| Commodity Futures Trading - How To Reduce Risk And Aim For Success |
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| Written by Joseph Archibald |
| Wednesday, 11 November 2009 15:50 |
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If you are considering going into and trading online commodity futures then do keep in mind that there is a large element of risk involved unless you reduce your risks and exposure with care. A such its sensible only to risk the capital that you can afford to lose and before doing anything take time to learn about futures trading to ensure your exposure is never more than it should be.
If you are considering going into and trading online commodity futures then do keep in mind that there is a large element of risk involved unless you reduce your risks and exposure with care. A such its sensible only to risk the capital that you can afford to lose and before doing anything take time to learn about futures trading to ensure your exposure is never more than it should be. 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. Compare that to traditional stocks and shares and this is not so with them. Stocks and shares can indeed be valued at nil. Look at the number of company bankruptcies in the past' months to understand what I mean. 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. If things do go well then great, life is good and all is well, but chances are that if you continue to trade in this way - which is to some extent a gamble - you will lose out in the mid to long term. With this sort of exposure in the market we could end up with serious losses. Its all very well to see things very positively and continue to believe in profit after profit. But at the same time we need to be realistic and know that there will be times when we hit a few losses. As such we need to have the funds available to deal with the losses. So the basics to be aware of if you are just setting out with your commodity future trading then take it easy - do not rush to make lots of money as you will most probably end up being over exposed and therefore open to some hefty account losses. Its best to learn with experience, but while you are learning do think about tomorrow and keep enough funds available for times when things take a downturn. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Want to learn more about natural gas futures? We specialize in natural gas futures. |