How Does Commodity Futures Day-Trading Work?

What is commodity futures day-trading? Day-trading strategies are unique mechanical methods for entering a liquid commodity market early in the trading day, and exiting some time later in the same day for a profit. Keith Fitschen has developed a family of day-trading strategies for the commodity markets that use the same basic market principle to gain systematic profits. The basic methodology uses multiple timeframe analysis to determine the likely trend for each market early in the trading day. When the likely trend is determined, entry is made in the direction of the trend. Trade exit is made in one of three ways: a stop loss point is hit (and the trade is a loss), a profit target point is hit (and the trade is a windfall profit), or the exit is made at the end of the trading day, usually for a profit.

Keith Fitschen’s commodity futures day-trading methods are used in the most liquid commodities in each group: for the grains, wheat and soybeans can be traded; for the softs, coffee can be traded; for the currencies, the yen and euro-currency can be traded; for the metals, copper, gold, and silver can be traded; for the energies, crude oil, heating oil, and reformulated gas can be traded; for the financials, 10-year notes can be traded;, and for the stock indices, the S&P 500, the Russell 2000, and the German DAX can be traded.

Traditionally, the problem with futures day-trading strategies has been transaction costs: slippage and commission. These costs severely ate into the profit that could be made on a day-trade. But with the advent of deep discount brokers, and electronic trading, commission for a trade can be less than $10, and slippage for a trade can be as low as one or two ticks. This evolution has caused a number of successful trading system designers to promote day-trading strategies. Keith Fitschen’s strategies are unique because they use the same market approach across all the groups, and because the strategy “works” on all the liquid commodities. This type of day-trading leads to an average profit-per-trade of about $150 across all the commodities, and a winning percentage of about 55 percent.

Normally, successful day-trading strategies have been sold to the public for $3,000, or more. This high bar to entry reduces the funds available for trading for a typical trader. Keith Fitschen’s day-trading strategies are offered for a monthly lease fee. This allows a trader to avoid the large upfront expense and spread it over a long period of time, while retaining the right to stop at any time. This means of gaining access to the trading signals is certainly an advantage over the traditional approach.

The First Step In CFD Trading: Understand Risk

For profitable CFD trading, a proper trading system alone is not enough. You need good risk management. One of the most crucial decisions while taking a trading position is fixing the amount of money you wish to risk on this trade. The thumb rule is anticipating two percent risk. This rule indicates that no position will have more than two percent risk on the total capital of the traders.

Some of you might wonder why the risk percent does not go beyond two percent. The reason is to prevent the trader experiencing a series of losses, which may result in wiping off their complete capital at a time. CFDs are influential trading tools. This means that you get exposed to a larger component of the tool as compared to your total deposit. Therefore, you cannot stay aloof of risks here. Besides, financial markets are famous for being unpredictable. Profit and loss are a part of trading and you cannot avoid them. However, you can limit the loss and retain your CFD trading capital. This is important to stay in the trade for long.

How To Avoid Risks

For a trader with 50,000 pounds, two percent risk means losing 1000 pounds per trade. For the entire trade capital, it would take 50 direct losses for the trader to lose his or her complete capital. For this to happen, you need to be extremely unlucky! A few wrong trades here and there are common. However, with no proper understanding of CFD risks, you can lose up to 10,000 pounds per trade. Beware; such loss could wipe your entire amount in just 5 straight losses! You would not even need to be unlucky for this; it is simple mathematics!

Remember, CFD trading is not everybody’s cup of tea. You must be familiar with how the things are done, along with the risks involved.

Benefit Of Risk Management

Suppose you know that your CFD system generates A percent returns, B percent maximum drawdown, and Z number of losing trades. Now, assuming that the system performs well, you are able to get desired results in real-life trading, provided you manage risk properly. The benefit of proper risk management is that, in case you encounter a time of drawdown or losing trades, you can face the losses and manage to create returns for that time. In short, you will NOT be doomed.

If you do not manage risk in CFD trading, it is like sitting on the edge of a cliff. For instance, you have placed a big chunk of your capital in each trade. You may observe that just a few losing trades are able to wipe out your entire capital and you perish from the trading scenario. Just forget about making profits!

Perhaps that is the reason why there is such a fuss about risk management in CFD trading. Experts say that it is good to understand risk first and then trade. You may be an expert in putting money, but if you ignore risks, you are soon out of the market.

How Commodities Trading Works

Commodities are resources that our civilization needs to operate. The commodities market exists to maintain a constant supply of these materials to industry. It performs this role by ensuring that suppliers receive the best price possible for these products.

Commodities trading are based upon options, an option is a contract to buy a set amount of a certain product such as wheat. Options or futures can be bought and sold much like stocks. This trading was created to ensure farmers with a steady market for their products and buyers with a steady supply. When people trade commodities they are actually purchasing contracts or options.

The trader hopes that the value of the commodity and the value of the option will increase. That way he or she will be able to sell it and realize a profit. That makes options trading a kind of speculation rather than investment. A speculator such as a commodities trader hopes to make a profit on a transaction.

Commodities Exchanges

There are two principal kinds of commodities contracts traded on the major exchanges like the Chicago Mercantile Exchange spot options and derivatives. A spot option is a contract that enables somebody to take ownership of a set amount of a commodity such as a train car full of grain at a certain date. A derivative is a security or equity based upon the potential value of an amount of a commodity.

Commodities traders purchase both of these often using margins or funds borrowed against the potential future profit form their sale. A margin account is actually a credit line that a person can use to finance trading. The trading was originally done in pits at organized exchanges such as the Chicago Merc. Today, it is mostly done electronically through a computerized network.

The internet allows anybody with a brokerage account and an internet connection to engage in commodities trading. This trading is actually speculation buying and selling of commodities in a systematic manner in an attempt to realize profits from rise and fall of prices.

The Price of Commodities

The whole basis of the commodities system is the price. When a speculator buys a commodity she is betting that the price will go up. When she engages in market timing she is trying to figure out when she can sell for the best price.

Commodities are not good investment for the average person because they are in constant flux. A person has to monitor the market constantly and sell at the right time to earn a profit. Therefore this kind of trading is best for a person that wants to devote a great deal of time to it. Persons who want to take a more hands off approach to investing should look into more passive instruments such as stocks.

What is a Commodity?

In today’s world almost anything can be a commodity. The original commodities exchanges traded agricultural goods like rice and wheat. In the 19th century minerals such as gold, silver and platinum were added, later still energy products such as oil and raw materials used in industry were added. In the 20th Century derivatives were created to expand the range of trading. Many modern derivatives are actually based upon stocks and other equities. Exchange-traded funds actually began on commodities exchanges.

The best way for average people to invest in commodities is through exchange-traded funds or mutual funds that invest in commodities. These vehicles should be a small part of your portfolio because the market they trade in is extremely volatile.

Forex Trading Your Education Checklist

The key to success in the forex trading is experience and education combined. While you may lack experience at first, you can still make a killing in this business by using your other asset – education. That is why you must make sure to learn everything you need to profit in foreign exchange trade. Here is a short checklist that you can use to evaluate whether you’ve learned enough to make your way into “FX” trading.

Learn the basic terms. Memorisation of new terminologies is not fun. However, learning the basic words that you’ll use when trading is simply an inevitable task. That is why you should study the basics. Among the terminologies and concepts you will encounter in basic training would be margins, forex brokers, types of orders, pip, spreads, charting, and leverage. It will be worth it to understand what these terms are and how they apply to your trades. And of course, the basic course must include a background on forex trading and exactly how people make money from this financial market.

You should also be educated when it comes to analysis. Analysis is often conducted by examining charts, which are graphical representations of various factors that affect currencies. However, analysis doesn’t end with making speculations based on graphs. You also need to learn other factors that can make a currency gain or lose value. These are macroeconomic factors like supply and demand. You don’t have to learn everything just to start in forex trading. However, a good foundation on these matters will help you analyse currency movement and predict what pairs of currencies you should buy and sell.

You should also get some training in using trading platforms or programs. A forex trading platform is a software that connects you to the trading market. It can also help you by giving you charts and updates, which you can use to make buying and selling decisions. You can download a free platform from forex brokers. For those who do not know, brokers are basically individuals or firms that can provide you with various FX services, including account management. This means they will trade on your behalf and make some commission based on your gains.

Finally forex trading education should include some psychological training. If you’re taking a course, it must have a section on motivation or mental preparation. Remember that apart from mastering how to use the forex trading platform and learning how to analyse charts, “FX” requires a strong mind. There will be times when you’ll lose. And if you’re mind is not prepared for it, you might quit even before you make your first profit.

So, for those who are interested in learning about foreign exchange trade, go invest in your education. Use this short checklist to make sure you don’t miss anything.