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General Business

Trading Commodity Futures Via The Internet

Before online commodities and future trading became the high-rolling, high-stake investment ground that it is today, its early proprietors were farmers of the 1800’s.

These farmers would grow their crops and bring these to the market come harvest time in the hope of selling them. But the main concern then was that without an indicator, they could not efficiently gauge how much of their goods are needed therefore resulting either to shortages or excesses, both causing losses for the farmer.

With shortages causing loss of the opportunity to earn more and excesses causing meats and crops to rot and dairy products to spoil. Also, when a certain produce is out of season any product made from them would be priced so high due to its scarcity.

A central marketplace was subsequently created for farmers to take their harvests and sell them either for immediate or forward delivery. Immediate delivery is what is known now as the spot or cash market and forward delivery is now called futures market.

This concept helped stabilize prices for commodities that were out of season as well as served as an effective indicator of supply and demand therefore saving farmers thousands of dollars that would otherwise go to spoilage.

From forward contracts evolved commodities and futures contracts. Forward contracts are effectively agreements to buy now for payment and delivery at a specified date in the future, which is usually three months from the date of the contract.

These were originally only for food and agricultural products but now they have expanded to include financial instruments. Forward contracts have evolved and have been standardized into what we know today as futures contracts.

Basically, when dealing in online commodities or futures trading, a contract must have a seller (the producer) and a buyer (the consumer). If you purchase a futures contract, you are agreeing to buy a commodity that is not there yet for a specific price.

Although most futures contracts are based on an actual commodity, some futures contracts also are sold based on its future value based on stock market indices.

Unless you are a businessman who is into the trade of the actual commodity you purchased, you won’t actually use the goods (if you’re the buyer) or actually provide the commodity (if you’re the seller) for which you’re trading a futures contract.

Remember, buyers and sellers in the futures market primarily enter into futures contracts to minimize risk or speculate rather than to exchange physical goods.

On the other hand, online commodities differ from futures trading in that commodities trading may involve the physical delivery of the goods. In which case a receipt is issued in the favor of the buyer. This receipt enables the buyer to take the commodity from the warehouse.

Traders in online commodities and futures market can use different strategies to take advantage of rising and declining prices. The most common are known as going long, going short and spreads.

When an investor enters a contract by agreeing to buy and receive delivery of the commodity at a set price – it means that he or she is trying to earn from an anticipated future price increase, he or she is going long.

When he or she is looking to make a profit from declining price levels, this is going short. The speculator sells high now so he or she can repurchase the contract in the future at a lower price.

When one makes a spread, however, he or she is trying to benefit from the price difference between two separate contracts of the same commodity.

As an online commodities or futures trader, therefore, you should be armed with a firm grasp of how the market and contracts function.

General Business

Coffee Futures Trading

Coffee is one of the world’s most popular beverages and is considered among the globe’s most important of the commodities that are traded internationally. Today, the prime market for trading coffee, cocoa and sugar futures and options is the CSCE at the Commodity Exchange Center in New York. It has been in operation since 1993.

As an exchange, the CSCE is not responsible for the price coffee trades are set. However, what it does is supply a free-market and tangible venue wherein traders are able to make options and futures transactions under the laws and regulations stipulated by the Exchange.

All of the options and futures traded under the CSCE are uniform and that grade, delivery times, locations and quantities are constant factors.

The only item that is negotiable is price. With the environment espoused by the exchange, coffee prices and the prices of other participating commodities are allowed to hit their natural levels — a move that is often referred to as ‘price discovery’.

Trading coffee futures has a strong demand because its supply is relatively abundant, depending mostly on weather conditions, that’s why coffee is grown primarily in areas with subtropical climate.

Weather is one of the greatest influences in determining the world supply of coffee. Aside from the weather, the price of coffee in the trading market is also subject to consumer tastes and demands.

At times when price variations are at normal levels, coffee demand is deemed inelastic. What this entails is that when the price of coffee rises, people do not necessarily reduce their intake of coffee, and that even when the price of coffee declines, consumers also do not react much differently. However, if the increase is significantly great, there is a likelihood that demand would drop commensurately, as what happened in 1977 and 1976.

The price of coffee is thereby determined by a public consensus on the Exchange floor. This is called the ‘open outcry’, where traders bid vocally, to give an assurance that every trade is transparent and competitively completed. Within the ‘open outcry’, all participants are given the chance to either sell or buy at the best price available. After which, the Exchange will distribute the prices determined to different parts of the world.

Basically, there are two kinds of market participants on the trading floor: the investors and the hedgers. The investors are those people who seek gains based on changing prices. Their orders are usually coursed via brokerage firms, or futures commission merchants, or via commodity funds managed by CTAs, or commodity trading advisors.

On the other hand, hedgers are the commercial companies that trade in the futures and options market in the hope of reducing their risk against unfavorable pricing shifts in the actual market. What hedgers do is lock in rates for futures buys or sales. Some of the pioneering hedgers included coffee makers, importers and roasters.

There is still a lot more to be learned about coffee futures trading. However, if you’ve already had experience dealing with commodity trades, this should be easier for you. Coffee is a product that can be easily tracked and for which a lot of information is available. In fact, it is considered one of the safest commodities to trade in.

General Business

Tradestation Automated Exit Strategies – Overcome Emotional Trading

All TradeStation traders today have heard about the golden rule of trading, which is to cut your losses quickly and let your profits run. Even though we’ve all heard this sage wisdom, it’s been proven that the normal human behavior is to do just the opposite. Most traders want to ring the cash register as soon as they start getting into profits and will jump out of a winning trade way too soon. On the other hand, most traders don’t want to be wrong about the trades they picked, so they will hold on to losing trades hoping they will turn around and become winners. In essence, the typical human behavior in trading is to cut profits too short and let losses build up to be big ones. Obviously that’s a disaster for a trading account, but it’s why automated exit strategies can be very useful for a TradeStation trader.

With automated exit strategies a trader can use his time and expertise in making the initial trade entries, and then let an automated exit strategy take over the exit management. This accomplishes 2 things:

First, to be successful, TradeStation traders must overcome the natural human tendency of holding their losing trades. Good stop loss management is the risk management aspect that you need in order to overcome this emotional reaction. By putting a stop loss in place you will be protected against large adverse price movements and from holding losing trades too long, which results in excessively large losses. An automated exit strategy is unemotional and will perfectly execute your stop loss exit.

Secondly, the trader’s natural human tendency to take profits too quickly is a major problem that limits a trader’s profits. This emotional reaction results in overly short holding times and small trading profits. By using an automated exit strategy, the exit management is non emotional and is carried out without cutting profits short. This frees the trader to be involved in making more entries while the exit process is elegantly handled for them.

To be a successful trader, you need to overcome the human tendency to make reactionary trading decisions. Automated exit strategies are a great tool for TradeStation traders that have not yet conquered the emotional issues that come up while trading. Using automated exit strategies will free your mind to pick great trade entries while your exits are logically managed following good exit management rules.

General Forex

Understanding The Ropes of Commodities Trading

The commodities market is one of the oldest trading grounds in the world. In the earlier times, the producers of commodities such as grains would trade with consumers. The same concept continues today except that it is much more sophisticated. The main aim of such trading is to make the maximum profit when the prices of the commodities fluctuate. Speculators and day traders are the ones that largely look at commodity trading.

The commodities market is also known as the futures market with a great deal of trading being down based on future shares. But the main issue that crops up here is that you need to buy majorly into commodities futures contract in order to be able to get an exposure as well as foothold among several others in the same category. This can be an expensive affair. The other way to go about it is to buy shares that directly relate to the company that is making the product. This will bring you closer to the management and help you get a clear understanding of how the company functions.

Off late, contract differences are also being made available for commodities. Having this option gives the trader an upper hand and also provides for a stable monetary vehicle that is needed for speculative work. When you go through or are a CFD broker, there are several common global commodity markets you can look into like that of gold and silver, the vast energy markets like oil and natural gas, those related to base metals like copper, as well as agricultural commodities like cocoa, wood or even wheat. There are a few CFDs that are largely based on spot and most on futures market. These have a great deal of underlying value.

What this essentially means is that there will be an expiry date that comes with each contract. What this expiry date is will vary from one contract to another. It will be based on the settlement date of any associated futures contract.

CFD brokers handle this particular situation in two different ways. The first is that the broker will allow for an automatic rollover. This then moves on to the next monthly contract when the current underlying futures contract comes to an end. The other option is that he will go in for a cash based settlement. This he may want to with an offer to take over the following month’s contract manually.

General Business

Emini Trading Embrace the Lifestyle-but it’s not Without Risk

From the onset, let me say that individuals who begin careers in e-mini trading fail at an alarming rate.  This high failure rate is the result of a variety of problems including: poor trading methodology design, poor trader execution, lack of experience, no formal in e-mini trading, the list is a long one.  On the other hand, there are new traders who find a good methodology and execute their trades with precision and enjoy normal success for a new student.  (For the record, I chose my words carefully in the last sentence so as not to reinforce the mistaken idea that e-mini trading is a get-rich-quick proposition)

Trading has afforded me a great viewpoint on life, free from the constraints of tyrannical bosses, incompetent colleagues, and office politics.  Let me say that I have only enjoyed this lifestyle the last 7 or 8 years because my learning came on Wall Street trading operations and all the stress of trading for more money than I could ever repay in my lifetime.  Nearly 25 years in total, and I received a well-rounded education in trading in a variety of trading environments and numerous different trading systems.  There is always the newest and hottest algorithm based trading methods, the new miracle oscillator, the hype never stops. 

But hear is the catch, once you learn to trade the right way, you don’t need all those silly new trading devices.  Once you can effectively read charts and trade consistently for a profit, you can begin a limited foray into trading that may lead you to your own trading business and an enjoyable lifestyle.

But there is a problem here…

Learning to trade is an acquired skill, and some of the lessons do not come easy or on the cheap.  To be an effective trader you must have a high quality trading methodology in place and the experience to execute that system with systematic precision.  No small task, but it can be done.  Add a mentor to the equation and you can greatly increase your learning curve.  You won’t be tearing the market up after a month, but I have watched students that have become self-sufficient in six months, though I would not say that is a typical time frame.  We all learn at different rates and learning to trade isn’t a race.

But once you have, oh, once you have learned to trade…

• Set your hours around a specific trading schedule and enjoy leisurely activities that a normal 9 – 5 job simply doesn’t facilitate.
• Spend time with your family
• Enjoy favorable tax treatment of your earnings.
• Have the peace of mind that your job is not dependent upon someone else’s assessment of your abilities. In trading, you alone are responsible for your earnings.

I truly enjoy the e-mini trading lifestyle, and spend a great deal of effort training others to have the opportunity to do the same.   I don’t think it is prudent to push potential full time traders into a trading career, they will know when it is time to reap the benefits of the hard work they expended learning to trade.