One thing good about trading commodity futures contracts on margin is that you're not borrowing the money from your brokerage, as you are when you buy...
One thing good about trading commodity futures contracts on margin is that you're not borrowing the money from your brokerage,
as you are when you buy stocks on margins. Therefore, you don't have to pay any interest.
When you buy stocks on margin, actual ownership of these assets is transferred from the name of the old owner into your name. The old owner wants the entire amount of money due to them right away. If it doesn't come from you, it has to come out of somebody's pocket, and that somebody is your broker.
Naturally, your broker wants to check out your credit record before loaning you this money, because you then become a risk to them, even though they're being compensated by the interest you must pay on this loan.
The placement of stop orders is an important skill whether you're doing it to protect your position from a big loss, locking in a profit or entering a trade. That's because many experienced floor traders try to run the stops, or pull the stops.
That is, they let the market reach a point where the stop orders are activated, getting other traders out of the market, and then they benefit from the activity. Some traders advise not placing stop orders at round numbered price points on the chart, for that reason. Round numbers is where most people place their stops, so that's what the other traders will go for. Place your stops slightly pass the round points.
If you want to buy December corn if its price rises beyond a certain breakout point of $4.25, don't put the buy stop order in at exactly $4.25, make it $4.29 or something like that.
However, it's probably even better to use options to management futures risk. This includes uses options entirely rather than futures.
For one thing, with futures contracts you can lose more money than you send to your broker. This normally won't happen so long as you pay close attention to your account and close any poor trades before they reach that position.
However, not all times are normal times. You don't want to be short orange juice when there's a flash freeze in Florida. Or short coffee when there's a freeze in Brazil. Or short sweet crude oil the day Iran attacks Israel. Or long the S&P 500 on a day it crashes over 20% as it did in October 1987.
It's also true that in many markets the exchanges have instituted limit moves. The price limit is the largest amount the commodity contract is allowed to move in one single day. When it gets there it's locked limit. It will stay there until there are enough of the opposite orders to drive the price down. Typically, there are a large number of unfulfilled orders. They won't be filled until the market retreats from the limit price or in the following trading session.
