Commodity Futures Trading - How To Reduce Risk And Aim For Success
If you are reasonably new to commodity future trading then do keep in mind that there a number of things that can go terribly wrong - there is a large risk factor here. With this in mind its wise to risk only the capital you can afford to lose and nothing more. Do not borrow as I have done myself. Too much risk to take - believe me!
One good thing about trading commodities is that there will always be an intrinsic value in the product. So for example the value of a quantity of nymex gas or of crude oil is never going to be nil.
Commodity trading though is still risky. Ideally you should reduce your risk and exposure and therefore the main thing is to only limit your investment to the amount of money you could afford to lose.
A common issue with trading in commodities however is that many traders carry with the commodity too much leverage. So for example, take a 100 oz. gold contract with a value of $1000 an ounce and thus a total value of $100,000. The margin or if you prefer - good faith deposit - to have 100 oz. of gold could be around 10% of the total contract value, which is $10,000.
Now this is where the problems begin to arise. A commodity trader who is being bullish on gold may think its a good time to buy into 10 gold contracts at a cost of $100,000 to their trading account. So if the price of gold were to move to $1100 an oz. then all is well and the money in the traders account doubles.
But if the price of gold were to reduce by that $100 an oz. and provide the trader with a value of $900 an oz. then the trader would be wiped out unless they were in a position to meet a margin call from their broker and place further funds into their account.
Of course if things go well then the trader is well on the way to a very nice income from this investment. However by such exposure, any down turn in the market place could lead to serious losses and thus its seemingly more of a gamble than a calculated trade.
When trading in online commodity futures there are many advantages over the traditional method due to the ability of up to date information of the market. But this leads perhaps to an inexperienced trader being given a false sense of security leading to over exposure of available funds. Keep things in moderation and the chances are good that slowly and surely your trading account will flow with profits. - 23208
One good thing about trading commodities is that there will always be an intrinsic value in the product. So for example the value of a quantity of nymex gas or of crude oil is never going to be nil.
Commodity trading though is still risky. Ideally you should reduce your risk and exposure and therefore the main thing is to only limit your investment to the amount of money you could afford to lose.
A common issue with trading in commodities however is that many traders carry with the commodity too much leverage. So for example, take a 100 oz. gold contract with a value of $1000 an ounce and thus a total value of $100,000. The margin or if you prefer - good faith deposit - to have 100 oz. of gold could be around 10% of the total contract value, which is $10,000.
Now this is where the problems begin to arise. A commodity trader who is being bullish on gold may think its a good time to buy into 10 gold contracts at a cost of $100,000 to their trading account. So if the price of gold were to move to $1100 an oz. then all is well and the money in the traders account doubles.
But if the price of gold were to reduce by that $100 an oz. and provide the trader with a value of $900 an oz. then the trader would be wiped out unless they were in a position to meet a margin call from their broker and place further funds into their account.
Of course if things go well then the trader is well on the way to a very nice income from this investment. However by such exposure, any down turn in the market place could lead to serious losses and thus its seemingly more of a gamble than a calculated trade.
When trading in online commodity futures there are many advantages over the traditional method due to the ability of up to date information of the market. But this leads perhaps to an inexperienced trader being given a false sense of security leading to over exposure of available funds. Keep things in moderation and the chances are good that slowly and surely your trading account will flow with profits. - 23208
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Want to learn more about commodity future trading? We specialize in natural gas futures.
posted by X - Men @ 3:46 AM
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