Online commodity trading

On line Trading
Commodity trading is an upcoming avenue for investors who are eager to earn a lot of money. There are a lot of opportunities to trade on various commodities like gold, silver, agricultural commodities, metals, crude etc. One can even trade in currencies. With the advent of technology that commodity trading now takes places on the World Wide Web as well. For those who are new to trading on line the easiest and most useful avenue to choose is commodity trading.

Online commodity trading is similar to normal trading in a market floor along with a broker. All the basic principles of trading apply to online commodity trading too. The difference is that the trading is going on online. Commodity market is a promising avenue for your investments offering huge opportunities and enabling you to diversify your portfolio.

If you are not a well experienced commodity trader and are looking for a well set formula to help with the management of online commodities, you will be disappointed. Such people should be extremely careful as to where to click because that one click decides your fate.

It is possible to select an executor to hold an account online, if one can not handle online commodity trading directly. But it s important that extreme care should be exercised while selecting such an executor. Because trading involves making very important financial decisions. You may have to execute a written power of attorney while you are handing over this power on your own behalf to the executor.
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There is another way to reduce the risks of online trading by joining commodity-related mutual funds. You can register yourself with a suitable online commodity trading exchanges and execute the trades through them…

You can offset risks in your whole portfolio by combining the low-margin markets of commodities with stocks and bonds investments. This is one of the major reasons why commodity trading is so useful.

Your whole portfolio can be combined with the low-margin markets of commodities with stocks and bonds investments. By doing so the level of risk can be considerably reduced. This is one of the major reasons why commodity trading is so useful.

One has to be really careful while making financial decisions online and should not be carried away by the simplicity and ease of the Internet
from making well informed and smart choices when it comes to your finances.

Commodity futures trading
Commodity futures trading is speculative “paper” investing. In such trading the investors rarely hold the physical commodity. A simple paper contract is entered in to between the trading exchange and the trader. In commodities online trading systems traders don’t even need to hold the paper futures contacts. A futures contract is said to be made when buying specific commodity for a set term with a pre set contract duration. Even you don’t have to hold the contract until it expires. It can be cancelled at anytime you like

Example:
Let us consider that today is June 30th. You think Gold will rise in price until mid-August. The Gold contracts on (LME) London Metals Exchange are available in two monthly periods as shown below:

February, April, June, August, October and December.
You may choose the August, October or December contract depending on the time frame meeting your objective.

Contracts are usually more liquid nearer to the date of expiration because more traders may come in and start trading on them. The prices at this juncture would be very nearly true. But if you thought the price of gold would rise until September, you would choose a contract that is “further-out” (October in this case).
The futures contracts are standardised in that they all hold a specified amount and quality of a commodity. For example, the exchange will hold 40,000lbs of pork bellies of a certain size while dealing with a Pork Bellies futures contract (PB). While dealing with a gold future contract 100 troy ounces of 24 carat gold is held in stock. An oil futures contract may hold 1000 barrels of crude oil of a certain quality.

Advantages of future trading:
(1) There is no need to make any down payment to hold a future contract. A margin payment only is made. If the market goes against the trader’s position, he may lose some, all, or possibly more than the margin he has put up. But if the market goes with the trader’s position, he makes a profit and he gets his margin back.

Example:
You believe gold in undervalued and you think prices will rise. You have L3000 to invest - enough to purchase:
• 10 ounces of gold (at L300/ounce)
• Or 100 shares in a mining company (priced at L30 each)

The above funds are enough to hold as margin to cover 2 futures contracts.

Each Gold futures contract holds 100 ounces of gold,
100X£300=L30,000 per contract. .

The available fund with you is enough to cover two contracts and therefore speculate with L60,000 worth of gold.

Two months later, gold has rocketed 20%.
Your 10 ounces of gold and your company shares would now be worth L3600 - a L600 profit; 20% of L3000.
But your futures contracts are now worth a staggering L72,000 - 20% up on L60,000.

Instead of a measly L600 profit, you’ve made a massive L12,000 profit!

(2) Futures contracts are basically a paper investment. There is no need for the trader to physically store the item in his store.
(3) The investor can make money more quickly on a futures trade. The margin available is ten-times as much of the commodity secured with his margin. Moreover the future market tends to move quickly than cash market. Therefore the gain is faster. Losses can be minimised with stop loss orders.
(4) Futures trading markets are usually fairer than other markets.
Also, the official market reports that are released at the end of a trading session are useful to everyone. All have a chance to take them into account before trading begins again on the next trading day.
(5) Mostly the futures markets are very liquid. Highly valued contracts are traded every day and it is easy to place market orders since there are always buyers and sellers of a commodity .Due to this reason, it is very unlikely l for prices to suddenly jump to a completely different level, especially on the closing in contracts (those which will expire in the next few weeks or months)..
(6) The Commission charges are small when compared to other investments. And are payable only when a position is ended.