Derivatives Options » commodity trading

Trade Commodities with Financial Spread Betting Broker

admin — Thu, 14 Jan 2010 00:15:35 +0000

If you are a small or private investor, one of the easiest ways for you to be a part of the Forex is through financial spread betting. This is because unlike other brokers, a spread betting broker will not require big deposits. This is a form of margined trading that an investor can use to speculate and invest on the markets. It is possible to open several accounts that will provide you with a chance to take part in commodity trading. This is possible because of the existing tax polices and leverage you get from financial spread betting.This service is growing rapidly and there are various companies to offer better services to investors and provide spreads that are tighter. Apart from providing a cheaper investment option, as a private investor, you will have a variety of markets to choose from. The range of markets that are available will vary depending on the broker you choose but all of them give individual shares, forex, market indices, commodities and interest rates. By trading commodities with a financial spread betting broker you will get to enjoy the various benefits that include: Stamp duty is not chargedDerived products such as spread betting are not charged any stamp duty when shares are bought or sold.Capital requirements are lowThis is a margined product that allows you to buy shares on a margin.It can be a short or long term investments It is possible to make some profits in the falling markets when it comes to financial betting because it is a derived product therefore you can either buy or sell shares.Vast range of marketsBy getting involved in financial spread betting, you will have the opportunity to trade in various markets around the world including UK, Continental Europe, America and Asia. Apart from the range of markets available, you can speculate on forex markets and commodities like bonds, interest rates, gas, oil and wheat.Capital Gains Tax is not paidThis is the most essential benefit that you get from financial spread betting compared to any other investment that you may be involved in. This means that any amount of money that you make will not be taxed. It is important to note that any losses that you get will not be offset on the tax bill.Trade is open at any timeUnlike normal market trading that only opens from 8 am to 4.30 pm, spread betting offers trading all day and night from Sunday to Friday. This means even after the markets have closed, you will still be able to make money.Risks are controlledFinancial spreads have controlled risk bets that allow you to have a stop level when you are dealing in the spread. Once the stop level reaches, the bet will close automatically.Availability of credit facilitiesA majority of companies that offer spread betting give credit accounts that ensure that capital is not tied up. This is given according to financial status and experience.

The Fundamentals of Commodity Trading

admin — Sat, 09 Jan 2010 12:21:55 +0000

Commodity trading

Commodity trading is the trading in commodity derivatives, where commodity refers to any bulk goods traded in the exchange. Mainly Bullion, Energy, Metals and Agricultural Commodities are trading in the commodity market. Derivative is a kind of financial security whose price is depend upon or derived from one or more underlying assets. The derivative assets may be in the form of stocks and bonds of corporate, commodities and currencies of various countries. Commodity trading basically refers to trading where investors buy or sell commodities, through future transactions or contracts.

A future is a standardized forward contract that requires delivery of a commodity at a specified price on a specified or predetermined future date. In this case the buyer is obligated to fulfill the terms of the contract. The buyer and seller have the option to square up their position before expiry of the contract subject to other conditions governing each contract. Although the commodity trading pattern is quite similar to equity share trading, it involves smaller margins and is lot easier to understand. A commodity trader can start with commodities like gold and grains, which attract very low margins. As well, the time limits for commodity trding stretch from morning 10 O’clock to mid-night. Hence it is possible to trade after completing day-to-day work.

Requirements – physically & mentally

Find a broker/sub-broker to open account to trade with commodity. The broker if satisfied with the economic standing of the person, they may ask pan card, demat account, bank account and margin money for opening account with him. After completing these formalities, the person allowed for commodity trading. Margin is the upfront money payable to broker before taking a position in the market. Like equity trading activity, the commodity trading requires the easy accessibility of information and liquidity facility. The trader can easily reduce risk by effective diversification. The low risk trading strategies include both delivery spreads and spot-futures arbitrage. The trader can take advantage of the low margins and take directional calls on the markets. The market is diverse in nature, and it is suitable for the day trader/speculator, long-term investor, hedger and arbitrageur.

Risk and Return

Higher the return there is risk also high; lower the return the risk is also low. Based on the risk-return appetite, the trader can enjoy benefit or return. Commodity trading is basically futures trading giving rise to leveraged positions. For this sake, mostly the wealthy and knowledgeable traders campaigning towards commodity trading place. Risk is inherent in any investment, by proper entry and exit strategy can safeguard from loss. The uncertainty and risk are part of all derivative markets and risk factors in commodity futures trading are similar to futures trading equity markets. The key difference is that the information availability on supply and demand fluctuations in commodity markets may not be as tough as the equity market. The return from the commodity market is also handsome, if the trading strategy of the trader worked out properly. The understanding about the technical and fundamental factors of global as well as domestic economy helps to earn superior returns from the commodity trading. Inflation is the big problem in the present economy; commodity is the good tool of investment strategy to beat inflation risk. Commodities are the hedge against inflation because unlike equity, commodity prices move in tandem with inflation. Besides, buying commodities make your investment truly global and there are no issues with company management or cash flow involved, all of which make commodity trading a pure demand and supply match.

Clearing and Settlement

Delivery based trading is now becoming popular. Each contract has a lot size and delivery size; it varied from asset to asset. Market participant are required to negotiate one the quantity and price of the contract, as all other parameters are predetermined by the exchange. Delivery is in dematerialized form and can be rematerialized at time at the request of the trader with the depository organization.

Conclusion

The markets are very lively and dynamic. A systematized and cautious moving will help to being a successful trader. Patience, discipline and knowledge are all important qualities to develop successful and fruitful commodity trading.

Commodity Trading – Commodity Exchanges

admin — Fri, 01 Jan 2010 12:27:59 +0000

Every day, commodities are traded on the more than one dozen major commodity exchanges that are situated worldwide.
Chicago houses two exchanges, the Chicago Board of Trade (CBOT) and the Chicago Mercantile Exchange (CME). Between these two exchanges, a wide array of commodities are traded, bought and sold.
The CBOT has a very diverse collection of commodity types. These include agriculture such as corn, soybeans, wheat and oats but the diversity extends to include metal contracts such as 100 oz gold, 5,000 oz silver and mini contracts for both of these. Mini contracts allow for a lower initial investment as well as smaller ticks (price increments). This is because the amount that is included in the original contract is smaller than the traditional amount.
The CBOT also has several non physical commodities futures contracts. There are government bonds, including 30 year bonds, 10 year notes, 5 year swaps and others. A swap, whose primary use is for hedging, is a blend of a forward and a cash trade. They are similar to futures. Other trades on the CBOT include major indexes as the Dow AIG Index (a commodity index) and the Big Dow (a stocks index).
The CME, also in Chicago, has been trading commodities for more than one hundred years. Trades such as live as well as feeder cattle, hogs, pork bellies and others have been executed on this exchange. However, lumber, milk, butter and fertilizer are also traded there. However, the CME can also shift gears to offer an E-mini S&P 500 contracts for trading on the Standard & Poor’s 500 stock index. For those who prefer the ever popular NASDAQ, there is E-mini NASDAQ 100 for trading futures contracts.
Some of the more unusual trades made on the CME include Eurodollar futures and the Weather derivative which is a futures contract that predicts weather conditions during different seasons for areas around the world.
The New York Mercantile Exchange (NYMEX) is one of the oldest in the United States. Among the wide variety of petroleum and metal commodities and futures that are traded are Brent and mini crude (CL, WS), Natural Gas (NG), Gasoline (HU), Heating Oil (HO, BH) and many others. Other offerings are Gold (GC), Silver (SI), Copper (HG) and Aluminum (AL). You may have noticed that the commodity abbreviation does not match the common chemical element abbreviation. This is because futures contracts are listed second and have their own abbreviations.
New York houses yet another major exchange, the New York Board of Trade (NYBOT). The NYBOT is New York’s original futures exchange. Offerings on this exchange include cocoa, coffee, sugar, FCOJ (frozen concentrate of orange juice), cotton and many other products that are of an agricultural nature. Non physical items are also offered for trade such as currency pairs, the United States Dollar Index and the NYSE Composite. A unique and convenient feature of the NYBOT is that it also offers live price info that can even be accessed by a Blackberry or other PA.
However, the commodity and futures exchanges are not confined to the United States. In fact, one of the most active exchanges in the world is found in London. Liffe, once known as the London Fox (London Futures and Options Exchange), has merged with euronext. Trades such as cocoa, sugar, coffee, wheat, barley, potatoes and a variety of other agricultural products are conducted on Liffe.
The London Metal Exchange is not far from Liffe. This historic exchange is one of the grandfathers of precious metals trading. Naturally, trades such as copper, lead and aluminum are made here, but plastics are traded here as well.
A major exchange also resides in Japan. The Central Japan Commodity Exchange (C-COM) is based in Nagoya, Japan. It was formed in 1996 when three major exchanges merged, allowing such diverse commodities as eggs, gasoline, kerosene and ferrous scrap.

Trading Commodities – Commodity Types

admin — Wed, 23 Dec 2009 00:26:59 +0000

There are several different types of commodities. Commodities are categorized so that it’s easier to price compare, do research, and to make other trade tasks convenient. If you’re an investor who wants to get involved in commodities trading, you need to know the basics. This is indeed one of the riskiest areas to invest in, but it can also be among the most profitable if you know what you’re doing.
Energies
This area has been one of the most active in commodities trading recently. This category is comprised of products that are used to provide energy that will heat and power businesses and homes. The most common of these is petroleum and its byproducts, among them crude and heating oil, propane, natural gas, coal and some others, including subtypes or derivatives.
Each commodity has its own defined “tick” or price change; these are set by the exchanges. Each commodity also has a standard contract size. The standard contract size is the amount covered by a standard futures contract. For crude oil, for example, the amount is 1000 barrels. For wheat, it is 5000 barrels.
Grains
Wheat, oats, corn, rice and soybeans (although soybeans are not technically a grain) are agricultural products traded on various exchanges, including the well-respected Chicago Board of Trade, or CBOT for short. The exchanges trade the product as well as the futures and options contracts on these and other derivative products, such as bean oil.
Each of these products has its own tick or price change, standard contract size and unit. Some prices are listed in dollars per ton, such as with soybean meal. In this case, the standard contract size is 100 tons. It should be noted that most traders never see the actual commodity they trade in; you can see by the amount quoted here that there’s a reason why.
Softs
Orange juice, cotton, sugar, cocoa and coffee are all what are called “soft” commodities. Many of these are traded on the Coffee, Sugar and Cocoa Exchange, or CSCE. It should be noted that 80% of the oranges grown in the United States are turned into frozen orange juice concentrate, and that it is the juice itself traded as the commodity, not the orange.
There’s a relative newcomer on the New York Cotton Exchange, Frozen Concentrated Orange Juice, or FCOJ. This has been actively traded since the creation and widespread use and integration of inexpensive refrigeration, beginning after WWII.
Meats
Pork bellies, lean hogs and live cattle are traded on various exchanges, as are some derivatives. One of these exchanges is the Kansas City Board of Trade, or KCBT, which is the United States’ livestock trading historical center.
One very unique commodity here is pork bellies, because the bacon that comes from pork bellies can’t be substituted with a similar product. Their prices also usually interdependent with the price of grain, because hogs are fed a diet of corn and other grains. These prices are generally less volatile than they are within many other commodities.
Financials
Most traders invest in commodities futures or options rather than the good itself. Because of this, financial products are often listed on the same exchanges.
U.S. Treasury bonds futures are traded on the CBOT, as well as other places. A few indexes track stocks. The S&P index futures contract is one popularly-traded item.
It should be noted that some sites will list abbreviations showing the expiration month of the futures contract within the prices quoted. For example, these are shown are as follows, listed by quarter:
January – F, February -G, March – H
April – J, May – K, June – M
July – N, August – Q, September – U
October – V, November – X, December – Z
For example, you might see an item listed as PBH07; this is a pork belly contract that is due to expire in March of 2007.

Understanding the Fundamentals of Commodity Futures Trading

admin — Fri, 04 Dec 2009 00:23:03 +0000

If we carefully look at the present business scenario then we could easily see that in recent time futures trading are gaining its world-wide popularity. In fact it is the most common trading found on many markets these days. As per the latest definitions- it is more like a trading of contracts called futures contracts, which facilitates the owner with power to trade the basic commodity at somewhere in the future for a fixed rate. Moreover, like stocks and options trading, futures trades are done in precise centralized futures commodity trading markets. However, depending upon the type of futures contracts, it can be broadly classified as commodity futures contracts and financial futures contracts.

In commodity futures contracts, trading of contracts end with a physical delivery. They may include agricultural commodity futures like sugar, oats, wheat, rice etc OR energy commodity futures such as crude oil, natural gas, etc; metals & stones like gold, silver, diamond etc. This means that if a trader is holding a futures contract and the time come when it expires, the appropriate payment will be made by the buyer, and the basic commodity (agricultural or energy) will be delivered by the seller. Whereas in financial futures contracts, trading of contracts end with a cash settlement and it include futures for treasury notes, bonds, mutual funds etc.

The futures contract trading can be executed electronically on electronic trading platforms linked to the major commodity exchanges or by the traditional open outcry method on the floor of the exchange. However, the basic form of futures contract is that it must state a location and date for physical delivery of the particular commodity. There are times when delivery arrangements are also specified by the exchange. This is particularly important for commodities that require high transportation costs, which in turn may affect the delivery place.

All those who are involved in commodity future trading must understand that for most commodity futures contracts, daily price movement limits are specified by the exchange. A limit movement is nothing but a move of price that can shift in either direction equal to the daily price limit. If the price moves down by an amount equal to the daily price limit, the contract is said to be limit down. And if the price moves up by the limit then it is said to be limit up. Price limits and positions limits generally aim to avoid large price movements deriving from excessive speculation. However, at times they act as an artificial barrier to trading when the price of the underlying commodity increases or decreases swiftly.

Overall, trading with commodity futures is definitely a good way to make handsome money but there are some essential factors that one has to take care. It is highly volatile in nature and more likely to remain unpredictable mainly because of several factors like geopolitical concerns, contracted demand-supply fundamentals, growth and inflation pressures that put pressure on the global commodity market. It is a most interesting market environment but also a dangerous one as many wars have been fought and many nations & leading companies compete for scarce natural resources and food supplies.

Commodities Trading Options – 10 Best Buying Options For Commodities Trading

admin — Sun, 29 Nov 2009 12:30:45 +0000

Commodities can refer to anything–food stuffs, barrels of oil, sacks of nuts, metals, and so on. But when you are referring to buying options for commodities trading, it is advisable to give priority to those associated with the futures market. These can be–crude oil and its derivatives, coffee, sugar, copper, gold, wheat,etc.
The market for commodities never remains steady; it is subject to rise and fall, based on changing demands and supplies. You have to indulge in a lot of speculation before you can actually think of parting with your money. If the decision is impulsive, it is an invitation to losses; well-thought out, lots of gains!
So how are you going to decide which are the best buying options for commodities trading?
(1) Buying options for commodities trading is a common strategy practised even by experts in the arena, since it has proved to be a generator of huge revenue.
(2) Again, a word of caution here! If you have invested your money in the hope of getting instant results, then it would be advisable not to go in for buying options for commodities trading. The value of these options expires over a period of time. And if you have chosen the most expensive ones, you may find yourself on the loser’s side in case things do not go right!
(3) So start with less expensive options and in a small way. It is easier to take risks if the amount you may lose in the face of probable losses, is small. With more experience and constant practice, it will become easy to pick up winning situations and get profits.
(4) Develop an attitude of objectivity. Seasoned veterans suggest that the best thing to do is to purchase the stock and forget all about it, instead of worrying about it every waking moment of your life! Do not try to force a transaction to take place. After all, patience is the name of the game!
(5) A little bit of research is required to decide the buying options for commodities trading. The best way to find out which options are trustworthy, is to check out the history of that particular commodity. Charts related to its performance over the last ten years or more, should suffice to give you an understanding of its ups and downs.
(6) If some commodities have been at their lowest levels for some years or have been in scarce supply, these options can prove to be profitable.
(7) After you have found such commodities, buy out-of-money call options which hope to last for at least one more year before expiring. Hopefully, the values of these options should rise soon.
(8) Next, search for call options that have recorded losses since the corporates controlling them have been indulging in mass sales. Or these commodities have simply refused to go higher in value. If these commodities are so dependent on market movements for their success, remove them from your list. They are too volatile!
(9) Yes, professionals or experts do dole out good advice. But sometimes, they can be too dampening and prevent you from trading at all. You do not want to end up in depression because nothing is happening! Do take their advice, but also learn to make your own decisions. After all, at some point or other, you do have to be on your own! As a matter of fact, even ignorance can work in your favor at times!
(10) Keep an eye on the movements of the market. When the prices rise, dispose of 25% of your stock. At least, you will get some profits from buying options for commodities trading. Newspapers also comment on commodities–see if the ones you have purchased are also mentioned. The rest of the stock is to be disposed off when the market becomes parabolic.