Trading Commodity Futures

Trading Commodity Futures

By www.CandleStickForums.com

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Trading commodity futures goes back as far as Candlestick analysis.



When Samurai were paid in rice in 1700’s Japan, there were a series of bad harvests.



In order to stabilize the price of rice, the Dôjima Rice Exchange was founded.



Trading in commodity futures grew up with Candlestick basics.



Today’s traders can deal in futures for a wide variety of commodities.



In the United States, trading commodity futures takes through CME group, the result of merging the Chicago Board of Trade (CBOT), the Chicago Mercantile Exchange (CME), and the New York Mercantile Exchange (NYMEX).



This group offers trading of all commodity futures on a single electronic platform as well as acting as a clearing house for all futures trading.



This group runs the world’s biggest futures market.



Trading commodities futures involves derivatives.



Futures trading takes place through futures exchanges which set margin requirements and are a counter party to all contracts.



A commodities exchange also set settlement conditions and mechanisms of payment.



If you are going to buy and sell commodity futures you will need to open an account with the exchange and fund you account with a sufficient amount of money, the margin, to cover potential losses.



If you buy futures contracts and the price of one or more of the commodities moves adversely to your investment then it is possible that you will receive a margin call from the exchange asking you to increase you margin to cover potential losses.



If you are unable to meet the margin call the exchange will sell your contract in order to cover its responsibility as a clearing house.



If you are trading commodity futures and wish to make delivery of the commodity you will want the clearing house to cover counterparty risk.



That means if the buyer will not or cannot pay for your commodity the exchange will pay.



Trading commodity futures is similar to trading options in that the trader does not necessarily need to buy a contract and hold it to expiration.



It is possible in both cases to buy a contract and to sell and make a profit before expiration.



Also, in both cases, the use of Candlestick charts and Candlestick pattern formations is integral to understanding trend analysis in trend trading.



It is also important for someone beginning commodity futures trading to understand the differences between trading futures and options trading.



In buying calls and buying puts in options trading the trader is buying the right but not the obligation to execute the contract.



In each case the trader will only execute the contract if the underlying commodity or stock moves favorably in price so that he or she can make a profit.



In trading commodity futures the trader is agreeing to and is obligated to buy at a future date.



Just as with buying calls and puts the trader will profit if the commodity price moves favorably but, unlike, buying calls and puts the futures trader can take a substantial loss with an unfavorable market move.



Trading commodity futures has a long history as does Candlestick trading.



To trade successfully you will want to study and learn techniques such as Candlestick charting as well as the basics of the commodities you wish to trade.


Trading Commodity Futures

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