Futures Trading Is Better When You Start In A Trading Simulator

Before you begin trading in the futures market you had better know what you are doing before you take the plunge. One way to get an edge is to practice your trading in a simulator module before you risk your own money. Although the trades do not go to the exchange, in every other respect a trading simulator is as close to the real thing as it gets. And the best part is you can make mistakes without suffering the consequences.

The first line of the trading disclosure document reads as follows; All trading involves high risk and you could lose a substantial amount of money. Of course there is more to it than that, all of it pretty doom and gloomy. And rightfully so if we are to believe the statisticians telling us that over 90% of day traders will lose all or most of their original investment within the first year. With that in mind then, you would be well advised to make sure you know what you are doing before you take the plunge.

One way to get an edge is to trade in a practice mode before risking your own money. Forget about paper trading. That can be a meaningless hypothetical exercise. At best it is very ambiguous and you really do not gain anything from it. Simulated trading on the other hand allows you to trade in the actual market. Even though your orders do not go to the exchange, you do go through all the trading motions where you will actually experience the trades in real time and get the feel of the market dynamics. It is the next best thing to trading with real money.

Some brokerage houses provide a simulator platform with test accounts of $5,000 to $50,000 along with a 30 to 90 day trial period including live feed and live quotes. This is as close to the real thing as it gets. You have the opportunity to practice your trading strategy live, but with play money. You get to learn the trading platform and the actual interface you will be using. And while you are in this training mode, you can hone your trading concepts and you can make mistakes without being concerned about the consequences.

Simulated trading enables you to trade using real time quotes for select emini futures markets. You will also have access to real time streaming charts. You can practice placing your orders online and receiving confirmations in mere seconds. You will learn how to use your order management tools to view your working, filled or canceled orders. You can become proficient with the trading matrix, learning how to place various order types, preset targets, stop losses and multiple orders.

While it is possible to trade any futures index, commodity or stock in the simulator, the Dow Jones emini index is undoubtedly the most popular trading vehicle for the beginning day trader. The reasons for its widespread popularity among new traders as well as seasoned veterans are as follows;

• Low initial trading deposit
• Low initial and maintenance margins
• Smooth and decisive price movement
• Low tick values
• Accessible to traders throughout the world

Just remember this: Before you go live, you had better make sure you are getting it right in the simulator, because if you don’t, your chances of making it in the real world environment will be greatly diminished. When you are risking your own money the human emotions and fear factor are at a much higher level.

One of the best features and perhaps most overlooked advantage of using a simulator with a mock account is that it teaches you money management. If you treat your test account like it was your own money, and if you formulate and follow a trading plan (which I will cover in a separate article) you are more likely to get the maximum benefit from the simulator experience which will become vitally important when you start trading live.

About The Author: John Gleason is the chief moderator at www.CallTheFutures.com. His experience in emini futures trading goes back more years than he cares to remember. However, as his partner Dan points out, he must be doing something right to have survived this long. The team calls the entry signals for Dow emini futures and S&P emini futures each trading day. The calls are made in a live futures trading room alerting the members before the trade occurs. Members in the room include live traders and others using a trading simulator

By John Gleason Published: 5/24/2008

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Online Commodity Trading

With the threat of recession looming large, GDP growth looking anemic and inflation is touching new height every fortnight, should you consider investing your hard earned cash into the stock market? Or more importantly, is trading a wise choice considering such a stormy climate? If you looking for a new way of investment, look no further than online commodity trading and you can earn rich rewards depending on your investment, knowledge, risk taking ability amongst other things.

How do you do commodity trading?

Simple, you choose any good online commodity trading software and start investing. Yes, it is really that simple. However, you must ensure that you are aware of the techniques, terminology etc involved in trading commodities. Today, online commodity trading is a convenient and easy way to reap profits from an industry that is fast becoming very appealing to almost everyone. With online commodity trading software you can not just watch how the commodities you have invested in grow, but also analyze new trends, devise strategies, amongst other features.

What commodities to invest in?

With food and crude prices touching an all time high, the current market sure may not look as attractive to an outsider, but ask the futures traders who find it a challenging task to make money when the going gets tough. So, if you invest in crude, oil, gas you can benefit from the skyrocketing prices that are expected to further intensify as the quest for newer oil sources gets impetus. So also, if you have heard of the latest food crisis, investing in agriculture stocks will help you make money as the price of food prices soar.

What Commodity companies can you consider investing in?

While there are many commodity leaders, there are some companies that show promise. Of course, you should only invest in them if you have done your own research and should never go on advice alone. For online commodity trading in agriculture, especially seeds etc, Monsanto is a world renowned leader. The company spends much time and effort in innovating ways for agrarians to increase their produce. And because food grain demand is on fire now, Monsanto is reaping rich dividends with this rise in demand.

Another company that manufactures chemicals and produces seeds for various food grains is Syngenta. With its innovative ways, Syngenta has managed to help farmers increase their crop yield. Also, the company is witnessing a tremendous growth in sales and annual earnings due to the rising prices of these commodities. Both Monsanto and Syngenta are good stock choices for a serious commodity trader.

What are the other commodity trading options?

After food, the next most favorite sector for commodity traders is energy. Alternate sources of energy are hot investments in a world driven by global warming threat. However, before you invest you must be completely sure of your choice and be able to back it up with analytical data. Also, Mosaic, Potash, Agrium are other companies witnessing an increasing interest leading to high gains in sales and earnings. These fertilizer companies will benefit from the rising prices of food.

For more info about Online Commodity Trading

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Forex Trading Software

What to look out for, if you’re in search of a good Forex trading software.

While shopping around online for forex trading softwares, do enough research to be sure that you can only getting top quality product made by professional ex-traders. Some features might or might not be as important for you but the majority out there will essentially have the basics covered.

Some are certainly better than others and there are many out there that will only have you lose money. These low quality products are usually much cheaper and therefore seem ‘too good to be true’. Often they have never been traded and will not have any pre-existing data to rely on.

One of the better Forex Trading Software on the market is Forex Funnel. This automated software is easy to use and has the potential to start making you money almost instantly.

With that said you should be careful to understand how software trading works and how the Forex market works. Knowing the fundamentals will decrease the chances of you losing money unnecessarily.

Forex Trading Systems can be programmed with your own preferences so you have as much control over the software as you need to to make successful trades.

If you’re struggling to decide which forex system to use, you should check the forums and read some user feedback on the software that you read about to get different perspectives on these products. Forums are a great place for people to voice their honest opinions on products they have purchased and they can greatly help you in your purchasing decision.

For more information on forex trading systems in general, check out Forex Trading Made Easy.

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Daily Market Update by D. Jobman, TraderPlanet.com - ForexHound …

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FOREX-Sterling hits 7-year low on banking woes, euro dips …

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DecisionBar Can Be A Powerful Trading Tool

DecisionBar Can Be A Powerful Trading Tool. Every market investor at one time or another tries to find what brand of stock software is the right one for you. It is a very important decis…   Read more…

DecisionBar Can Be A Powerful Trading Tool

DecisionBar Can Be A Powerful Trading Tool. Every market investor at one time or another tries to find what brand of stock software is the right one for you. It is a very important decis…   Read more…

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Surviving The Commodity Markets, Part 3 - Trading Guidelines For Different Account Sizes - To Reduce Fear

Of all the important skills in trading, survival is number one. For unless we make it through the inevitable bad times, we won’t be around to capitalize on the good. I’ve laid out some trading account guidelines that specify the account size required to conduct various commodity futures and option trading activities. Stick within these guidelines and you will have an edge on most of the commodity trading public.

Here are my general money management guidelines to improve your chances of commodity market survival and trading success:

$5,000 ACCOUNT
Risk no more than 10% max ($500)

A $5,000 account is really too small to follow these guidelines exactly, so your risk will be higher. You must really pick and choose your markets and entry points carefully - until the account grows to $10,000.

OPTIONS:

Buy one $500 option for each unrelated market. Buying one soybean, one soybean oil and one soybean meal is like buying three soybean options in the first place - unacceptable. Getting a good option for only $500 is not easy to do sometimes since we like to buy plenty of time and have the market reasonably close to the strike price for the best chance of profit.

With a $5,000 account we should not worried about making big percentage gains as much as participating in a reasonable move with an option delta of at least 0.6 or more. Buying multiple cheap commodity options far out-of-the-money is a sucker’s game over the long haul. Many times the futures contract market move will take place but we will still lose in the commodity option.

Stay as close to the money as possible (strike price close to the market price) to better simulate a futures contract and the real cash market. If the trade does not work out according to the Timeline forecast, it may be prudent to take a loss and preserve some of the option premium. Bear in mind we generally like to consider the total option premium as the ’stop loss’ order. Also, read the ‘Thomas Swing Method’ lesson to give you an idea of how to trade the swings and do commodity option "granting’.

FUTURES CONTRACTS

The challenge with a $5,000 account is that some futures contact margins can be $2,000 and more. This will mean that only two different positions can be put on at one time, which is plenty for a $5,000 account. But if the TimeLine has a signal in four different markets at once, we will have to decide which two markets are best. This is usually just a guess, since we try to take all ‘high probability’ commodity trades and never really know which ones will work out in the end. No one really does. Out of twenty-two markets you go with the chosen two to four and let them unfold.

Mother Probability is what decides the outcome. In addition, if we risk only $500 for each futures trade, there is not much price fluctuation room for some commodity markets. It may be enough for low priced corn and a few other normally quiet markets, but not enough for the majority. For example, many of the currencies have $1,000 swings each day.

For an overnight trade, placing a stop just $500 away from entry is like giving money away. The only alternative is to risk more, like $1000, but then we are risking 20% a trade and need only five losers in a row to wipe out the account. See the problem here? Because of this, for longer-term moves, a $5,000 account may be better suited for option spreads or even writing far out-of-the-money options. In other words, try to fund the account to a starting value of $10,000, if possible.

WRITING OPTIONS:

I personally believe one of the better methods for success with a $5,000 account may be writing commodity options (selling options). When writing options we have to be satisfied with smaller gains as a result of selling them far out-of-the-money, taking in $200-$300 each time. It will depend greatly on the particular market. Three hundred dollars every two months equals $1800 a year. This is a 36% return on a $5,000 account. Be sure to set realistic goals.

Once the account is built up, the numbers can be increased. As they say, after a period of success, ‘you can always add a zero" to the quantity. Each option that is sold should be treated as if it were a commodity futures contract for risk and margin requirements. As long as the premium does expand past a $500 loss, we can continue to hold the option and let it erode in our favor.

We’ll talk about the flexibility of larger trading accounts next.

Part Four of Six Parts - Next!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

By: Thomas Cathey

Article Directory: http://www.articledashboard.com

Thomas Cathey - 27-year trading veteran heads the managed futures division of Thomas Capital Management, LLC. View his market forecast TimeLine Trading charts and get his complete free 44+ lesson, "Thomas Commodity Trading Course." www.thomascapitalmanagement.com/commodity/welcome.htm Main site: www.ThomasCapitalManagement.com

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Commodity Markets Trading Strategies For Starters

The best way to learn how to trade in the commodity markets is to take lessons directly from a successful trader. However, even if you found the right persons, and they taught you all they know, this in itself does not guarantee that you will make money the way they do. For this, you need to keep a good trading strategy yourself, if you are to succeed in doing commodity futures trading.

Trade Correctly Or Not At All

A lot of people don’t realize it, but they end up learning through trial and error. However, you are unlikely to become a good trader if you use this method. The first thing you need to do to trade the right way is to read as much as possible about commodity trading. This may not give you the best trading plan, but it will definitely prepare you for the trades you might want to take in the future. You will gain more knowledge about the risks you are about to take, and how to limit them. You will also have the benefit of learning from the mistakes made by these experts, rather than having to go through them yourself.

Essentials Of A Sound Trading Strategy

The first decision you need to take while formulating a trading strategy is to decide how much capital you want to invest, as this will greatly determine how much you will end up making as profit. The more you invest, the better your chances of making money. It provides for more lasting power in the market if you have more ‘risk capital’. Risk Capital is the amount of money you are willing to lose without it affecting your way of life. The next step is to decide what your average trade investment will be - as in the value of each trade taken.

The four essentials of any good trading strategy are as follows. Firstly, always remember to trade in the direction of the market trend. Remember, the market trend is your only friend. Secondly, always keep stops in place. They will determine how much capital you will lose. Thirdly, let your profits run as deep as you can. Don’t be in a hurry to exit a trade if you are making only a little money. This sounds like it is easy to do, but is perhaps the most difficult of all the four principals. Lastly, manage your risk wisely and carefully. Make sure that the risk reward ratio is always leaning in your favor when you are taking a trade.

Use Of Technical Analysis

Most traders use technical analysis as part of their trading strategy. Technical analysis provides many vital tools that allow you to be more informed about the trades you are taking, and help to decide which ones to ignore. Among other things, indicators used in technical analysis allow you to determine trends, entry points, stops, target prices, supports, resistances, possible breakouts and breakdowns. It would be wise to use these indicators when you are formulating a strategy to trade in the commodity markets.

Remember, it is wise to always trade a commodity that you are knowledgeable about. Try to master one commodity and know the factors that affect its movements. Know what you are trading, and you will find your self on the winning side more often.

By:

Article Directory: http://www.articledashboard.com

David has traded futures & options for one of the largest cash trading firms in the world. He currently owns and runs the following websites: Futures Options Simulated trading & Futures Options

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Commodity Trading - A Beginner’s Guide

Fed up with the weekly rise in petrol prices? Hey, if you can’t beat ‘em, why not join ‘em. Instead of moaning about the Arabs, Chelsea tractors and Jeremy Clarkson why not thank them and learn how to make money out of the oil price?

In this ‘Dummies guide to trading oil’ I’ll be having a look at the major ‘need to knows’ of the oil market, the mechanics of trading commodities and what you need to watch out for.

This Price Is On Viagra

On July 11th Crude Oil hit a new record high of just over $147 a barrel - an awe-inspiring rise of 110% from last July. Over the same period the Dow fell by around 22%. This Tuesday (15th July) witnessed the biggest 1-day fall in oil for 18 years.

Folks, this is a great traders’ market.

How To Trade Oil Without Getting Dirty

There are two contracts available, Brent Crude and West Texas Intermediate:
Brent Crude is the UK contract on oil sourced from the North Sea. And, hey! The UK might be crap at rugby, football, and cricket, but two thirds of the world’s internationally traded oil, from Europe, Africa and the Middle East, is priced relative to UK Brent Crude. In the big boys market Brent Crude is traded in London as something called Futures contracts, which are priced in US Dollars.

West Texas Intermediate is the US equivalent to Brent Crude. Also known as US Light Sweet Crude (or any derivation of these words), this one is again traded as a Futures contract but in New York this time.
Now, all you traders with enough balls and attention span to run your positions over a period of days and weeks, pay attention here. Oil spread bets are monthly contracts. This means that:
a) You don’t pay any rollover charges; the bet will run until the contract ends.
b) You do need to put a note on your Kylie Minogue calendar that the spread bet runs out (expires) on a definite date.
c) Now, get this. The spread bet runs out (contract expires) in the middle of the month before the month it says on the tin.

So, for example, the Brent Crude October contract on paddypowertrader runs out (expires) on 13th September and the November contract finishes on the 12th October. How dumb is that? It smacks of interference from a country that already writes the date back to front.

What To Watch When Trading Oil

Good news if you have the attention span of a goldfish; trading oil means watching lots of telly. Wu hoo!

However you won’t get rich watching the Playboy channel, while repeats of Dallas on UK Gold might be good for motivation but not much else. Trading oil is very news-orientated so keep CNBC on 24/7.

The most specific economic data to focus on are the US weekly oil and gas inventory figures, issued by the Energy Information

Administration and released every week on Wednesday afternoons. If you trade oil you can’t afford to miss these.

Being aware of the US Driving Season (apparently the land of the gas-guzzler has a particular season for driving, starting on Memorial Day at the end of May and finishing on Labour Day at the start of September) will definitely work in your favour, and also pay attention to cold winters when we all turn the heating up.

Something that’s more important again is the US Hurricane Season, which officially runs from 1st June to 30th November, but don’t expect the forces of nature to pay too much attention to the dates. An average season has 11 named storms with six growing into hurricanes, but only two reach major hurricane status. So don’t go buying oil every time your weathercock spins round.

So why is the hurricane season so significant to the oil market in particular? Hurricanes tend to hit the Gulf of Mexico, which is filled to the rafters with oilrigs (over 20 rigs went missing due to Hurricane Katrina in 2005).

Next take a look at the world’s big oil producers. You won’t find oil gushing out of countries like Belgium, Holland or Sweden, where even mentioning their name is soporific. No, putting aside the comparatively stable USA and Saudi Arabia, God blessed the world’s more excitable countries with the power and wealth of massive oil supplies. A short roll call includes Iraq, Iran, Libya, Nigeria, Venezuela and Russia, where a few well-chosen words from a president can send you sprinting to the ‘trade’ button.

So What’s Driving The Oil Price?

Ask any politician and he’ll spit out the word, ‘Speculators’. Out in the real world there are a number of factors, though most hone in on the common perception that demand is greater than supply. This list is far from exhaustive, but will give you a feel for what matters:

The easy-to-get oil has already been drilled. The next easiest to get oil is the wrong type; it’s ’sour’ (rather than ’sweet’) and more expensive to refine. There may be vast oil reserves in places like Canada’s tar sands, but these will be hugely expensive to get at.

Geo-political tensions in oil-producing countries. One day it’s militants in Nigeria, another day its Israel and Iran at each other’s throats. Tomorrow it’ll be someone else. These tensions are hugely significant because whenever someone throws their toys out the pram it threatens to disrupt the supply of oil.

The Dollar. Oil is priced in Dollars, so if the Dollar falls the oil price rises to maintain a constant value in other currencies. This move has been compounded by investors piling money into oil as a hedge against the weaker Dollar.

Inventories. The oil price is massively sensitive to the build up, or run down, of oil supplies. The most keenly watched figures are the stats from the US Energy Information Administration, released each Wednesday.

How To Trade Oil

You can either trade oil through the equity market or through the oil spread bet. Let’s have a look at equities first.

Now here’s something to make you choke on your sandwich; the oil majors are having a really crap time!

But why? Well, it may not seem like it to you and me, but part of the problem is that petrol prices haven’t kept up with the rise in crude prices; the jargon is that the refining margins have fallen, and that’s quite a significant chunk of their business. The other problem is that these guys spend a lot of time sticking rods in the ground to see if anything spurts up and that costs a lot of money.

There are exceptions; smaller companies like Tullow Oil and Dana Petroleum have had a cracking time. Each new discovery has notched up a couple of quid on the share price. And they’ve got the added attraction that one of the majors might decide it’s cheaper to bid for them than to look for new reserves itself.

Until recently few people outside of Ireland had heard of Tullow. Nowadays, after several successful oil discoveries, it’s a FTSE 100 company.

There are alternative ways of playing the oil price. The rise and fall of shares in airline companies has been related to the oil price. However, there are other factors too (BA suffered the Terminal 5 debacle) so it’s not a perfect strategy.

The purest solution, if you want to follow the rise and fall of oil, is to trade the commodity itself. And spread betting is arguably the most convenient way of doing that.

Conclusion

So now you should be armed with the ideas on how to trade oil, who and what are important and a rough idea of the sort of things that drive the oil price.

Just a word of warning for newbies. Hidden inside this mountainous price rise are some nasty crevices. The volatility that makes this market so great can still eat you up and spit out the bony bits. Do your trading capital a big, big favour and use a demo account for a while whilst you learn the tricks of the market. Then edge in gently with small bet sizes. There’s no rush, there’ll always be a market to trade in when you’re ready.

By: FT

Article Directory: http://www.articledashboard.com

Mr FT is a self-employed spread better. After 18 years in fund management he was given the choice of moving to London or .. not. ‘Not’ won out. FT mostly trades the forex markets and although he plays FTSE on occasions his bread and butter market is $. Read more from FT on commodities trading and spread betting on the Paddy Power blog at PaddyPowerTrader.com

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Online Commodity Trading

With the threat of recession looming large, GDP growth looking anemic and inflation is touching new height every fortnight, should you consider investing your hard earned cash into the stock market? Or more importantly, is trading a wise choice considering such a stormy climate? If you looking for a new way of investment, look no further than online commodity trading and you can earn rich rewards depending on your investment, knowledge, risk taking ability amongst other things.

How do you do commodity trading?

Simple, you choose any good online commodity trading software and start investing. Yes, it is really that simple. However, you must ensure that you are aware of the techniques, terminology etc involved in trading commodities. Today, online commodity trading is a convenient and easy way to reap profits from an industry that is fast becoming very appealing to almost everyone. With online commodity trading software you can not just watch how the commodities you have invested in grow, but also analyze new trends, devise strategies, amongst other features.

What commodities to invest in?

With food and crude prices touching an all time high, the current market sure may not look as attractive to an outsider, but ask the futures traders who find it a challenging task to make money when the going gets tough. So, if you invest in crude, oil, gas you can benefit from the skyrocketing prices that are expected to further intensify as the quest for newer oil sources gets impetus. So also, if you have heard of the latest food crisis, investing in agriculture stocks will help you make money as the price of food prices soar.

What Commodity companies can you consider investing in?

While there are many commodity leaders, there are some companies that show promise. Of course, you should only invest in them if you have done your own research and should never go on advice alone. For online commodity trading in agriculture, especially seeds etc, Monsanto is a world renowned leader. The company spends much time and effort in innovating ways for agrarians to increase their produce. And because food grain demand is on fire now, Monsanto is reaping rich dividends with this rise in demand.

Another company that manufactures chemicals and produces seeds for various food grains is Syngenta. With its innovative ways, Syngenta has managed to help farmers increase their crop yield. Also, the company is witnessing a tremendous growth in sales and annual earnings due to the rising prices of these commodities. Both Monsanto and Syngenta are good stock choices for a serious commodity trader.

What are the other commodity trading options?

After food, the next most favorite sector for commodity traders is energy. Alternate sources of energy are hot investments in a world driven by global warming threat. However, before you invest you must be completely sure of your choice and be able to back it up with analytical data. Also, Mosaic, Potash, Agrium are other companies witnessing an increasing interest leading to high gains in sales and earnings. These fertilizer companies will benefit from the rising prices of food.

For more info about Online Commodity Trading

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Ease of Trading using Online Forex Commodity Trading System

Off late, online forex commodity trading has become extremely popular on the Internet. Over the million dollars a day changes hand in this online market. To be able to trade online, all you require is a trading account, computer with Internet access, a phone and a fax. The other basic necessities for you to set up trading. Because the start-up costs are low, the likelihood of profitability is high.

With online forex commodity trading, you will bypass the middleman and therefore you have lower transaction fees. You also gain leverage by using this system, because the market is always open. The system, easy to learn and to use. However like all types investment, there’ll inherent risks, as well as rewards.

You will have the freedom to make transaction, at any time using the online forex commodity trading system. The abilities to gain real-time information regarding price movements are also available at your disposal. This is because the market now is no longer restricted to brokerage houses.You will know as much as any broker at any time by being online.

By using the online forex commodity trading account, you will have a big advantage from those who do not have access online. This is because you have lows transactional fees and also access to the latest price allowing you to react faster with respect to price movements.

With online forex commodity trading system, buying and selling can be done any time. You will also be able to check your account and received signal alert on buying and selling positions. Furthermore, you will be able to check the current rate of exchange and also your purchasing price.

The online Forex commodity trading system is a must have tool for you if you wish to make profitable transactions in the forex market. The real-time access to critical information allow you to make wise investment decision when trading in the fast moving market. Therefore, by trading through an online forex commodity trading system, you will not only get price updates immediately, but you will also be able to access the market at any time.But even with the convenience of online systems, you must take steps to research the risks involved in forex trading. This is a huge advantage over regular stock markets, and looks to increase in value as time goes on.

Losing money is common when you first start to trade. Honestly, I’ve lost $13,983 during my first 2 months of Forex Trading. I felt like a complete failure… and I would be if I’ve given up then. As the saying goes, "It is on our failures that we base a new and different and better success."

I researched and read heavily after my dramatic ‘failure’ and found several systems and softwares that work for me. You can find those specific systems at Forex Trading Systems Insider. I recommend you take a look at this Forex Trading Softwares and see what actually works for me!

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Commodities: An Overview

What commodities are and how they work.

Commodities are products traded solely on the basis of price. The products are undifferentiated products, goods or services that are not traded based on quality and features, only on price. Historically, commodities were items of value, of uniform quality that were produced in large quantities by many different producers. The items from each different producer were considered equivalent. Commodities are defined by an underlying contract and standard, rather than the quality of the product.

History
Chicago was the birth place of the first commodities market, way back in the 1840s. Farmers would bring their wheat to the market and exchange it for good, hard cash. Futures contracts developed from there. A farmer would contract with a dealer to sell a set amount of produce to him at a set date for a set price. It was comforting for both parties - the farmer knew how much he was going to get paid and the dealer knew exactly how much he was going to pay for these commodities.

This practice of commodities trading evolved over the years that ensued. The farmer would decide not to sell and cede the contract to another farmer to fulfil, or the dealer might decide that he did not want the produce anymore and then on-sell the contract to another dealer. Naturally supply and demand entered the equation. If the harvests were poor, the produce would fetch a much higher price and if the crops were abundant, a leaner price prevailed.

Before long, speculators were in on the act. They started trading the futures contracts in the hope of buying the commodities at a low price and selling these for a handsome profit.

What defines a successfully tradable commodity?
To successfully trade, commodities must:
Be standardized. If the commodities industrial or agricultural, it must be unprocessed.
Have an adequate shelf-life, if these are agricultural.
There should be sufficient fluctuation in supply and concomitantly price. The reason for this is that without the risk factor, profits are meagre and unappetising.
Examples of commodities are: electricity, wheat, chemicals, metals, pork bellies, RAM chips, labour and currency.

Difference between commodities and stocks
The main difference between stocks and futures contracts from a trading perspective is that, unlike stocks, which you could keep for a very long time, commodities are held for a very short time only. Futures contracts are used to hedge commodity price-fluctuation risks or to take advantage of price movements, instead of trading the actual cash commodities.

How are commodities traded?
Commodity Future and option trading take place at exchanges such as the Chicago Board of Trade, Euronext.liffe, London Metal Exchange and the New York Mercantile Exchange, and other online trading systems. At the exchanges, areas are provided, each designated for a different futures contract. Those trading on the floor must be members of the exchange and registered with the Commodity Futures Trading Commission. Those traders, who are not members, work through brokerage firms who are.

To conclude
Commodity future option trading is both complex and risky, so the shoe may not necessarily fit just anybody’s foot. If you are considering commodity future option trading, you should evaluate how much you are prepared to lose should push come to shove. Choose a trading method that you are comfortable with and that is best suited to achieving your objectives. The bottom line in commodity future option trading is that, if you exercise good judgment and manage your risks effectively, commodities trading are likely to richly reward your efforts!

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