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23 February 2010

How to Begin Trading Commodities Futures

Before we talk about futures trading in commodities, you must remember that trading in these contracts are:

1) High level of risk of economic loss

2) High leverage

3) High volatility and fluctuations

So you should only use risk capital funds that do not affect your lifestyle.

1) Get familiar with is the contact sizes (and point value) for each commodity traded. While there are hundreds of contacts around the world, maybe you should try and focus on those who are trading in the U.S., especially in NY and Chicago.

2) Ask for the margin requirement for the various commodities. Each commodity has its demands and that will help you determine what ingredients you have in your portfolio

3) Decide how you come to Commerce: Would you use a mechanical trading system, technical trading system or on fundamentals. What ever you use, be sure to trade with some kind of method, just not using hunches and "tips" on late night television.

4) Determine whether you need a full service commodities broker or a discount online broker. It depends on whether you have experience with other financial instruments such as stock or stock options. Typical full-service brokers will charge more, but may prove very valuable when it comes to stop you from making a mistake.

5) Paper Trade-Make sure you practice, either by a manual log or a simulated online trading platform. It does not cost a penny, and it will give you an idea of the daily fluctuations that occur in the futures market. The period during which you act may not give you a clear indication of a particular product, then you should look at past seasons and see how certain products may vary.

6) Shop around! Whether you use a full-service broker or an online trading platform, you will need help. Make sure that ever you are working with is a brokerage commissions that time, staff and patience to guide you through when you need their help.

Past performance is not indicative of future results. There is a substantial risk of loss in futures trading.

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