Trading commodity futures and options involves substantial risk of loss. The recommendations contained in this letter are of opinion only and do not guarantee any profits. These are risky markets and only risk capital should be used. Past performance is not necessarily indicative of future results. For beginners, futures traders can also check detailed comprehensive trading futures market insights and strategies in commodity futures trading through our educational resources, articles, other Beginner's Guide To Trading Futures which are mentioned below:.
The risk of loss in futures trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition. Of course, these are just some of the commodity futures contracts traded every day — on some of the oldest and largest exchanges in the world. Treasury bonds, yr. T-notes , currencies i. Compared to the majority of assets you can trade, futures contracts have particular feature to them. This involves the means by which futures contracts are traded.
Instead of requiring a financial commitment equal to the value of the asset, for futures contracts only a fractional commitment is required. This is the concept of leverage. For example, the standard futures contract available for trading gold is equal ounces of the metal. However, it is allowable to enter a position in gold futures for a fraction of that. The effect of leverage is that a change in the price of one hundred ounces of gold results in a magnified change in the value of the leveraged futures contract. This magnifying effect on the price change of an asset sets futures trading apart from most other types of trading.
Another important difference in futures trading is that buying futures — expecting a price increase, or selling futures — expecting a price decrease, are equally allowable with the same margin requirement. In other words, taking a long or short position in the market provides equal opportunity and equal risk. And trading futures not only calls for an understanding of the rewards and risks involved, it requires a trading account.
Whether you choose to open a self-directed futures trading account, or one where a broker supports you in your trading — in some large or small way — there are several important factors you should consider. You might want to consider the features of your trading platform i. There are three fundamental strategies that futures traders employ: going long, going short, and spreads. Learning them can help a novice investor become successful when engaging in commodities.
Education in the various aspects of the industry is necessary in creating profits and avoiding financial loss. When going long, a trader buys a contract in the hope that the value will increase in the future. He keeps the contract for a relatively long period in anticipation of a favorable price change. When going short, the investor is betting on the opposite.
The commodity will decline in price as time passes. He sells or shorts the futures contract when the price is currently high and usually seeks to buy it again at a lower price point in the coming months. Long and short positions involve buying or selling futures contract to take advantage of price fluctuations.
Unfortunately, no one can accurately predict the future and the risks are large. Spreads can reduce the uncertainty; instead of entering into a single futures contract, investments are spread into multiple contracts with contrary positions. Calendar spreads are an example of this type of strategy, and involve the simultaneous purchase and sale of two contracts of a single commodity with different delivery dates.
Investors seek a profit from the difference between the two positions. For new investors, going long, short, or trading in spreads can be a confusing experience. Fortunately, novices can seek advice from a broker. The broker can recommend different strategies and types of spreads, which an investor can adopt until he learns to create his own personal trading strategies. The broker can also recommend tools, such as trading software, which will help an investor analyze market trends and the behavior of various commodities.
One of the ways a broker might recommend that commodities traders minimize the risks involved when dealing in commodities futures is to engage in futures options trading. Unlike a straight futures contract, a futures option gives the trader the right to buy or sell a commodities contract at a predetermined price. Trading in futures options is an effective strategy to limit risk and leverage. When a trader purchases a futures option, his losses are limited to the price paid for the option.
Top 4 mistakes that cause futures traders to fail
On the other hand, it allows the trader to control a more expensive asset or commodity without having to purchase it outright, as is the case in a conventional futures contract. There are two types of options available: "call," and "put. Essentially, the options holder has right to buy or sell, while the other party has the obligation to buy or sell.
Call and put options can be exercised by the options holder before, or even during the contract expiration date. Buying call options is a good move for traders who believe that the price for a particular commodity will rise within a certain period. Because they can choose not to exercise their right to buy, or exit the option before the contract ends, they run a much lower risk compared to a straight futures contract. This is also true for traders buying Put options.
If the price of a commodity falls below a certain strike price, they have the right to sell their commodity futures contract to a seller with minimal loss on their end. While futures trading options can help minimize trade risks, it's important to remember that on its way, options trading can still lead to a loss, particularly if a trader doesn't use any other strategies to complement their trading.
In order to be in a better position to profit from the commodities market, it's important to do keep updated on emerging market trends and events. Understanding the basics of futures trading enables new investors to increase their chances of earning. Premium and discount futures are brokers' terms which describe the state of a particular futures contract. When a future is at a premium or a discount, an investor can use an appropriate strategy to maximize gains.
Premium and discount futures describe the relationship of a commodity's price with the spot price. The futures' price is the expected cost of the contract when it matures, while the spot price refers to the cost of the contract on the exact moment of trade or "on the spot. When the spot price is lower than the futures' price, it's termed a premium future.
When the opposite occurs and the spot price is higher than the futures' price, then it's a discount future. This situation can also be called a contango, while the opposite can be referred to as backwardation. When a future is at a premium, it generally indicates near-term demand. It is likely that it will trade higher in the coming trading sessions. Premium futures offer a buying opportunity, especially when an investor takes a long position. This situation can normally be found for non-perishable commodities with a cost of carry. At the other end, discount futures indicate that supply is greater than demand.
The market will probably correct itself soon, and a wise investor must be prepared to short sell. While these general strategies are effective, the trick in maximizing earning potential lies in knowing when to exactly buy or sell. An investor can try to compare historical trends.
Some trading software can provide convenient access to historical data, enabling investors to make an educated guess. However, futures trading is incredibly complex. Exceptions to trends can easily appear. New investors are advised to contact an experienced futures broker for comprehensive advice while learning the ins and outs of investing in this exciting financial instrument. There is a substantial risk of loss in trading commodity futures, options and off-exchange foreign currency products.
Past performance is not indicative of future results. Another popular form of futures trading is Gold. Trading in gold futures can provide investors a viable alternative to investing in physical gold bullion, and a useful hedge against inflation. As a commodity, gold offers a number of benefits over other investment classes, including deeper market liquidity, greater leverage, and the option for physical delivery on the contract, among others.
Gold holds an almost universal appeal due to its rarity, versatility, and beauty. Many individual investors physically buy gold coins and bullion as a way to avoid the uncertainties of inflation, and the volatility of other asset types. However, physically trading gold can pose many problems for investors, which makes trading in gold futures a much more viable option for individuals who wish to break into this market. A gold futures contract is a commitment between traders to deliver, or take delivery of, a quantity of gold on a specific date at a specific price.
As with other commodities, gold options contracts are also available, giving traders the right to deliver, or take delivery of the commodity without the obligation inherent in a futures contract. An important advantage to trading in gold futures is the fact that because they are traded at centralized exchanges, futures contracts offer more financial leverage, flexibility, and financial integrity as opposed to physically trading this precious metal. Traders only need to put up a percentage of the contract cost, which means that a considerably smaller capital is required compared to a physical trade.
Of course, this leverage means that there is the potential for higher risk and higher returns when trading in futures contracts. As one of the leading commodity brokers in the industry, Cannon Trading has helped clients all over the world achieve their trading goals.
We have been in business since , and have received several customer service awards, and consistently maintained good standing with the NFA and CFTC. For over 20 years, Cannon Trading has helped clients all over the world achieve their trading goals in the lucrative commodities futures trading market. Day trading futures can be overwhelming for newcomers who are just venturing into the field, but with the help of a professional, traders have a better chance of achieving success in the field of commodities trading. Our professional commodities brokers will work with you to understand your specific trading style and requirements, and provide you the essential advice and information you need to thrive in this highly lucrative market.
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Cannon Trading's Broker-assisted Trading solution provides traders who are new to the field with the essential advice and tools they need to accelerate their understanding of the gold futures market or any other futures market they desire to trade in. Cannon Trading specializes in trading U. Our brokerage services are designed to help traders acquire the knowledge and resources they need to engage in commodities trading.
It will indicate about current trader behavior and how can one use each of these patterns to instantly improve the market knowledge and analytical abilities. The important components covered are:. For millions or traders around the globe, candlesticks have become a key tool in creation and verification of trading signals and this is the only book one requires for integration of proven versatility and effectiveness in the technical trading program. It is an in-depth exploration of traditional as well as all-new candlestick charts expressing a logical, understandable and profitable component of the current trading program.
With respect to each of the candlesticks, the following components are covered up:. This encyclopedia is a deep dive understanding to various aspects of technical trading providing enhancement with new performance statistics for both bear and bull markets and 23 new patterns inclusive of a second edition devoted to 10 event patterns. Overall, it is roughly a page book containing 53 chart patterns plus 9 more event patterns which largely covers up all possible combinations within technical trading. Some of the event patterns are:. In a nutshell, this futures book provides raw information on how the good and bad patterns are and what does the movement of each chart depict.
The various financial events such as Quarterly Earnings announcement, retail sales, stock upgrades and downgrades will have an impact on the share price of the firm which will also be reflected in the various kinds of chart patterns. This book will teach the readers on how to interpret the same in all kinds of scenarios and also during the normal course of business. This futures book is predominantly targeted towards students pursuing a career in finance and would like to have a very strong base on Futures and Options.
Current and aspiring professionals can also make use to have a broader perspective on the products. This top futures book is packed with numerical examples and accounts of real-life situation thereby effectively guiding the readers on the material and equipping them with essential knowledge and skills to combat the working world. It offers a clear overview of the topic without the use of calculus or any complex models. Some of the components covered are:. It is also covering up some important aspects of being abreast with the changing requirements in the financial market such as:.
This best futures trading book is a masterpiece on how to handle trading of commodities as well as Futures Contract in the world of derivatives. It offers an insight on how the trading psychology functions in a high-frequency computer trading world and how to avoid the latest pitfalls.
It has the updated information on algorithmic trading, peculiarities of electronic trading and all aspects which a new or veteran trader is required to dominate the market using a step by step guide. The guide is written in a straightforward easy-to-read style which makes it interesting and exciting. The author also exactly reveals how the commodities markets have evolved over a period of time and the consistent discipline to avoid choppy market conditions and manage the dangerous risks of the markets.
It also magnifies the fact that one should include a decent amount of commodities in their overall portfolio. With the low cost of modernized computer hardware and software combined with communications on prices with the aid of satellites, regularly updated and expanding the market of traders making use of computers has developed rapidly. This top futures book helps in bridging the gap between basic instructions accompanied with software programs and what a trader is required to know for developing and maximizing the futures trading system.
With specific information on how to set up and use of computer generated technical studies of the most popular indicators which include:. If you are a successful stock trader, you are probably familiar with these rules. First, you need a proven trading process that works for futures trading. Next, proper money management techniques can go a long way to helping you win the futures trading game. Finally, any time your emotions control your trading, you are likely to lose.
Trying to master these techniques overnight while learning the futures game is foolish.
7 Best Books for Futures Trading
You would be better off just giving your money to the experienced traders, as it would save on your emotional wear and tear. Before venturing into futures trading, be sure you are ready to take on those with more experience and success. How do you know if you are ready to trade futures? Ask yourself these questions to see if you believe you are ready. Trading Process Do you have a proven trading process that applies to futures trading? Keep in mind you are making bets on the trend in a futures contract where you compete with experienced pros who use their own trading process.
Money Management Good money management is necessary for success in any trading situation. It is especially important in futures trading. Money management provides the tools to help you maximize your winning trades and minimize your losing ones. That is the secret to long-term profitable futures trading. Emotional Control Lack of control over your emotions is one of the primary reasons traders fail. Fear, anxiety, and greed are common traits in everyone. Keeping them under control is an ongoing effort.
More Books by Giuseppe Scuti
The best traders never let their emotions enter into their trading. When they suspect their heart is overruling their mind, they stop until the feeling passes. It serves them well and can do the same for you. Trading futures is fraught with risk. Since the vast majority of futures traders fail to make consistent profits, anyone who is considering trading futures should take a step back and ask themselves a number of questions before proceeding. If after careful consideration, you wish to proceed, do so knowing that you are embarking on an exciting venture that will test your trading discipline to the utmost.
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