Commodity Trading Strategies
In commodity trading you are betting that the price of a physical commodity will increase as some time in the future. The raw materials that are involved include such products as wheat, soybeans, corn, hog bellies, crude oil, gas, coffee, cocoa, orange juice, gold, silver, uranium.
Future contracts can also be bought and sold for currences of the various countries (Foreign Exchange or ForEx) and even the indices of the various stock markets.
Options give the owner the right to exercise a buy or sell position, depending or the option purchased, but does not carry the obligation to perform. Buying a call option provides the the buyer the right to buy a specified quantity of a particular security at a set price on or before the expiration of the call. Buying a put option does the reverse; it provides the buyer of the put option the right to sell the specified amount of the security at the specified price.
Futures contracts are purchased on margin, meaning the purchaser only puts up a percentage of the contract until it comes to the closing date. At the closing date the full amount of the contract must be paid. This is where the purchaser may make a big profit or lose a lot of money.
The market is very volatile and mainly dominated by big players, however, if one studies the indicators, plus confirms trends reading other indicators, then trades can be made with some degree of predictability and profitability.
Trading in the futures markets is becoming more popular as it has become easier for the small speculator to enter the market. But before entering into the futures market be sure you understand the risks involved and the information you require to make the trading decisions - when to buy and when to sell.
You can purchase software to assist you in interpreting the indicators or you can make your decisions relying solely on your own knowledge or you can pay for the services of a portfolio manager.
One of the most popular areas in the futures market is the trading in currencies of the various countries. This market emerged in 1972 after the United States ceased to tie its dollar to the gold standard. Other countries followed suit, abandoning the practice of having fixed exchange rates. This Foreign Exchange futures market is generally referred to as the Forex market. These are done as day-trading, not as currency future contracts. Here are the most popular trades:
* EUR/USD - The Euro to the US Dollar
* AUD/USD - The Australian Dollar to US Dollar
* CAD/USD - The Canadian Dollar to US Dollar
* EUR/CHF - The Euro to Swiss Franc
* EUR/GBP - The Euro to British Pound
* GBP/USD - The British Pound (Sterling) to US Dollar
Most of the Forex trading is done between big players such as governments, banks, brokers, mutual funds. Central banks which are located in London, New York and Tokyo play a big role internationally in the futures markets. Banks do about 50% of all the Forex trading and only about 2% is done by small traders.
Some of the indicators to be following on a regular basis are:
1. Simple Moving Averages - both the 40 day and the 20 day
2. Bollinger Bands - indicates th volatility of the market
3. Relative Strength Index - to time your trades
4. Stochastic - a momentum indicator to trigger trades
There is Forex trading software that can automate your trading to a great extent. Once you have decided on one, stick with it and learn all its strengths and weaknesses. Having a system to work within makes it much easier to make decisions and not be influenced by "intuition", emotions and just being tired. That is when we make errors in judgement - and lose money.
Practice before risking your hard-earned money. You can start off with a demo or, after absorbing all the info, start with a mini Forex account. With the Forex systems available now, you should be able to make money while you sleep, whether the market is going up or down. Here’s to your success!
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TraderPlanet.com is not a registered investment advisor, commodity trading advisor, broker or broker dealer.
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