Futures Option Spreads
Jun0
There are many ways of trading in the futures commodity markets. One way is to trade options on futures. There are many strategies you can use in trading futures options. You can just buy an option or just sell an option. You can also put on what is called a spread using options. Spread options are when you buy and/or sell more than one option at a time in the same order.
You can buy 2 options or sell 2 options or buy one option and sell another option. The options you buy have to be in a different strike price to be considered a spread. If you just purchased 2 of the same options, that would not be a spread. The 2 options would have to be 2 different future option contracts. Let’s look at corn. These are not current prices but just an example. If I purchased 2 $3.00 corn options, that would not be a spread. If I purchased one $3.00 corn option and sold one $3.10 corn option, that would be a spread. I would put this trade on in one order.
Not all spreads have to be in the same contract month or even the same market. When putting on a spread in different months, you could put in an order to buy one option in one month and sell another option in another month at a certain price. These are called calendar spreads as they involve different months.
Now when putting on a spread, you will either have money coming into your account or going out. If your purchased options cost more than the sold options, you would state that you are putting it on for a debit. If you are taking in more with the sold options than you are paying with the purchased options, you are putting the spread on for a credit. I will discuss other types of options strategy using spreads in another article.
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The Power of Bullion Gold Bars
Jun0
The word bullion, when applied to precious metals, means bulk forms valued for mass and purity and not at face value as money. Bullion gold bars are traded in commodity markets, while gold bullion coins make their rounds amongst collectors. The purity of bullion varies, except for gold 99.99% purity is the norm. Examples of gold bullion coins are the South African Krugerrand, Canadian Maple Leaf, Australian Nugget, Britannia, and American Gold Eagle.
Gold investments are usually purchased as hedges against inflation and industrial downturns. Gold values alter tiny, implying that a gold investment purchased with your local currency will still have a high value even if your local currency somehow loses most of its price. As an example, let us consider a rich man in his home country. He buys gold bullion bars, just to be safe. War breaks out, his nation’s economy crashes, and he is forced to leave his country. With the gold bullion bars, he is able to start a new life somewhere else without trouble, as his monetary resources are secure. If he had brought cash with him, it’d be of little value, what with his country’s economy down the drain. This is by miles the most valued property of gold bullion : its liquidity or simplicity of conversion to cash anywhere in the world makes it a universal currency that holds kind of the same price at any time.
Gold does not react simply with other elements or compounds, so a gold bar or gold coin will maintain its mass under normal conditions. Bullion gold trading is controlled largely by the London Bullion Market Association or LBMA for short. The LBMA is a group of bullion trading firms and international banks that set the price for gold around the planet. The costs are set daily with the London Gold Fixing, a phone meeting among five of the LBMA’s members. While the physical trading of gold is done all around the world, much of the wholesale trade is cleared through the LBMA. As of the time of this article’s writing, gold is priced at just about Dollars 890.
Majority of gold trading occurs in the towns of London, NY, in descending order of trade volume. The sole real thing in descending order of a valuable metal to drop is the value of a new source or process that makes production less complicated. Aluminum, as common as it is today, is used to be more expensive than gold. The invention of the Hall-Héroult process caused aluminum to permanently lose almost all of its value. Gold still remains rare, so its worth as an investment will continue for the foreseeable future.
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Commodity Markets Trading With Technical Analysis
Jun0
Commodity trading and futures option trading is best done with the help of technical analysis. Technical analysis shows a trader the direction; he should take while dealing with commodities. Whether one should buy or sell is best determined with the help of Technical Analysis. A good trading system will always incorporate methods used in TA within itself.
Technical Analysis Defined
The process of determining the condition of a commodity (based on the historic price) with the help of charting is called Technical Analysis. It combines probability mathematics and statistical information to determine the future price movement of a commodity with probability on your side. For example, if someone were to walk up to a door, and you were told to guess which direction they would go – left or right, whatever you chose, it would be speculation. On the other hand, if they went left, and you followed them, that would be called trend following. Similarly, if a commodity future moves in a direction and you use TA to guide you, you can buy it after it shows a move into a certain direction, and a trend has been confirmed.
Uses Of Technical Analysis
There are many ways TA helps traders in trading futures options and commodities. The primary principle in TA is to have the ability to follow trends. To be able to do this, one has to be able to catch it early enough. So, you can buy into a commodity if you can confirm that it is in an uptrend. The key point to remember is that TA assumes that price discounts everything.
All movements of market participants are reflected in the price of any commodity at any given point in time. The idea is to buy low and sell high, or vice versa. This sounds simple in theory, but is difficult enough in real life. Imagine knowing that the probability of a commodity will breakout on the upside, but also that it is only a probability, and not a surety.
How Do We Use Technical Analysis?
TA has many different theories. These include common theories and indicators such as moving averages, Fibonacci series, oscillators, Gann Trading theory, Elliot wave theory, and the age-old Candlestick theory from Japan. Many users tend to combine one or more of these theories to get greater accuracy in determining the trend more correctly in their favor. One has to remember that probability needs to be on our side.
The risk to reward ratio should always be in our favor. A lot of people use TA to help them establish a trend, get the point of a breakout and look for a point to buy or sell a commodity. They also use it to determine their stop-loss, and possible target price. This is an advantage that TA has over any other form of analysis. Being mathematical in nature, it gives you exact figures as to what levels you need to enter and exit a commodity.
Technical Analysis is a powerful tool that needs to be executed with care and discipline. It provides the right foundation you need to determine the price trend of a commodity with more accuracy.
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Commodity Markets Trading Strategies For Starters
May0
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 and also with commodity options.
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.
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Momentum Trading In Commodity Futures Markets
May0
Momentum traders are those who focus on commodities that are moving in one direction with a substantial increase in traded volumes with an aim to attain profits. Momentum traders, when trading the commodity markets or commodity options markets, can hold a trade anywhere from a few minutes to a few days. They will try to hold a trade till the momentum of the trend they are trying to ride lasts. They will square off the trade when the momentum for the commodity concerned fizzles out.
Momentum Day Trading
A good momentum trader would be up and awake early in the morning reading up on news that may have affected existing trades, or new ones generated the previous day by his system. Momentum traders use online trading platforms more often as it gives them the power of speedy trading. These platforms also provide the latest market news and picks for the trading period. Commodities that have shown very large volume growth with an increase in momentum recently are ideal candidates for the next few trades. Business channels often blare out the latest commodity market updates live and traders gather as much information as they can to help them determine which trades they are going to take.
Momentum traders use charts regularly to determine trends and momentum picks.
Momentum Trading With Charts
A good momentum trader picks trades by using key indicators which usually includes the momentum indicator. This indicator analyzes actual total changes in a commodities closing price over a predefined amount of time while comparing its traded volumes. These are what will tell the trader whether he can shortlist the commodity or not. Once the trader has picked out the trades that match his criteria of being in momentum, the chart for the commodity is pulled up and analyzed. Here, re-confirmation of a trend and momentum are established in different timeframes for the same commodity. When a breakout is confirmed either up or down, then the order to buy or sell the commodity futures is placed. As soon as this order is executed, the disciplined momentum trader immediately places a stop order limiting his loss to a certain fixed amount, which is determined by his trading system.
If he is correct, the commodity will move in momentum, and breakout of its range. If it does so, and the trader keeps investing the money on this particular trade, he will maintain a keen eye on his technical indicators and oscillators for any exhaustion signals. As soon as he gets an exhaustion signal, or his target is reached, he will place an order to close the trade. While his trade moves in momentum, he will also move his stop up slowly to make sure he locks in some gains every time the trade responds in his favor. This is called a trailing stop. Of course, he will be stopped out if he is wrong.
Thus, a momentum trader essentially uses momentum indicators to trade possible breakouts in futures or futures options, which are showing momentum according to the trading system on the charts. However, to be a good momentum trader, discipline and hard work is necessary.
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