Online Commodity futures trading – What you should know
If you are planning to or have determined to trade the commodity futures, it is very simple, but being attentive to the futures markets is also necessary so that you can be prosperous with your Commodity futures trading journey.
The traditional method of asking your broker to place orders and waiting for callback to give you a filled order price is almost history and one can trade commodity online from the comfort of their home.
If you are wondering, how you can opt for online Commodity futures trading, read on.
Here is the required assistance.
If one wants to trade commodity online, a right broker with splendid knowledge and experience is the key. A commodity broker will facilitate and furnish you with charts, quotes, strategy, analysis and order entry. Many online brokers that offer a good product, good service and low commission rates, but then soon you should study and choose the right broker.
You need a commodities trading account
Firstly you will need to have an account to trade so you need to complete the document formality and your broker would help you with the same. This form would generally dwell your financial information and also the risks related in trading commodities.
It is very important, that you trade cautiously as commodity futures (just like currency futures) are extremely leveraged and there is a chance you can miss more money than you invest. Hence, the broker would always want to know your income, net worth and credit worthiness so that he can guide you accordingly.
Sometimes though you are willing to trade, you may not be able to trade because you need to have good income, excellent trading experience and credit worthiness.
After doing a thorough research when you have chosen your broker to trade online and your account is also approved, than you need to fund the account. After funding, decide a proper plan as to how you would trade?
Once you have researched into commodity futures trading the next step is of course to take the plunge. Learn correctly how to place orders as it would be necessary to if you are a beginner be careful and avoid trading in overconfidence. Have complete knowledge as it would surely help you to observant, careful and most significantly avoid all feasible losses.
But it doesn’t end just there.
You also need to have good information and knowledge about technical analysis and fundamental analysis in futures trading. This is applicable to all futures contracts, including energy futures.
What is technical and fundamental analysis in commodity futures trading?
The first question that comes to mind about trading commodity futures is, "What is the difference between fundamental and technical analysis?"
The first thing is to look at and analyze the fundamentals starting with a review of the weather, then the Global Supply-Demand tables for the commodity markets, followed by the U.S. Supply-
Demand tables, and the different acreage.
The commodity futures trader must then usually provide technical analysis - a review of the Chicago Board of Trade (CBOT) monthly/weekly commodity futures charts. This shows the long-term highs and lows, seasonal price patterns and long-term price cycles.
After that move on to fine-tune the analysis using CBOT daily commodity futures trading charts.
The next, more difficult question was, "Don't price of commodities seem too high based on the current fundamentals?"
The answer can be "yes, or no" depending on how the markets are behaving. But, the market is always right in the long term.
However, prices can move too high or too low as trade perceptions of the market change and fund managers buy and sell.
These are the three key factors that one should consider when looking at the different Supply-Demand fundamental scenarios listed above.
Watch when usage is greater than earlier projections for two months in a row or more.
Watch when ending stocks drop or increase for two consecutive months.
Expect sharply higher prices any time projected ending stocks drop below one month's usage.
These are three chart signals that I use in my technical analysis:
Watch when prices rally after a negative report or break after a bullish report, showing that all of the bearish or bullish news is built into the market.
After the market has been in an extended down move, watch for the first time that prices close below the two previous weeks' high to confirm an important low.
After any market has been in an extended up move, watch for the first time that prices close below the two previous weeks' low to confirm an important high.
No one can give a weather forecast with 100% accuracy. With small differences in yields creating wide swings in price, producers need to be disciplined scale-up sellers who use all the marketing tools available.
Those who have purchased the right crop revenue insurance, year in and year out, seem to make better new-crop marketing decisions.
