Introduction to Commodities and Futures: What are Commodities?

The terms “Commodities” and “Futures” are often used to describe commodity trading or futures trading. You can think of them as generic terms to describe the markets. It is similar to the way “Stocks” and “Equities” are used when investors talk about the stock market. To be more specific, this is what they really mean: Commodities are the actual physical goods like Corn, Soybeans, Gold, Crude Oil, etc. Futures are contracts of commodities that are traded at a futures exchange like the Chicago Board of Trade (CBOT). Futures contracts have expanded beyond just commodities; now there are futures contracts on financial markets like the S&P 500, T-notes, Currencies and many others.

Examples:

Commodity: Grains

Many of the grain commodities have been trading on futures exchanges have been around many decades and they are some of the most active markets to Trade. They tend to be most volatile during the summer months as whether can be a big market mover.

1. Corn
2. Soybeans
3. Wheat

Commodity: Energy

Used to power and fuel the country, the energy commodities are very popular futures markets to trade as many witness their uses and prices daily.

1. Crude oil
2. Gasoline
3. Heating oil
4. Natural gas

Commodity: Metals

The metal commodities maintain a couple of roles. The precious metals are used as an inflation hedge. They are also used for industrial purposes, construction and even photography.

1. Gold
2. Silver
3. Copper

Commodity: Softs

The soft commodities consist of many food products and also some industrial materials.

1. Coffee
2. Cocoa
3. Sugar
4. Cotton

Commodity: Livestock

The livestock commodities consist of meat agricultural products. They can often develop some reliable trending patterns as breeding and herd statistics give you a good idea of production numbers months in advance.

1. Cattle
2. Hogs

Futures Contract:

December 2007 Corn, which is a contract of 5,000 bushels of corn that trades at the Chicago Board of Trade with a contract expiring in December 2007. A hypothetical price for this contract might be $3.60 per bushel.

How do Futures Work?

Futures are standardized contracts among buyers and sellers of commodities that specify the amount of a commodity, grade / quality and delivery location. Commodity Trading with futures contracts takes place at a futures exchange and, like the stock market, is entirely anonymous.

For Example: the buyer might be an end-user like Kellogg’s. They need to buy corn to make cereal. The seller would most likely be a farmer, who needs to sell his corn crop. They create a contract of December Corn futures at the current market price. A contract of corn at the CBOT consists of 5,000 bushels. Therefore, the farmer would have to deliver 5,000 bushels of corn to Kellogg’s in December at a designated location.

Making Money in Futures!

A speculator is someone who invests in a business with the goal of turning a profit. In the case of commodities, speculators are traders who try to buy futures low and sell them high to Make Money. The reason why speculators can do so with futures is that traders aren’t required to hold the futures contracts for the duration of the contract; they can buy or sell anytime they want. So, to use the Kellogg’s example above, a speculator could buy the corn contract from the farmer at a certain price, then wait for the price of corn to go up before selling the contract to Kellogg’s, even if the contract won’t come due for another couple of months, turning a Profit in the process.

Players Involved in Commodities Trading!

There are three different types of players in the commodity markets:

Commercials: The entities involved in the production, processing or merchandising of a commodity. For example, both the corn farmer and Kellogg’s from the example above are commercials. Commercials account for most of the trading in commodity markets.
Large Speculators: A group of investors that pool their money together to reduce risk and increase gain. Like mutual funds in the stock market, large speculators have money managers that make investment decisions for the investors as a whole.
Small Speculators: Individual commodity traders who trade on their own accounts or through a commodity broker. Both small and large speculators are known for their ability to shake up the commodities market.

How to Start Trading Commodities?

In Order to Trade Commodities, you should educate yourself on the futures contract specifications for each commodity and of course learn about trading strategies. Commodities have the same premise as any other investment – you want to buy low and sell high. The difference with Commodities is that they are highly leveraged and they trade in contract sizes instead of shares. Remember that you can buy and sell positions whenever the markets are open, so rest assured that you don’t have to take delivery of a truckload of soybeans.




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Getting Prepared for The Trading Day !!

With the Great Challenge of Facing the Stock Market each Day and the hope of pulling money out of it on a regular basis, a trader can do few things more important than prepare adequately. It should be no secret that many of the brightest minds in the world are at work to make their living in the stock market, and such competition cannot be taken lightly! Furthermore, while traders should not be in the prediction business, we must certainly have a game plan.

As time progresses, a trader will inevitably learn from his mistakes. This experience is the foundation for laying out a game plan in preparation for the Trading Day. Merely being a student of the market and of one’s own results will teach a trader to react certain ways to market conditions or events. It is this foundation which should be built upon in order for the trader to elevate his game to the next level (and it IS a game).

In order to develop a trading plan, a trader must begin with his personal style in mind. Swing trading involves a plan that may evolve over the course of a few days to a few weeks, while day trading can be faster-paced and more spontaneous. Personality, patience, and profit objectives will play a large role in which style of trading one may wish to employ, but the trader should choose his method as he plans for success.

Once the trading style is known, the trader must take into account current market conditions. Are recent days or weeks characterized by lasting trends, or by narrow ranges and choppy action? Knowing the answer to this question will put you miles ahead of many other traders who walk in each morning without taking current conditions into consideration. The market will catch you off guard as it changes its rhythm or volatility, but recent history serves as a guide until things change. This means choppy, low-volume, range-bound markets should likely be approached with smaller positions and the expectation of taking profit more quickly and in one piece. A trending market with larger range days and greater volume allow the trader to take bigger positions in hopes of scaling out in pieces as the market moves in the trader’s profitable direction.

Whether After the Market Closes or early in the day prior to the market’s open, some time should be spent determining an IF/THEN strategy for the upcoming session. Some traders may subscribe to a swing trading newsletter or converse with other successful traders, while others prefer to do their own research. One excellent way to find the following day’s trading list is to screen for stocks which meet custom criteria for price, volume, volatility, etc. An affordable stock charting software program will quickly narrow a large list of stocks down to a specifically filtered handful of trading candidates. The DoublingStocks Inc. 'MARL' is one such program, and it will scan thousands of stocks in just seconds or sort them by more than 100 included criteria or unlimited custom criteria. By screening for a handful of potential trades, the decision-making process is simplified and a plan is easier to carry out.

Consider finding a list of trade candidates for both the long and short side of the market, setting specific entry and exit prices, and then simply execute that plan. IF the long candidates rise to your entry prices, THEN purchase them. IF the short candidates break the levels of support you see, THEN short-sell them. IF none of your trade candidates trigger their entry prices, THEN do nothing! This kind of game plan will allow you to effectively respond to market conditions without having to predict direction or hope to be bailed out of losing positions. Approaching the market with the IF/THEN mentality also will help the trader to execute a plan, rather than fight the emotional urges to find excitement or force trades. Sometimes things will work exactly as planned and other times the market will whipsaw you right out of positions. Meeting the market with a game plan and sticking with it will undoubtedly allow the trader to work with less stress and emotion, which are two of the worst negative forces that traders face.

Feeling Well Physically is a very important trait which must be present for a trader to profit. Staying healthy and rested allows the trader to work with a clear mind and focus on the task at hand. Additionally, personal relationships can play a large role in a trader’s effectiveness. When life is rocky away from the trading screens, the successful trader must be willing to cut back on trading size or even back away from the market entirely. A prideful ego will not only cause rough waters on the home front with relationships, but it will also damage the trading account! A clear conscience allows quality rest and a fresh start each morning for returning to the market sharp and ready. Make the most of your weekends to catch up on personal to-do’s and relaxation. When Monday arrives, if you aren’t at your best, don’t expect your trading to be!

Finally, as the morning breaks and the market’s opening nears, follow a routine to get into the proper state of mind for following your plan. This may include reading up on current events, reviewing your charts one final time, grabbing your morning caffeine, or listening to your favorite song. Whatever it is, find what works for you when it comes to getting into the best mindset to extract profits from the market. Remember, the competition is serious and fierce, sharp-minded, and most of all, prepared. You should be too!


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Dan A.

What Is Penny Stocks Investing?

PENNY STOCK is low price share with broad range of market capitalisation. Though penny stocks’ prices are the same as small cap stocks, mid cap stocks or micro cap stocks, they are different altogether. If small cap stocks are companies with $300 million to $2 billion market capitalization, penny stocks may have as high as $4 billion worth; although their stock prices are similar. This can happen if high market capitalization companies decided to issue many shares or to split their stocks to maintain its attractiveness to stock market investors and traders.

But most of the time, Penny Stocks are new companies that just get listed in the stock exchange. This makes almost all the small cap stocks are penny stocks indeed. Because of their smaller capital base, these companies are generally more vulnerable than larger companies during economic downturn.


Why Investors Get Hooked to Penny Stock Investing?

Stock market investors like to make quick gains from its price volatility. Moreover, due to its nature of very cheap in price, stock traders often bought them in very large units. Sometimes, one per cent price fluctuations enough to make millions of dollars.

...That's how profitable it can be.

However, most of penny stocks are under researched and received very low media coverage. Due to not having much publicity, these stocks can be easily syndicated by professional speculative investors. Moreover, it is not easy for average stock investors to verify if the rumours or some ‘Insider Tips’ are true. And because it was heavily syndicated, regular trend from technical analysis won’t work that easy. Due to these very high uncertainties, penny stock investing can be very risky for novice stock investors. Nevertheless, you can still make money from penny stocks from the following approach.


4 Ways to Pick Winning Penny Stocks!

Fundamental Analysis:
Good stock picks from fundamental analysis should consider earnings potential, revenue growth, debt loads, positive cash flows and other important financial ratios. Extensive study of the company’s financial statements is inevitable to discover the best medium to long term stock investment opportunities. To make money in penny stock investing, you must buy the one that have the most effective management and making the most money at the same time.

And don’t forget to compare the standard financial ratios with other stocks in the same industries to predict which companies are destined to be successful. Good fundamental analysis of penny stocks can unleash the two per cent companies with superior stock investing opportunities. They are so profitable that can give better return than 90 per cent of the blue chip stocks.

Undervalued Stocks:
It is not uncommon to see share prices slide dramatically. This has a lot to do with weak market sentiment than the underlying fundamental values. And today’s seamless communication through the internet, information from China can travel to US as fast as a blink of eyes. If this happen, you shouldn’t avoid the stock market, but take advantage on the undervalued stocks instead. Calculate its intrinsic value and buy the stocks if the share prices where within its margin of safety.

Technical Analysis:
Under normal situation, technical analysis able to discover repetitive price trending of penny stocks. These patterns can reveal profitable penny stock trading by buying stocks with high probabilities of moving upward. With all the available technical indicators, you can make money even if the stocks are flat but are traded within some trading range.

Promotional Stocks:
Promotional stock is a common penny stock that is heavily promoted by promoters who have substantial holding in the stock itself. The promoters generate market interest for the stocks in an attempt to drive the price higher. Once the stock prices are at the desired level, they sell their holding and generate substantial personal profits. Then, they simply move on to another stock and leave the original stock and its investors behind. Without any further promotion by new shareholders, the stock price will soon collapse.

The promoters are frequently moved in a group. They form a syndicate with other interested wealthy speculators as well as other professional hedge fund managers. To make money from this type of stocks, you need to participate early in the stock cycle and ride on their promotional effort. Otherwise, you’ll lose fortune against them!

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To Your Stocks Trading Success,
A Professional Stocks and Forex Market Trader
Dan A.

Stocks Trading: Beating The Stock Market !!

"Many people dream about beating the market through their stock investments. However, is this really worth the effort and is it really possible?"

Many have attempted to beat the stock market and only a few have managed. Some pundits have gone a step further to claim systems that guarantee this. Nevertheless, beating the market may not be the best goal that you can set for your stocks. The reason for this is that there are a number of other considerations that should be made.

People are generally unclear about the meaning behind the word “Market”, which leads to its different definitions. Different indexes are used when referred to the stock market one of them being the S&P 500. However, this index fails to objectively present all of the stock sizes.

Beating The Market requires the undertaking of various Stocks Deals that enjoy short term benefits. Some experts recommend that you purchase companies that have high customer satisfaction attached to them. There is logic behind this argument, because when clients are satisfied with the product or service of a particular company they use it and become loyal to the company. As a result, the returns increase as well as the popularity among investors. The price of the stock of the company will be also influenced in an upward direction. If you have managed to invest in the company while its price was still low, congratulations you have managed to beat the market.

If you fail to walk away of the stock market when the right time has come you may put your money at risk. And what actually happens is that instead you beat the stock market you are beaten by it. Beating the market requires you to know when is the right time to enter it and when to exit it. You should learn its indications and not only notice them, but also understand the signals that they send to you.

No matter how good you may be at such things, you should consider whether it is worth risking your money for such a goal. Beating The Market may reward you very well, but you should never forget that its punishment can be even higher. Winning several hundred dollars from the stock market today may result in their loss tomorrow. Because, even if you have done it once, beating the stock market twice cannot be guaranteed for sure. No matter what formulas the pundits have offered and techniques applied, it is a game in which only a few have succeeded.

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To Your Stocks Trading Success,
A Professional Stocks and Forex Market Trader
Dan A.