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Understanding Online Futures Trading

August 4, 2014 by  
Filed under Featured, Futures Trading

Online futures trading is an option available for people who want to invest their money into commodities, such as oil, silver, soy bean oil, etc. As a rule, it is more difficult to open a futures account than it would be to open a Forex account. You get scrutinized more about your financial background and net worth when opening an account and you need to show that you have experience.

Online futures trading involves trading commodities that have a delivery date on a particular time in the future. Futures tickers differ from stocks. Each futures market has a specific ticker symbol that is followed by symbols for the contract month and the year. For example, crude oil futures has a ticker symbol – CL. The complete ticker symbol for March 2017 Crude Oil Futures could be CLH7, but this may vary from broker to broker.

There are certain advantages and disadvantages associated with futures trading. It is important that the new investor know how this type of trading works before even trying to risk a certain amount of capital.  One of these is the amount of fluctuation. E.g. 10 cent if change in crude oil price results in $100 change in your futures trading account balance, a contract being in the $3,500 range.

In futures trading you buy or sell futures contracts. A futures contract is an agreement on a future delivery of a certain amount of product, called a contract, at a certain price. The futures contract evolved when grain farmers began setting up agreements with buyers for future harvests.

A farmer may offer in the market about 8000 bushels of wheat that can be delivered on a certain month of next year. There would be buyers who may want to maintain their wheat supply for next year and would want to buy such futures contracts to make sure. Upon an agreement on the price for the future produce, the farmer and the buyer have gone into making a futures contract.

The futures contract is well suited for both parties. The farmer would know I advance just how much he would be paid for the harvest next year while the buyer would know the costs of future supply of wheat now. What the farmer and the buyer will do is make a written contract that would sometimes involve a certain amount of cash as a guarantee of the contract.

The futures contract that the two parties agreed to would not merely be stored in someplace safe. The contract may even change hands during the course of time before the actual date of delivery. Depending on the circumstances, farmers and buyers may even trade these contracts to other interested parties. There are times that the buyer of the futures contract may have a change of mind and would not want to take the future delivery of the produce. He would then find some other buyer who would be interested and offer the futures contract at a certain price. There are also times that the farmer would decide not to deliver on the said contract and would then pass on the obligation to deliver to another interested farmer. The transfer and trade of these contracts became known as futures trading.

Many people have discovered that trading the contracts became a good way to make money. Soon, there were people who began to buy and sell the futures contract without intending to take the delivery for themselves. All they wanted was to profit from the price changes that the futures contracts go through. These people are called speculators who try to profit by buying the futures contracts low and selling them high.

Commodity Futures Trading Simple Facts

August 4, 2014 by  
Filed under Featured, Futures Trading

Futures trading is different from the trading that happens on the stock market. First of all, the U.S. stock market is open 9:30 am-4 pm EST. On the futures markets you can trade from the opening of the Asian session at 6 pm EST to 5 pm the next day, when New York closes, 5 days a week.

The following table lists the largest futures exchanges in the world and the commodities that are traded at each.

Exchange Headquarter Principle Commodities
Chicago Board of Trade (CBOT) Chicago, USA Grains, Energy
Chicago Mercantile Exchange (CME) Chicago, USA Livestock
New York Mercantile Exchange (NYMEX) New York, USA Softs, Base Metals, Energy, Precious Metals
London Metal Exchange (LME) London, UK Base Metals
NYSE Euronext (Euronext) Paris, France Grains, Softs
Tokyo Commodity Exchange (TOCOM) Tokyo, Japan Softs, Base Metals, Energy, Precious Metals
Tokyo Grain Exchange (TGE) Tokyo, Japan Grains, Softs

Here are some of the most popular futures markets that are being traded these days.

1. Currency trading.

This is widely known as the FOREX that stands for the foreign exchange. Some of the well-known currencies that are being traded include the Euro, the Swiss Frank, the Australian Dollar, the British Pound, the Japanese Yen and the US Dollar.

2. Agriculture.

There are many crops and produce that this department can sell. ICE (Intercontinental Exchange) is the center of global trading in soft commodities. Now known as ICE Futures U.S., the exchange offers futures and options on futures on soft commodities including coffee, cocoa, sugar, cotton and frozen concentrated orange juice. Sugar No. 11 is the benchmark contract for the global sugar market which is one of the world’s ten largest agricultural futures markets. ICE Futures Europe lists London softs markets including cocoa, coffee and white sugar.

3. Energy Futures.

This includes gas and the oil futures. The market for this one has got to do with anything that fuels and lights up people’s lives.

4. Interest Rate.

This not only includes interest rates but also bonds and other kinds of financial transactions. Examples include Treasury-bill futures, Treasury-bond futures and Eurodollar futures.

5. Metals.

The most common materials being traded for this sector include the kinds of metals like silver and gold.

Futures Margin

Participants in a futures contract are required to post margins in order to open and maintain a futures position. Margins are financial guarantees required of both buyers and sellers of futures contracts.

Before a futures position can be opened, there must be enough available balance in the futures trader’s margin account to meet the initial margin requirement. This money is held by the exchange clearinghouse as long as the futures position remains open.

The maintenance margin is the minimum amount a futures trader is required to maintain in his margin account in order to hold a futures position. The maintenance margin level is usually slightly below the initial margin.

If the balance in the futures trader’s margin account falls below the maintenance margin level, he or she will receive a margin call to top up his margin account so as to meet the initial margin requirement.

How to Invest in the Futures Market

August 4, 2014 by  
Filed under Featured, Futures Trading

Futures are a way to profit from securities’ short-term price movements and trends, both up and down, without actually owning the underlying asset. It is a type of investment where investors try to take advantage of trading futures contracts. The commodities that such futures contracts trade can include grains such as wheat, corn to other produce such as lumber, livestock, cattle, coffee and even orange juice. There are also futures contracts for precious metals such as gold, silver and platinum.

What makes futures trading quite attractive is the high level of investment leverage that it offers. Investors can invest just as little as ten percent of a futures contract’s value in order to have the opportunity to trade it. This allows investors to trade futures contracts using lesser investment capital for trading larger valued contracts.

Futures contracts usually have standardized amounts of the commodity that they involve. For example, if an investor holds a future contract for wheat, he usually holds a value worth 5,000 bushels. Trading the contract would be dealing based on the value of the 5,000 bushels of wheat.

Although futures contracts only require a fairly small investment (usually ten percent of the contract value, known as the margin), investors should still think before taking or buying a futures contract. Traders should consider if they have enough margins to cover the contract as well as if they have what it takes to trade and deal a sizable move in prices that can go against their position.

It is also important that beginner traders try to establish a system of risk and reward when trading for a particular commodity. There are many factors that may affect the position of the trader in different futures contracts since they can involve a variety of commodities. A good way to do this is to establish a stop loss feature on traded futures. This simply means that the investors establish a certain price range wherein the contracts may stop trading in order to preserve profits from the trade or to minimize the possible losses.

Each commodity contract requires a different minimum deposit, depending on the broker, and the value of your account will increase or decrease with the value of the contract. If the value of the contract goes down, you will be subject to a margin call and will be required to place more money into your account to keep the position open. Due to the huge amounts of leverage, small price movements can mean huge returns or losses, and a futures account can be wiped out or doubled in a matter of minutes.

Traders should only try to risk about three percent of their trading capital on futures contracts. The reason for this is because, one can also easily lose considerable capital in futures trading. It is wise for traders to only invest the amount that they are prepared to lose.

Forex Win-Loss Ratio: Is It Really Imporant?

August 4, 2014 by  
Filed under Trading Tools

Losing is part of trading. If someone tells you they have 100 pecent winning trades, you know that they are lying. But did you know that you can have 30 percent of your trades profitable and still put money into the bank?

When focusing on the win/loss ratio only, you are missing the very important component of your average wins vs. your average losses. If your average wins (gains) are 20 pips and your average loss is 20 pips, you must have a win/loss ratio of well over 50% to make any real money in trading. Traders should look for trades that offer a 3:1 reward to risk ratio, but 1.5:1 at the bare minimum. If you take higher quality trades, you don’t have to have a very high win/loss ratio to make actual money in trading.

Imagine you lose 7 trades, with an average of 15 pips. Your total loss is 105 pips. However if the 3 winners each average you 90 pips, you still walk away with a net of 165 pips. Not too bad!

 

Forex Fibonacci Trading System – Your Best Friend

August 4, 2014 by  
Filed under Forex, Trading Tools

You have probably heard about Fibonacci before and that it can be used in trading. I have been hearing about it myself, but I never realized until a short time ago what a magical tool it could be, if used correctly.  Now I will show you how it works.

The first set of Fibonacci ratios is used as price retracement levels in trading as possible support and resistance levels.

Price Retracement Levels
0.236, 0.382, 0.500, 0.618, 0.764, 0.86

Price Extension Levels
0, 1.27, 0.382, 0.618, 1.000, 1.27, 1.382, 1.618

In an downtrend, the general idea is to go short at a retracement to a Fibonacci support level. But how does it work? Let’s take a look at some examples.

The first one is AUD/USD daily chart. Metatrader has a great Fibonacci tool. As you can see, after AB there is a 50 percent Fibonacci retracement (C) and from there it goes straight to the 1.27 extension.

But it works on smaller time frames, too. You can scalp on 15 min or 1 hr chart. It works magically on spikes that occur after announcements.

The strategy is simple (but not necessarily easy).

1. You idenify an AB spike, then

2. You pull out your Fibonacci tool, draw the retracement levels

3. wait for the pair to retrace to 0.61, 0.78 or 0.86, these are the highest probability trades

4. Then wait for a reversal candle with stochastic in the appropriate buy or sell zone.

Here is another example, AUD/USD 15 min chart:

You can clearly see the bounce from the .618 level.

Why don’t you pull out some charts on your Metatrader and experiment a little bit. Leave your notes below!

Simple Trend Trading System

August 4, 2014 by  
Filed under Forex, Trading Tools

In this system we use the 10 and 20 period moving averages.

Step 1: Waiting for the MA to become sloped and parralel. This is a sign that the trend is strong. A sloped moving average means that the trend is strong and therefore any retracement will probably lead to a continuation in price, and a good trading signal for us to trade.

Step 2: Wait for price to touch the MA area and reverse. This could be from the area between the two moving averages or from either of the lines.
Wait for a reversal candle.

Step 3: Stop loss is placed
• 5 pips below the lowest low of last 4 candles (for long trades)
• 5 pips above the highest high of last 4 candles (for short trades)

Step 4: Exiting the Trade
The trade is closed when the moving average is no longer sloped = is flat.

Here is an example, GBP/USD, 15 minute chart the red (10MA) and blue (20MA) lines:

 

 

The ABCD Trading Pattern

August 4, 2014 by  
Filed under Trading Tools

The ABCD pattern is one of the classic chart patterns which is repeated over and over again. It starts out with an AB leg, then retraces to C to a Fibonacci level of 0.382, 0.500, 0.618, 0.764, 0.86, then it continues to a Fibonacci exension level D – mostly 1.27 or 1.618. As a rule, the deper the retracement, the shallower the D extension will be.

Why is the ABCD Pattern important? It helps identify trading opportunities in any market (forex, stocks, futures, etc.), on any timeframe (intraday, swing, position), and in any market condition (bullish, bearish, or range-bound markets).

Highest probability trade entry is at point C, deep retracement.

Each turning point (A, B, C, and D) represents a significant high or significant low on a price chart. These points define three consecutive price swings and major support or resistance levels. The trend is intact as long as point A is not violated. The moment price violates point A, the likelyhood of a trend reversal significantly increases.

Each pattern leg is typically within a range of 3-13 bars/candles on any given timeframe.

Trading the ABCD pattern

You trade the ABCD with Fibonacci trading.

 

Commodity Futures Trading Basics

August 4, 2014 by  
Filed under General

What Are Futures Contracts?

A futures contract is an obligation to buy or sell a commodity at or before a given date in the future, at a price agreed upon today. A transaction in the commodity futures market is made on the trading floor (or in the trading computers) of the exchange between brokers who are members of the exchange that particular commodity is trading on. The seller will have a broker, and buyer will have a broker.

There are speculators and hedgers that trade in the commodity markets. A hedger is not interested in making a profit off the movements in price of a commodity futures contract, but rather wants a guarantee to buy or sell at a cetain price. E.g. if crude oil is trading at $60 per barrel in the June contract, an oil drilling company could sell contracts at that price to lock in that price and it can still for $60 when the time comes, even if the price went down to $48 in the meantime.

Speculators will buy and sell futures, or options on futures, for the purpose of making a profit. They will buy futures (a long position) when they think prices will rise, or they will sell futures (a short position) when they think prices will fall. Both the speculators and hedgers add volume to a market making it a more liquid market to trade.

Commodity futures trading is a type of investment where one can make money by speculating on the price of a certain commodity going up or down in the future.

When talking about certain commodities being traded in the futures market, they must meet certain conditions. One of the conditions is that the commodity should be standardized. In trading agricultural and industrial commodities, the traded commodity should be in its basic raw and unprocessed state. In this case, wheat may be traded in the futures market but not flour.

The history behind futures trading in commodities evolved from the farmer’s need to earn more from every harvest. Before commodity futures trading started, the farmers were always at the mercy of the dealer when it came to pricing and selling their harvests. Dealers usually set the prices and the farmers could not to anything but accept the terms.

In the search for having a more fair system of doing business, farmers began offering future harvest to interested buyers. The farmers started giving their own terms for the future harvests to dealers. The transaction consisted of commodities offered as a certain price and to be delivered as a specified date. Contracts were then drawn up between the farmer and the interested buyer that specified the certain amount of commodity to be delivered at a particular time in the future. From this system, what is now known as futures trading has begun.

It was sometime in 1878 that a central dealing facility for such commodities contracts was established in Chicago. In this facility, farmers and dealers began initially in spot dealing of their grains that was immediately delivered upon a reached settlement in price. It eventually evolved into futures trading when farmers started committing future harvests to interested dealers willing to buy to ensure that their grains supply are maintained in the future.

In the beginning, futures trading initially consists only of a few farm commodities such as grains. But later on, a huge number of other commodities joined in. Now there are futures trading markets that deal in precious metals such as gold, silver and platinum. There is also a futures trading market for livestock and cattle as well as for energy products such as crude oil and natural gas. It has gone on to include futures trading in coffee, orange juice ad industrials such as lumber, cotton and even on interest rate bearing instruments such as currencies and stocks.

In recent times, more trading has been done through the use of online futures trading, eliminating the use of telephones and calling of brokers on the telephones. The futures trader can trade directly from their computer and have the trade routed directly to the trading floor of the exchange. At the exchange some orders (electronic markets) are executed immediately in the exchanges computers. This is becoming the more preferred method of trading because it tends to be quicker.

Basic Ideas About Online Commodity Futures Trading

August 4, 2014 by  
Filed under General

Those who treat trading as a get-rich-quick scheme are likely to lose because they have to take big risks. If you act prudently, treat your trading like a business instead of a giant gambling casino and are willing to settle for a reasonable return, the risks are acceptable.

Anyone who is going to try speculation should be fully aware of and be comfortable with the risks involved. Managing the risks of trading is a very important part of any trader’s success. Although the risks can be managed, they can never be eliminated.

In order to make decisions about when to trade commodity futures, you must have a source of price data. All experienced commodity traders prefer to look at price activity on a chart rather than trying to interpret tables of numbers. In financial analysis, charts are indispensable for quickly grasping the essence of historical and recent price action.

There are two primary analytic methods for deciding when to take a futures position: fundamental analysis and technical analysis. Fundamental analysis involves using economic data relating to supply and demand to forecast likely future price action. Technical analysis involves analyzing past price action of the market itself to forecast the likely future price action.

If you are going to be involved in trading and investing in the futures, you need to strategize. You have to study your moves and make sure that you calculate each step that you take as you go along. You cannot simply rely on good luck when there is already money involved.

In order to be a successful trader, you must understand the true realities of the markets. You must learn how the professionals make money and what is possible. Most traders come into commodity trading, lose a substantial portion of their capital and then leave trading without ever having a correct perception of what good trading is all about.

Advantages Of Forex Trading

August 4, 2014 by  
Filed under General

The forex market is the largest and most liquid of the financial markets. Daily activity often exceeds $7 trillion USD a day. It is the existence of volatility within the forex market that enables trader’s to take advantage of exchange rate fluctuations for speculative purposes. Traders must be aware that greater volatility also means greater risk potential.

Forex trading operates 24 hours a day, five days a week. The greatest liquidity occurs when operational hours in multiple time zones overlap. The cost to trade with most forex brokers is the spread. This is the difference between the bid and the ask price. Spreads in the forex market also tend to be much less (or tighter) than the spreads applied to other securities such as stocks.

Leverage is expressed as a ratio and is based on the margin requirements imposed by your broker. As a trader, it is important to understand both the benefits, and the pitfalls, of trading with leverage. 2% margin is equivalent to a 50:1 leverage ratio. With as little as $1,000 of margin available in your account, you can trade up to $50,000 at 50:1 leverage.

When trading on leverage, the funds in your account (the minimum margin) serve as your collateral. Therefore, it is only natural that your broker will not allow your account balance to fall below the minimum margin.

The forex markets run all day, which is very advantageous to short-term traders who tend to take positions over short durations (say a few minutes to a few hours). For example, Australia’s daytime is the nighttime for the East Coast of the US.

There are 28 major currency pairs involving eight major currencies. Criteria for choosing a pair can be convenient timing, volatility patterns, or economic developments.