Trading education » Profits

Commodities Trading – Basic Risk Management – Hedging

admin — Wed, 09 Jun 2010 06:19:50 +0000

If you’re a commodities trader or are looking to become one, you know that two elements motivate you: speculation and hedging. Although speculation and hedging are not mutually exclusive and you can do both at the same time, speculation is primarily profit oriented. Hedging is more about protecting your profits or minimizing a potential loss and is therefore a defensive strategy.

When you hedge, you essentially recognize a hard fact; that is, traders cannot predict prices correctly all of the time. If you want to be on the right side of the trade, you need to not just to predict what direction prices are going to go in, but you also need good timing.

Although it’s important to guess correctly whether prices are going to move up or down, you also have to know when you should get in and when you should get out. You can improve your odds of doing so with some simple hedging strategies.

To begin with, let’s talk about a few elementary concepts. Hedging is effective, in part, because prices for commodities in the cash — i.e., spot — markets tend to move together, whether up or down.

In a “spot” or cash market, physical commodities are bought and sold. This differs from the futures market, where contracts are traded for future delivery of the particular commodity.

Even so, spot prices don’t move exactly together. The difference between the spot price and the current contract price is called the “basis.” The basis equals the cash price minus the futures price.

When they hedge, investors have two basic alternatives, either going short or going long. However, these two strategies are not used only to the exclusion of each other. They can be used together in a mixture, tailored to an investor’s needs. If you “go long,” that means you’re buying in order to sell later at a higher price. If you “go short,” that means that you’re going to sell before you buy, and expect that the particular commodity will have a future price decline.

In regard to going short, it might confuse you to think that you’re actually going to sell something you haven’t bought first and therefore don’t own. However, when you go short, you borrow the commodity or contract from the broker, sell it, and then buy the equivalent later to “balance the books.”

When you go long, you hedge based upon a weakening basis as the cash price falls in relation to the public futures contract. Going short gives you the advantage when the basis is increasing; that is, when the cash price rises relative to the futures contract price. It should be noted that a basis can rise or fall in opposition to price levels. What matters is the difference between the two.

To clarify, let’s look at the following:

Let’s say a heating oil seller wants to hedge 50% of the anticipated April production of three million gallons. The seller goes short by selling the April heating oil futures contracts at $1.98 per gallon on March 1. By the end of March, cash and futures prices both have fallen. This means that on April 1, when the seller delivers heating oil to the local terminal, the price has fallen to $1.85 per gallon. The seller then simultaneously hedges by purchasing April ethanol futures at $1.90 per gallon.

Because the standard heating oil contract covers 42,000 gallons, the speculator has to purchase 35.71 contracts at this scenario. However, partial contracts aren’t traded. The following figures are approximate, to make demonstrating this scenario easier:

Date Spot Market Futures Market Basis

Mar 1, $1.88 per gal. Sell in April at $1.98 per gal. -$0.10

Apr 1, $1.85 per gal. Buy in April at $1.90 per gal. -$0.05

The hedge result is as follows:

The gain on the futures trades is $.08 per gallon, with the sell in April at $1.98 per gallon, and the buy in April at $1.90 per gallon. $1.90 minus $1.98 equals $.08 per gallon.

The net sales price is $1.93 per gallon, or $1.85 plus $.08.

This results in 50% being hedged at $1.93 per gallon, with an April income of $2,895,000, or $1.93 per gallon times 1.5 million gallons. The remaining 50% is unhedged, at $1.85 per gallon; April income is $2,775,000, or $1.85 per gallon times 1.5 million gallons.

The average April sales price is $1.89 per gallon, for an April income of $5,670,000.

Without hedging, what would have been with the result? The seller would have received $5,550,000, or $1.85 per gallon times three million gallons. By hedging between the spot and futures markets, there was a net increase in April heating oil income of $120,000. Therefore, hedging cannot only help to protect traders from losses, but it can also increase profits.

By: Amar Mahallati

Forex Day Trading Success For Idiots

admin — Sat, 29 May 2010 02:52:12 +0000

Forex day trading is one form of trading forex investors can participate in. This type of investing involves making many short sells and trades in a single day, trading one currency for another within a matter of hours, or even minutes. Multiple currencies are bought and sold in a single day. The main purpose of forex day trading is to have no total variation at the end of the day. So, for every currency purchased, there is one currency sold.

Many advantages adorn Forex day trading, as opposed to stock day trading. For one, since forex is open 24 hours a day, trades are not limited being made within a certain time frame. No split second selling decisions must be made before the market closes. Decisions can be thought out and executed in a timely manner. Since forex is a 24 hour market, there is no closing price for the end of the day. There are no drastic jumps or declines of the value of a currency between trading periods. A major incentive of forex day trading is the ability to lessen the burden of maintaining a position during the night. To see a profit or deficit, the difference between the values of a currency being sold to the purchase amount.

Though forex day trading is appealing to many forex investors, experts say almost 90% of forex day traders lose profit. Why? Forex day trading may not be as dangerous as other types of forex trading, but the use of margin purchases, like utilizing funds on loan, increases deficits and profits. Shortfall and returns happen in very little time. So in order to be a successful forex day trader, it is vital to learn the basics of day trading. Learn the market from professional traders, workshops, books, and personal experience.

Know that forex day trading is course oriented. In other words, day trading focuses on development. Day traders must be able to determine what makes a winning trade. Once you are able to determine good outlines of trades, you will be more confident when good investing opportunities arise. You’ll make wise investments without guilt.

Remember, though, that 90% of day traders will lose profits. You are bound to lose profits before you are able to gain when day trading. In fact, these experts say most day traders lost large amounts of profit before becoming successful. If you decide to take the plunge into forex day trading, be prepared to soak up a few losses. The key is to speculate positively. You will lose, but keep positive and do what you feel you must to win. Besides, with day trading, losses are fairly small. It will only take you a few minutes to make errors. Risk will be involved, but profits are waiting to be made. Fail if you must, particularly if you feel failure is inevitable. Remember, speculate positively to be successful in forex day trading.

By: Peter Flemming

Forex Profit Code Review

admin — Tue, 18 May 2010 14:57:00 +0000

Have you ever heard of Forex Profit Code? I bet, you are here because you are looking for the most accurate review of this new trading system, right? If you are serious about making extra income online, one of the best way to start is through forex trading. There are many people put their hard earned money from forex because they believed that this is the most profitable business online. Now, to ensure your trading success, you are given an option to how to handle and put all your trades. Recently, there are three options that you can choose from.

You can put your trade manually. This kind of trading strategies usually consume so much of your time. You can ask a broker to trade for you. A person who can handles and put all the works for you. In this strategy you to monitor your money because there are huge possibility of losing it. You can get an automated forex trading system that you can use to do all the works for you. And this is actually what Forex Profit Code will going to provide you.What is Forex Profit Code and what does it actually gives you?

Forex Profit Code is 100% mechanical forex system that can actually do all the hard work that usually involves when you trade the forex. This system looks for profitable opportunity and when that opportunity arrives it actually do all the necessary things to do in order to gain huge profits. This system make money everyday. The system was created by Robert Meyer, a forex expert. The system was based on many years of researching and testing. This is proven to give trader massive income regardless of their own trading background.

Why do you have to choose Forex Profit Code from the many automated forex trading system online?

Forex Profit Code is not the usual forex trading system that you actually tried of. This system was designed and depends entirely on the use of purely scientific criteria to select winning trades, one that uses logic. This is a no-guess work system. A system that has proven to give you not just profit but consistent profits that you can depend on for the rest of your life. The system had been attested and the results were verified by an attorney of law. In this case, you can be assured of that this is really the ultimate automated forex trading system to date!

Who can use Forex Profit Code?

Anyone can use Forex Profit Code. Even if you are 9-5ers who are willing to spend 5 minutes everyday in front of your computer, beginners, novice or even an expert trader who wish to increase their own trading profits. This system has been trusted by many, no trading background needed and no huge trading capital involved. You don’t have to risk so much of your money because you can actually start using their own virtual account. Absolutely no risk with high gains.

For our conclusion, Forex Profit Code is really not a scam. It has proven its own profitability for so many years now. Up to this moment, the system still gives anyone opportunity to easily create their own trading wealth. The system is simple, proven, tested, unique and a very powerful one. There are no reason for you to pass this opportunity. So, if you are serious about making huge profits from forex trading, this is the right time. I hope some how, you had already found in this Forex Profit Code Review the system that you really looking for. Good Luck!

By: Mandy Clover

Learn Currency Trading – 3 Simple Tips Anyone Can Apply to Make Triple Digit Gains

admin — Tue, 11 May 2010 14:18:21 +0000

If you want to learn currency trading then most of the information online will not help you win, as the majority loses. The information in this article is not commonly accepted wisdom and that’s why it works…

Let’s look at how to make more money from currency trading

Tip 1 Cut Trading Frequency

How many traders try forex scalping and day trading – a huge amount and how many win long term – none. Why? Because they are trading random moves and cant get the odds on their side and lose.

The first tip is all about trading less and making more – because you are focusing on the high odds trades.

I know traders who only trade a few times a month but make huge gains, because they understand that they should only hit the best opportunities and you should do this to.

Forget day trading and focus on the big longer term trends that make the big profits, these trends last for weeks months or years and you only need to catch a few each year to turbo charge your gains.

Tip 2 Risk More Per Trade

This isn’t being rash this is common sense.

Read most so called experts online and they say risk up to 5% only! Well that’s fine, if you are trading 100,000 – but most traders are not, there trading an average $1,000 so 5% risk = $50.00, well you are going to get stopped out by random volatility.

These traders, really ought to brush up on an essential bit of forex trading education which is – standard deviation of price and they will see why it doesn’t work.

If you are trading a high odds trade – risk more – Up to 20%.

Keep in mind that most traders risk so little, their guaranteed to be stopped out. They try and avoid risk so much, they actually create it.

If you don’t want to risk a meaningful amount, you won’t make a decent profit.

Tip 3 Trail Stops Slowly

This is really related to the above point – don’t trail your stop to close, give the market room to breathe so you stay in the big trends as long as possible. You have to do this and it takes discipline and it’s not easy to take open equity dips but have the discipline to do it and you can make huge gains.

The above is really common sense and seeing currency markets for what they are – a risk market where you need to take meaningful risks at the right time to win.

If you try and restrict risk to much you will lose.

Learn to Love Risk!

See risk as opportunity, have the courage of your conviction, trade high odds trades only have the courage of your conviction, trade with discipline and you will be well rewarded and enjoy currency trading success.

By: Kelly Price

Forex Trading Made Easy – A 3 Step Simple to Follow Plan For Big Profits in 30 Minutes a Day!

admin — Wed, 05 May 2010 19:27:19 +0000

Here we will discuss the subject of Forex trading made easy and despite the fact that over 90% of traders lose money, it’s a known fact that Forex trading is a learned skill and in this article, we will show you how to get the right mindset and education, to enjoy big profits in 30 minutes a day.

Lets go to the first step to success which should be obvious but most traders don’t understand it and lose money – here it is:

1. Accept Responsibility for Your Actions

Most traders don’t and they think they will get rich quick by buying a Forex robot for a hundred dollars or so and making no effort. These systems are laughable in their claims of easy money and anyone who tries them soon gets wiped out. If only making an income for life was as easy as paying a hundred dollars and making no effort. Accept you have to work and now for some good news…

2. Get a Simple Robust Strategy

Forex trading is simple and simple, robust systems work best. If you make a strategy too complicated, it simply has to many parameters to break. Many people think there is some holy grail system and constantly look for it – but there isn’t one so don’t bother looking. Get a simple strategy and you will do just fine and you should be able to learn a system which can make you great profits in around two weeks.

Learning a system which can make money is easy but you have to adopt the mindset to make it work lets take a look at why and how you can get the mindset of a winner.

3. Staying on Course with Your System

When you trade, you will have losing periods, all traders do and it’s the way you deal with these losses which is the key to making money in Forex. Let them run and hope they turn around and you will lose, cut them quickly and you can preserve your equity, until you hit profits again. When you trade Forex, you need to keep your emotions out and follow your system with discipline.

Be a Winner…

Simply understand the three points above and you can enjoy currency trading success. If you do understand them, you can see how you can win and make great profits, when the vast majority of traders lose – good luck and good trading!

By: Kelly Price

Penny Stock Trading Investment

admin — Wed, 05 May 2010 08:48:50 +0000

Penny stock Trading investment involves trading in low priced stocks that have a high return. One scans through the listed traders in the market and identifies the companies that have stocks that are showing the prospects of upward movement. One then identifies them by studying their performance in the stock market and from the trends they display points out where he is going to invest.

In order to make the best judgment on the stocks to invest in, one needs to take time to study the trend of the particular stock company. This gives one a clear picture of the most likely company to make an upward move to avoid investing in a company only for it’s shares to go down. This would not work for the penny stock trading investment.

In order to make the prediction and trading quick and more accurate, Michael and Carl came up with a computer program which they called Marl. This program analyses the history of trade of a particular company, and in the process is able to make reliable predictions on the possibility of upward surge. The program run on a computer will be very fast, analyzing about 17,000 companies a day. The more it is allowed to run through one company the better for it and the trade on the company, since it will be more accurate in its judgment.

Penny stock trading investments has been known to give a lot of profit. Since the prices for the stocks are low, it makes investing in the penny stocks easy. It does not require a lot of capital to start the investment. However since one invests in a large number of shares, one is bound to make a quick kill when the prices change by a fraction. At the same time, when the prices go down they do not make a big dive. It therefore cushions the investor on losses and maximizes on the profits.

Penny stock trading investment by use of the Marl program will even alert you when a better option appears before you have settled on the chosen one. It is constantly on alert to identify the company with the most favorable trading pattern. It scans through all the companies trading and from that it creates a “To Watch List’ of the companies displaying the most excellent progress. This helps the program to narrow down on the companies it will forward to the investor to invest in.

Since the program developed by Michael and Carl has been very revolutionary and profitable, the inventors have placed a high price on its license. To show the commitment of the two to providing the best to the people who acquire it, they have offered to tutor anyone who purchases it for free in their own apartment.

For those who can not afford the high fee charged on the license, they can opt for a newspaper that gives details regularly. Using the computer, though, is about ten times more efficient than the newspaper.

By: Gilbert Stockton

Forex: Money Management Principles

admin — Sun, 02 May 2010 20:35:25 +0000

Trade With Sufficient Captial

One of the worst blunders that forex traders can make is attempting to trade without sufficient capital.

The trader with limited capital not only will be a worried trader, always looking to minimize losses beyond the point of realistic trading, but he will also frequently be taken out of the trading game before he can realize any sense of success trading the method(s) or patterns.

Exercise Discipline

Discipline is probably one of the most overused words in forex trading education. However, despite the cliché, discipline continues to be the most important behaviour one can master to become a profitable trader. Discipline is the ability to plan your work and work your plan.

It’s the ability to give your trade the time to develop without hastily taking yourself out of the market simply because you are uncomfortable with risk. Discipline is also the ability to continue to trade the methods and patterns even after you’ve suffered losses. Do your best to cultivate the degree of discipline required to be a world-class trader.

Employ Risk-to-Reward Ratios

The following shows you possible risk-to reward ratios, and the win ratios required to break even in a trading system.

Risk-to-Reward Ratio (in pips)and Win Ratio Required to Break Even(%)

40/20 (2 to 1) = 67%, 40/40 (1 to1) = 50%, 40/60 (1 to 1.5) = 40%,

40/80 (1 to 2) = 33.5%,

60/20 (3 to 1) = 75%,

60/60 (1 to 1) = 50%,

60 /90 (1 to 1.5) = 40%,

60/120 (1 to 2) = 33.5%

Important Note

Never risk more pips on a trade then you plan to make. It doesn’t make sense to risk 100 pips in order to make only 10. Why? See below example.

Profit taking level (pips): 10

Stop used or pips at risk: 100

You win 10 times which makes 100 winning pips.
You ONLY lose once and have to give back all profits!!!

This type of trading makes no sense and you will lose on the long term guaranteed!

By: Toby Smitz

Sound Strategies For Options Trading

admin — Mon, 19 Apr 2010 20:31:21 +0000

Although there are many recognized strategies for options trading they are not of value if they don’t guarantee some basic results. For example, options trading was first implemented as a means of helping investors to find some new ways to hedge investments or manage risk in their portfolios. This means that it is an approach to investing that reduces risk and costs while also protecting profits and allowing a bit of diversity.

This also means that strategies for trading are extremely wide-ranging. Consider that an investor is going to have to have a good and reliable technique to apply when they are holding a somewhat bullish stock in a market that seems to be a bit shaky or unreliable. The same investor may need to determine what to do with items that are remaining neutral or even beginning to decline. Generally speaking then, most strategies for trading should be able to build wealth regardless of market conditions – this means that they are supposed to do more than just insure against loss or hedge current holdings.

So, how do you develop strategies for options trading? The primary step in creating some infallible plans is establishing goals. It is impossible to draw a map without an actual destination in mind, and this applies just as equally to the creation of any investment strategy that relies upon options trading too.

While knowing where to go is essential, the terrain or conditions must also be taken into consideration too. This usually requires a bit of study, research and education because trading can be a bit trickier than it might initially appear to be. Consider that an investor considering the purchase of a call option is going to have to look at the strike price, the expiration date, and the premium that the seller is requiring. Only by making a fully informed decision can the investment be an assured winner regardless of current conditions.

Of course, the information required for a sound investment will also usually include a few other details such as the “moneyness” of the option and the implied volatility that can usually bump up the costs as well. Such factors tend to indicate that the investor has to have a good bit of knowledge around the option too, and how it is expected to perform over the short term.

For example, the strike price and expiration are usually flexible and if the investor knows that an asset is going to rise dramatically in a short period of time they can use their established system or strategy to make the right decisions.

By: Mark Summer

FX Trading Strategy – To Win it Must Contain These 3 Vital Elements

admin — Tue, 13 Apr 2010 15:27:56 +0000

If you want to win with your FX trading strategy make sure it contains these key elements otherwise you will be doomed and join the 95% of losing traders.

1. It must be Your Strategy!

Don’t fall for the hype that some junk robot will give you success or a guru or mentor there are plenty sold online with huge profits in simulation but they don’t work – no one gives you something for nothing and forex trading is no different.

Even if you have got the forex education from someone else, you must understand it and have confidence in it so you can follow it with discipline – discipline is the key, you must be able to ride out losing periods and wait until you hit a home run.

If you don’t have confidence you will never be able to do this make sure you have it.

2. You Must Understand Your Edge

Your trading edge is the reason you will win when 95% of other traders lose and you must have confidence and understand what it is and it must be based on sound logic.

Many people think they have an FX strategy based on sound logic and do the following and lose.

- They try and predict market prices

- They follow bogus scientific theories

- They trade news stories

- They day trade and try and scalp

- They follow experts

All the above will see you lose if you don’t know why, continue your forex trading education until you do.

Your trading edge is something that is personal to you and can be based on a simple forex trading strategy you can execute with discipline – that’s enough, remember simple systems executed with rigorous discipline work!

3. Play Defence First

When you are trading on leverage you need to trade great defence first and always protect what you have this means rigorous money management rules and money management is much more than placing a stop!

If you don’t keep your losses small you will get wiped out – sounds obvious?

Well most traders don’t heed it and use leverage of 200 or 300:1 on a few hundred bucks, 10 or 20 is enough.

Forex trading can make you a lot of money but if you expect not to have to work your in for a rude awakening.

Do your homework, get confident and make sure you have the discipline to stick with your FX trading strategy and follow it through drawdown periods, to long term success and the rewards if you can do this are huge.

By: Kelly Price

Forex Trading Myths – The Biggest 3 of All That Cause Losses

admin — Mon, 05 Apr 2010 06:49:19 +0000

There are lots of Forex trading myths and here we will cover the biggest 3 of all that cause the majority of novice traders to lose their money…

Here they are in no particular order of importance – there all important!

1. You can Follow others

Most traders think they can follow a system with a simulated track record from a vendor and make money and Forex Robots and predictive systems are heavily sold online. The gains they present, are fantasy land and based upon back tests knowing the closing prices or in simple terms made up. I wouldnt trust a system with a simulated track record as it proves nothing and neither should you.

Even if you do find a good system to follow which has made real gains, you still need to get the right Forex education, to have confidence in the system, to follow it through periods of losses with discipline. Following a system when it losses is hard and that leads me onto the next point.

2. Not Expecting Drawdown or Losses

Many traders believe the myth that you can trade with 80% accuracy, predict prices and never have more than the occasional loss – but this is another fantasy perpetrated by vendors of simulated systems.

All the best trading systems win long term but have losses which can last for up to several weeks in the short term. You need to be mentally prepared for these and stay on course, until you hit profits again and this needs tremendous mental discipline which is based upon confidence and inner understanding.

3. Forex Trading is Easy

95% of traders lose and it’s not yet, most traders think they can simply turn up and win and assume working hard, using a complex trading system or being intelligent guarantees success. In Everyday life this is true – but not in Forex.

You wouldn’t expect Forex trading to be easy, with the rewards on offer – you need special skills they can all be learned and now for the good news:

How to Win

The way to win in Forex trading is to understand the keys to success are: A simple system, you have learned, understand, have confidence in and can apply with discipline, to seek long term gains. It’s a combination of mindset and method and you need to understand that you need to lose short term and keep your losses small, to win long term and stay on course.

The myths that you simply make money with no effort by following others, will have no losses and it’s easy to make money, leave traders unprepared for the reality of the brutal world of trading.

If however you understand this article and you can see through the myths and know what is required to win, no other venture will reward you with such fantastic gains for your effort.

By: Kelly Price