Commodities Trading...
Commodities Trading and Futures
A commodity is an item--coffee, grains, metals, securities, currency--bought and
sold by traders registered with the Commodities Futures Trading Commission
(CFTC). Commodities trading is subject to all the complications and twists of
any other aspect of the financial world: futures contracts, options, hedges,
speculation. Having developed from the need for farmers to have a central
marketplace for their products two centuries ago, the commodities exchange is
now a sophisticated, regulated trading arena.
One of the important advantages of the futures forum is that
it allows various participants to transfer risk to traders who are willing to
accept it. This hedging is invaluable to the market because it lowers the cost
of doing business. Futures trading is highly leveraged in that a small amount of
money controls assets of much greater value. If an investor is not experienced
and not prepared to absorb possible losses, trading in this lively market should
be the responsibility of commodities brokers.
Commodities Pools
There are several effective methods of decreasing risk in commodities trading
which also apply to other markets. Stop orders are issued by a broker for a
client when the commodity reaches a specified price. This maneuver could protect
from loss, but it could also prevent further deterioration of profits in a
falling market. One problem with this tactic is that it is not always possible
for the broker to execute stop orders. In a lock limit market, in which trading
in a contract is stopped because maximum levels have been reached, even the best
broker may not be able to carry out a stop order.
Another method of protection is commodities pools. These are
similar to mutual funds in securities in that funds from several investors are
combined and traded as a single account. An investor receives profits and losses
according to the amount of money contributed to the pool by the investor.
Whatever arrangement an investor is comfortable with--commodity pool or single
account--a commodities trading adviser (CTA) and a commodity pool operator (CPO)
must be registered with the federal Commodity Futures Trading Commission (CFTC).
Today's Forex Price (Four Major Currency Pairs)
EUR/USD USD/CHF
GBP/USD
USD/JPY
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