| |
![]() | |
Currency Trading Information Channel |
|
![]() |
|
|
![]() |
Commodity Trading - Advantages and DisadvantagesWhat Is Commodity Trading? Commodity futures markets allow commercial producers and commercial consumers to offset the risk of adverse future price movements in the commodities that they are selling or buying. In order to work a futures contract must be standardized. They must have a standard size and grade, expire on a certain date and have a preset tick size. For example, corn futures trading at the Chicago Board of Trade are for 5000 bushels with a minimum tick size of 1/4cent/bushel ($12.50/contract). A farmer may have a field of corn and in order to hedge against the possibility of corn prices dropping before the harvest he might sell corn futures. He has locked in the current price, if corn prices fall he makes a profit from the futures contracts to offset the loss on the actual corn. On the other hand, a consumer such as Kellogg may buy corn futures in order to protect against a rise in the cost of corn. In order to facilitate a liquid market so that producers and consumers can freely buy and sell contracts , exchanges encourage speculators. The speculators objective is to make a profit from taking on the risk of price fluctuation that the commercial users do not want. The rewards for speculators can be very large precisely because there is a substantial risk of loss. Advantages of commodity trading Leverage. Commodity futures operate on margin, meaning that to take a position only a fraction of the total value needs to be available in cash in the trading account. Commission Costs. It is a lot cheaper to buy/sell one futures contract than to buy/sell the underlying instrument. For example, one full size S&P500 contract is currently worth in excess off $250,000 and could be bought/sold for as little as $20. The expense of buying/selling $250,000 could be $2,500+. Liquidity. The involvement of speculators means that futures contracts are reasonably liquid. However, how liquid depends on the actual contract being traded. Electronically traded contracts, such as the e-mini's tend to be the most liquid whereas the pit traded commodities like corn, orange juice etc are not so readily available to the retail trader and are more expensive to trade in terms of commission and spread. Ability to go short. Futures contracts can be sold as easily as they are bought enabling a speculator to profit from falling markets as well as rising ones. There is no 'uptick rule' for example like there is with stocks. No 'Time Decay'. Options suffer from time decay because the closer they come to expiry the less time there is for the option to come into the money. Commodity futures do not suffer from this as they are not anticipating a particular strike price at expiry. Disadvantages of commodity trading Leverage. Can be a double edged sword. Low margin requirements can encourage poor money management, leading to excessive risk taking. Not only are profits enhanced but so are losses! Speed of trading. Traditionally commodities are pit traded and in order to trade a speculator would need to contact a broker by telephone to place the order who then transmits that order to the pit to be executed. Once the trade is filled the pit trader informs the broker who then then informs his client. This can take some take and the risk of slippage occurring can be high. Online futures trading can help to reduce this time by providing the client with a direct link to an electronic exchange. You might find a truck of corn on your doorstep! Actually, most futures contracts are not deliverable and are cash settled at expiry. However some, like corn, are deliverable although you will get plenty of warning and opportunity to close out a position before the truck turns up. Tim Wreford operates Online Futures Trading, a website that provides information and resources for traders. Tim also provides an article detailing the development of a day trading system, the results of which are updated daily on the site.
How to Trade Forex? - A Guide to Forex Trading in 2021 DailyForex.com What Are the Best Forex Trading Platforms? Market Realist Forex Forecast: Pairs in Focus DailyForex.com Why Forex Trading is so Popular in Africa? The African Exponent Cardano Climbs 10.11% In Bullish Trade Investing.com India What Is Forex Trading? Forbes USD/INR: Rupee Edges Lower In Risk Off Trading Currency Live 4 Simple Steps to Start Forex Trading for Beginners Yahoo India News GBP/USD: Will the fourth attack on 1.37 succeed? US data may provide a shot in the... - Forex Crunch EUR/USD: Euro Falls Through $1.22 On USD Strength Currency Live Bitcoin is back above $36,000, but big investors are wary - Mark Cuban says crypto is 'exactly' like the .. Business Insider GBP/USD Forex Signal: Bearish Price Channel DailyForex.com AUD/USD Forex Signal: The Bullish Case for the Aussie DailyForex.com Asian shares mixed following Biden speech, Wall St retreat Martinsville Bulletin EUR/USD breaks below 1.2100 to fresh 2021 low Currency Live EUR/USD Forex Signal: Bullish Trend Resuming DailyForex.com AUD/USD Forex Signal: Wide Consolidation Above 0.7642 DailyForex.com US Dollar Index advances to90.60, data eyed Currency Live GBP/EUR: Pound Pushes Over €1.1250 Currency Live EUR/USD edges back below 1.2200 Currency Live Forex Brokers: Are They a Scam? | Investing | US News U.S News & World Report Money Forex Trading Terms You Need to Know Before Trading North Forty News GBP/USD Stablises After Weakness Currency Live What You Need To Know Before Starting A Forex Trading Business NuWire Investor A Forex Trading Guide For Beginners | Sponsored | state-journal.com State-Journal.com AUD/USD slides to daily low 0.7740 Currency Live Everything To Know About Getting Into Forex Trading GQ Australia USD/INR: Rupee Advances As Stocks Hit Record High Currency Live The FINANCIAL - Making Money By Forex Trading The FINANCIAL How Forex Trading Works Market Realist Facts You Need To Know About Forex Trading Forbes India Proven Forex Trading Strategies for Beginners The FINANCIAL Forex Market: Unlocking Opportunities for Investors Visual Capitalist USD/PKR: Rupee Declines, LSM Rises Currency Live A guide to forex trading instruments The Boca Raton Tribune US Dollar Index extends gain past 90.00 Currency Live GBP/EUR: Pushes Towards €1.1150 Currency Live Forex vs. Cryptocurrency Trading, Explained Cointelegraph What is Forex Trading And Is It Right For Me? Your Money Geek What You Should Know About Forex Trading Signals Robotics and Automation News Forex: best currency pairs to trade at night Capital.com
|