Futures Trading Blog

IraEpsteinFutures asked:

Futures Trading, Online Trading, Metals Review,
Sales: 800-284-3010

NEIFFER

weberliner asked:


When will the Chicago Mercantile Exchange begin trading options and futures on real estate in 10 select US cities and how can private investors participate?

LESCH

Ducati 996R asked:


E trade and Ameritrade is just stocks, options and bonds isn’t it unlike Tradestation?

ORLOWSKI

Dave Rivera asked:


How It All Began

Commodity futures trading, as we know it today, came about for the first time in Japan in the 17th century, where rice was traded in future contracts. It was a period when farmers and buyers came together and decided to commit to each other future prices negotiated on suitable terms in exchange of grain for money. For example, a dealer would agree to buy a ton of rice at the end of the next month for a certain price from a farmer. This would be ideal for both parties, as the farmer would know how much he would get for his rice in advance, and the buyer could plan to raise the money he needed for the purchase. Contracts such as these became more and more popular and common, and were even used as collateral for taking loans. If the buyer could not take delivery of the rice, he could sell the contract to someone else. On the other hand, if the farmer could not deliver the goods, then he could hand over the contract to another farmer. Thus began commodity futures trading, as we know it today.

What Are Commodity Futures?

Today, most of the futures commodity trading exchanges are set up in a similar way. Members of the exchange do the actual trading on the floor. Stock stands for equity in a public company, and can be held as long as you want, whereas commodity futures trading contracts have a specified life. In the past, people used commodity futures trading methods generally to hedge risks and fluctuation in prices, or to take advantage of them, and not for actually buying into the commodity. The idea is that a contract requires delivery of the commodity within a certain predefined time period unless it becomes null and void. The person buying the commodity futures trading contract agrees to buy the specified commodity at a fixed price on a certain date. The person selling the commodity futures trading contract agrees to sell the commodity at a certain price on a certain date. As time goes on, the contract price fluctuates, and this brings about profit and loss in the trade. It is to be noted, however that, the delivery generally doesn’t take place. The contract is usually liquidated before its expiry. The entire trade is based on the idea that there will be no delivery, but we can speculate on the price of the underlying commodity at a future time to make money. Commodity futures trading is done all over the world now.

Different Types Of Commodities

There are many types of commodities that are traded in the international market. These can be very broadly categorized into the following:

• Precious metals like Gold, Platinum, Silver, etc.,

• Metals such as Aluminum, Copper, Steel, etc.,

• Agricultural products like Rice, Corn, Oils, Cotton, Wheat, etc.,

• Soft commodities such as Cocoa, Coffee, Tea, Sugar, etc.,

• Livestock like porkbellies, cattle, etc.,

• Energy commodities like Crude oil, Gasoline, Gas, etc.



LOSSETT

IraEpsteinFutures asked:

Futures Trading, Online Trading, Stochastics Review, Sales: 800-284-3010

CANEZ

TradePilotPro asked:

Trading Futures

CLAIRDAY

TradePilotPro asked:

Trading Futures

ARBALLO

Mark Crisp asked:


Futures trading is a different type of trading in comparison to trading stocks and bonds. When you purchase stocks and bonds you have physically bought something that you own, but that is not the case with futures. In futures trading you are speculating about whether the price of a commodity will rise or fall.

For example, let’s say that you decided to speculate on hogs. If you thought that hog prices would be rising in the future you would purchase a hog futures contract. If you thought that hog prices would be falling then you would sell your hog futures contract. Whether you wanted to buy or sell, there has to be a buyer and a seller.

Investors are attracted to futures trading because it isn’t terribly complicated. In traditional stock markets there are literally thousands of stocks to choose from, whereas in the futures market there are only about forty markets to speculate on.

Another reason why investors like futures trading is because it is very easy to buy or sell futures. The futures market is affected by the extreme weather conditions such as droughts, hurricanes, tornadoes, and freezes because these can affect agricultural crops. Money can be made whether prices go up or whether prices go down. Still, another reason that futures trading is viewed so positively is that commission fees are much lower than those paid in stock trading.

The most important reason that traders dabble in commodities is because there is an enormous opportunity for big gains in a short period of time. Of course, the potential for big profits exists because there is a risk for huge losses as well. No trader should ever get involved with the commodities market with the intention of getting rich quick. Those who do that usually endure huge losses. Only take risks that you construe to be acceptable losses.

You can begin trading in the commodities market with small purchases.

The smaller the trade you make, the less that you risk. You can still make profits on small trades, but it may take you quite a long time. Gains and risks are interrelated. The more that you put at risk means that there is more to be made in gains. The trouble is that you must be able to manage your risks. No one can consistently make the right calls about what to buy and sell, so at some point you will be wrong.

Never invest more money than you can afford to lose. The other way to minimize your risk is to put a stop loss order in. The stop loss will automatically kick in when it reaches your set price and then your commodities will be sold so that you can stop the loss from getting too bad.

If you think you can handle these risks, then give futures trading a try. Just make sure you have agood, time tested, trading system and the discipline to follow it. Futures trading is like any business. There are ups and downs to contend with.



CLAFFEY

Andrew Daigle asked:


Derivatives of the Forex trading system are spot trading, futures trading, forwards trading, options trading and swap trades. Many inexperienced Forex traders tend to focus on spot trading. Spot transactions are over-the-counter transactions, handled outside of an organized exchange.

Spot Trading - Spot trading in the Forex trading system is what is termed Forex. A Forex currency trade is a simple simultaneous transaction that involves the exchange of one currency for another. Forex currency trades may be settled within 2 days, except in Canada where exchanges may be settled within one-day.

There are two parties and two positions with any trade. The party who delivers a commodity holds a short position. The party who receives the delivered commodity holds a long position. In other words, the seller holds the short position and the buyer holds the long position. There are no restrictions and limitations in Forex spot trading as long as there are parties willing to a trade and liquidity in the currencies being traded. Spot trades incur a transaction charge per trade called a margin or spread. A margin is calculated as the difference between the current bid price and the asking price.

Forwards Trading - A forwards trade is a trade in which the traded commodity has a date of delivery some time in the future. Typically, a forward contract may have a date of delivery one, two, three, six or twelve months into the future. Traders use forwards to take advantage of interest rate differences between countries and this difference is usually factored into the cost of a forwards trade. The value of a forward is determined by the difference in interest rates offered by the countries whose currency is involved in the trade. The cost of a forward may be higher or lower than the current spot price of a currency. When a higher price is charged for a forward, it is called a premium while a lower price is a discount.

Futures Trading - A futures trade is similar to a forward trade where a buyer and seller trade currencies for a predetermined price, at some time in the future. The difference between a futures and forward trade is that futures are traded on a regulated exchange and forwards are not. Futures trades incur round-turn commissions that are generally higher than the margins required for spot trading. You must make a deposit on futures to serve as a margin or bond for the trade. If market events indicate that a currency will increase in value over the term of a future, a lower price will have more worth when it is traded. The difference between the price for a future and the market price of currency is added or subtracted from the margin value. You must replenish any loss in margin in order to continue to hold a position in the trade.

Options Trading - Options are a form of currency trading where you are given the option to buy a specific amount of currency before a specified date. Options differ form forwards and futures because options give you the right to buy or not buy. Generally, traders will seek options when there is an indication of stability in currency exchange rates while speculators may assume the risk in hopes of making a profit. As a buyer, you are required to pay a premium for options and that premium is forfeited if you fail to exercise the option. Premium prices are established based upon how likely the market perceives that the option will be exercised. Premiums may be calculated as the difference between the current spot price and a future strike price or they may be involve more complex calculations, based on market conditions and the timeframe before the expiry date.

Options include both a call and a put. The right to buy currency is a call option while the right to sell currency is put option. The option to buy US dollars and sell Japanese yen, for example, is a yen call and dollar put. The price that the buyer agrees to pay is called the strike price or exercise price and the amount of currency that may be bought or sold is called the principal. Options may be purchased on an exchange or over-the-counter and then bought and resold. US style options are purchased on an exchange and have a strike price, expiry date and contract size. Options bought over-the-counter are bought in interbank. Options offered in the interbank market are usually European style options where the terms of the contract are negotiated between the seller and buyer.

Swaps - A swap is a combination of a spot and forwards trade. A swap involves the trade of currency on a specified date and an agreement to trade it back at a later date. A swap provides you with an alternative to borrowing foreign currency. If you need liquidity in a currency, you may swap for the needed currency. This involves a spot transaction to initiate a trade and a forward transaction to buy back the currency in the future. Large banks and corporations tend to favor swaps. Individual investors rarely engage in swaps.



NICKL

Big Ben asked:


Where’s a good place, for beginners, to learn commodity futures trading?

STRAUF