Commodity Futures Trading - How To Reduce Risk And Aim For Success
Thinking about going into online trading of commodity futures? If so then I am sure you are aware there is a lot of risk involved. Let's have a look at the risk and how we can reduce it to a minimum.
With commodities trading, in comparison to stocks and shares, there is a positive factor. There will never be a time when your investment is totally worthless. For example - gold, natural gas, corn will all have some financial value. It may well drop at times but it will never be worthless. Stocks and shares however can be worthless. Bankruptcy has hit many a company in the past 18 months.
Keep your wits about you and do not get carried away with your successes. Do not either have the mentality of making up your losses as soon as possible. If you do then you end up gambling and this is not what commodity trading should be about.
Many commodity traders, particularly those that are fairly new to the business, try to utilize too much leverage. As an example of this lets take 100 ounces of gold as a contract with a value of $1000 an ounce. Total value is $100,000. The margin (deposit) will probably be around 10% of the value of the contract, thus $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.
Trading online commodity futures does provide for advantages over the old way because keeping up to date with the market is simple and very fast. Its perhaps even easier now for the inexperienced trader to feel safe due to this online flexibility and speed of action and thus become over exposed in the first place. Leverage being offered by the broker is a great thing but only when used wisely so be sure to do things in moderation. - 23167
With commodities trading, in comparison to stocks and shares, there is a positive factor. There will never be a time when your investment is totally worthless. For example - gold, natural gas, corn will all have some financial value. It may well drop at times but it will never be worthless. Stocks and shares however can be worthless. Bankruptcy has hit many a company in the past 18 months.
Keep your wits about you and do not get carried away with your successes. Do not either have the mentality of making up your losses as soon as possible. If you do then you end up gambling and this is not what commodity trading should be about.
Many commodity traders, particularly those that are fairly new to the business, try to utilize too much leverage. As an example of this lets take 100 ounces of gold as a contract with a value of $1000 an ounce. Total value is $100,000. The margin (deposit) will probably be around 10% of the value of the contract, thus $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.
Trading online commodity futures does provide for advantages over the old way because keeping up to date with the market is simple and very fast. Its perhaps even easier now for the inexperienced trader to feel safe due to this online flexibility and speed of action and thus become over exposed in the first place. Leverage being offered by the broker is a great thing but only when used wisely so be sure to do things in moderation. - 23167
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Want to learn more about natural gas futures? We specialize in natural gas futures.
posted by X - Men @ 2:07 AM
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