, prices have skyrocket to more than $70 per barrel and the forecasters predict that in mid to late 2007 when it is expected to experience a slight decline for the next two years.

However, there are no certainties when it comes to oil prices, but there are a few large scale factors that can minimize the risk by offering a reasonably accurate projection.

As demands continue to rise, other countries like India and China are also experiencing technological and cultural changes. The trend seems to be in an upswing with no indication of slowing, reversing or of being reversible.

India is riding in on the coattails of its western neighbors in regards to technology and business methods and is emerging in the 21st century. This brings with it an increased demand for energy, mainly oil based, so that homes, office buildings and manufacturing plants can be erected. Rural economy is getting a facelift in many areas as this movement brings with it such exponential growth which, in turn, increases the demand.

Demand is not the only piece of the puzzle, though. As India’s purchasing power to obtain those goods increases, other growth is showing up as well. India has a wealth of inexpensive, highly educated work force which is being sought out for outsourcing of Information Technology, electronics manufacturing, communications and more. This is continued to grow and expand for at least another decade. One indication of this growth is the rapid growth of broadband throughout India.

China is a technological mega country with the largest mobile phone use in the world and a close second for the largest internet population. Energy is in demand throughout the world, but in China it is expected to rise steadily for at least the next decade.

Although China is perceived to be a Communist nation, social forces are causing it effectiveness to decline. As of yet, it is impossible to predict whether the repression will increase or decrease, but it is inevitable that the flow of information will not be stopped and it will reach the people one way or another, despite any government’s attempts to block it.

The social changes within China seem to be somewhat proportionate to the increase in business there. Demand for energy is on the rise and new infrastructure, buildings and manufacturing plants are cropping up on a consistent basis. These businesses and growth all require energy, mainly oil based energy.

Demand continues to rise yet simultaneously supply rates are dropping off or have stalled. Temporary losses, such as with refineries, that occur as the result of disasters may be recovered in a matter of months, up to a year. However, North Sea oil production, which saw its peak in 2000, has seen a gradual decline. Until the time that political changes come around, releasing the massive reserves that are known to be in Alaska, it is not expected that there will be new discoveries of sources that will be utilized. Not many new sources are expected to be realized throughout the globe.

As technology leans in the direction of developing new forms of energy, there is no expectation that any of these sources will appear on the market for a period in excess of ten years. Fuel cell powered cars, which only account for 7% of gasoline use, are not expected to make an appearance for quite a few years.

Existing political pressures in the United States are hindering any hope of a change in the current situation. Waste disposal is one of the primary problems on the political forefront that shows no promise of a solution anytime soon. However, there are new forms of oil trading mechanisms that are evolving that allow the average investor to partake in a market that was at one time exclusive.

For example, e-mini futures on the CME allow for trading contracts that are half the traditional size of 500 barrels. Futures and options on the NYMEX remain at the 1,000 barrel size, yet they require less that 5% investment. These moves place these trades within the grasp of all types of investors. Commodities pools and funds such as those that are offered by Pimco and Oppenheimer allow investing lower amounts which are increasing their popularity.

This time in the marketplace can offer even the average investor a favorable risk and reward balance in oil commodity trading.

Each commodity exchange has certain listed commodities and permitted commodities, which are traded on its floor. The trading on the floor is confined to the members or their authorized representatives. Investors interested in buying or selling place their orders with their respective brokers, who are commodity exchange members. The brokers and their authorized representatives assemble on the trading floor during the official session to execute the orders placed with them.

The trading floor consists of several trading posts for different groups of commodities. A member or his representative wishing to buy or sell a certain commodity reaches the trading post where that commodity is traded. Here he comes in contact with others interested in transacting in that commodity. Buyers make their bids and sellers make their offers, and bargains are closed at mutually agreed-upon prices.

What types of order can a client place with his broker? A client, while placing an order with his broker, may specify the price and time dimensions. As far as the price dimension is concerned, basically, two types of orders may be placed: market order and limit order. A market order is to be executed as soon as possible at the best prevailing price on the market. A limit order, on the other hand, is constrained by the price limits specified by the investor. In the case of a limit order to sell, the seller specifies the minimum price that the commodity must fetch and, in the case of a limit order to buy, the buyer specifies the maximum price that he is willing to pay.

The time dimension of an order reflects the time frame in which the order has to be executed. A day order remains valid only for the day when it is placed. If the order is not executed on that day, it automatically lapses. A week order is one which is active for a week. A month order is an order which is valid for one month. An open order remains in effect until it is executed or cancelled.

One of the problems facing someone wishing to trade futures contracts on oil is the margin required can be very large, requiring a large trading account and also presenting a large risk when trading.

A very simple solution to the problem is to purchase options on the underlying oil contract. The advantages to the trader are, the amounts required to trade are smaller, hence you can trade with a smaller account and the dollar value of the risk is known (and smaller) and defined prior to placing the trade.

Purchasing options for this for this reason is not new. The concept can be applied to any commodity or stock and is known as directional trading. Below we describe the concept with some detail.

An OPTION is the right but not obligation to sell (a PUT option) or buy (a CALL option) one contract of the underlying equity (in this case a contract of crude oil, 1000 barrels) at a certain price (called the strike price) by a certain time (this is called the option expiry date, do not confuse that with the contract expiry date).

You as the option buyer pay a premium to the option seller for this right. How you make your income is if the price of the underlying oil contract moves in your favor, the value of the option moves in your favor, that is it becomes worth more.

For example, if your analysis indicated that the price was going to go up you would purchase a CALL option if you believed the price were going to go down you would purchase a PUT option. This is why it is known as directional trading. The value of the option will only increase if the price of the oil goes up or down, that is, if the price of the oil contract does not move up or down then your bought option will not gain in value and you will not make any money.

To help you understand that we will give brief description of what makes up the value of an option. The premium charged by the seller of the option is made up of two main components. They are extrinsic value and intrinsic value. You as the option purchaser for the purpose of buying options on crude oil are looking for the intrinsic value of the option to increase. For the record the extrinsic value is made up of two components, time value (as the option gets closer to expiry this decays exponentially) and volatility.

The intrinsic value of the option is just the difference between the futures contract price and the option strike price. So if you believe the price is going to increase you would purchase a call option and if the futures price increased so would the intrinsic value of the option, meaning the option is now worth more and can be sold back to the market to realize the profit.

Similarly if you believed the price was going to drop you would purchase a put option. As the price drops the value of your option increases and you can sell it back to the market and realize a gain.

The maximum risk of your trade is what you paid for the option, which you know before you place the trade and can determine if it fits with your money management rules.

The above information is provided as an example only and before you consider trading options you must first educate yourself, seek professional advice if necessary and understand the risks associated with such strategies.