how to trade commodity futures
What you need to know before you start trading futures to stupid for not getting the money, not to bring a deal until actual delivery and not to spoil the relationship with a broker? What to start with, if you have a desire to work on the international commodity futures? how to trade commodity futures, Where to find the desired information?
Let's look at the entire process, beginning with the occurrence of uncontrollable desire to invest in a particular commodity asset and ending the transaction, on the example of one of the actively traded futures contracts. For the sake of example, we will assume that a beginner decided to invest in gold, but that all of the following reasoning and algorithms will be relevant for other instruments of the derivatives market, be it oil, platinum, beef, wheat, wood, coffee and so on.
So the first thing we find out Ticker tool. To do this, go to the website of the exchange - with 99% probability the tool be found either on the CME (www.cmegroup.com), or on the ICE (www.theice.com), the two largest stock holding. See the section or the menu item «Products». On the website of CME in menu find the subsection «Metals», where in the column «Precious» see futures on gold «GC Gold». On the resulting page, devoted to the futures on gold, we find the reference to the specification of the contract - «the Contract Specifications», which we don't yet time of need. In this table summarizes all of the major universal data on futures, including Ticker, he in the line «Product Symbol» - GC.
Next we need to learn, futures with delivery in a month is now the most liquid - because, as you can see in line specification of the Listed Contracts», in parallel traded more than 20 contracts on gold with different delivery date. In order to find the most actively traded, go to the section «futures» on the site BarChart. This site is good because in addition months immediately shows them the stock symbol. On the left we find the us section of the “Metals”, choose in the table the first line of the «Gold». After that we will see all the 20 «gold» for the contracts listed in the 5 years ahead. We need the column “Volume”, where we find the largest volume. If the volume of the two adjacent months are almost equal, then choose the far, since it means that there is a process of transition from the middle of the month to the next. As a rule, the most liquid futures traded with the delivery within 1-2 months from the current date. In our case, the most active is June 2012. The full Ticker, as can be seen in the first column, GCM12. That is, to exchange òèêåðó GC, found in the preceding paragraph, shall be added M12 - code of the month and the year. Month is always indicated by one letter (a complete list of 12 characters in calendar order: F,G,H, J,K,M - N,Q,U - V,X,Z). Year in the code is indicated by the last two digits.
Next, you need to know how to trade commodity futures - the last trading day and the day of the beginning of deliveries on futures. Especially if the delivery is not in 2-3 months, and already in the current. Known these dates should be in order to not be left with a contract on his hands in the last hours of his existence. In view of such developments, in the best case, you will have to shut it on illiquid market with huge spreads, and, in the worst - run for the supply and think, than to pay for a box with gold, and where they then sell. It is recommended to move from one contract to another at least for a few days prior to the beginning of deliveries in the case, if the futures are traded every month, and for one and a half-two weeks if they are traded on a quarterly basis. In order to see the date of completion of trades and the beginning of the requirements of supplies LTD, the Last Trading Day and FND, First Notice day), back at the site of the exchange, on the page of the specification. We find there is a link «Product Calendar», which gives us another table. In it, look at the line corresponding to our financial instrument - JUN 2012 GCM12 - and see that the last day of trading on it 27.06.11, and the beginning of requests for delivery is already 31.05.11. Thus, it is necessary to close this contract and open the following for a couple of days before the end of may.
how to trade commodity futures - Proceed to the financial issues. Need to determine how many contracts we can acquire, on the basis of the volume of the funds on our account, and remain there enough money in case, if after the transaction, the market suddenly going in our direction. Such estimates on the derivatives market are carried out on the basis of margin deposits. When opening a position on any contract on the account of the fixed amount, the amount of which is determined by the exchange and changes very rarely. This amount will not be available for use on all the time, until we are holders of fixed-term contract, and will be liberated immediately after its closure. On the website of the exchange huge table of pledges is not very pleasant for perception, so go to a website R.J.O''brien, where it is convenient summary table of margin collateral for the most popular contracts (in pdf format). Our gold futures in GC listed in section CMX - COMEX (this is part of the CME, historically engaged in precious metals). Look in the column «Spec Init», this is the Initial Margin - the initial margin. On gold, she is now equal to $10,125. This means that when the account $15,000 we can operate with only one contract, when the score was $35,000 - not more than three. The next column «Spec Mnt» - maintenance margin (Maintenance Margin), in our case $7,500. If the account fall below this amount, multiplied by the number of existing contracts), you hear a ringing of an angry broker («Hello, Margin Call!»), and will either have to close the position (i.e., record losses), or promptly to Deposit additional money (up to the level not lower than the initial margin).
In spite of the fact that the electronic tenders by futures are virtually around the clock, they have a break in work. In addition, at any time of the day they are active. In the specification on the website of the exchange have to see the trading hours (the line «Hours»), not forgetting to transfer them to local time. The contract on gold GC is trading with a 45-minute break (16:15 - 17:00 in Chicago; for Moscow difference -9 hours). The most active electronic trading practically coincide in time with the classic auction in the hall of the exchange, which is being carried out in the form of an open auction. Gold trades «on the floor of the Chicago stock exchange are held on weekdays from 7:20 to 12:30, or from 16:20 to 21:30 Moscow time.
how to trade commodity futures What else do you need? From the data published in the specification (by the way, see a brief translation of the specification of the gold on this blog), you can calculate the cost of the minimum price tick, the full value of the contract and trade shoulder. For this we use the lines of «Contract Size» and «Minimum Fluctuation». Volume 1 contract of gold GC - 100 Troy ounces (about 3.1 kg). Minimum price movement - $0.10 per ounce. This means that with minimal movement of the price of gold in either direction our account will be «quantum» be changed to $10 (100 ounces * 10 cents). From personal experience, most of the financial instruments of the derivatives market «walk» on the $5 - $15 per tick. Next, have a look dimension quotes - line «Price Quotation» we see that ïóáëèêóþùàÿñÿ on the stock exchange quotation, the price of one ounce of gold in dollars and cents. At the present time one ounce, based on the last stock exchange transactions on GCM12, is estimated at $1672,9 - we can see this and other quotes on the page «Quotes». The total price of the contract is equal to its volume, multiplied by the quote. This means that the full cost of one «Golden» futures on your account is equal to $167,290 - more than 167 thousand dollars! Comparing the margin Deposit, required to deal with this contract, and its full value, calculate shoulder - $10,125 to $167,290 - it is approximately 1 : 17. For comparison, in the us stock market shoulder in the best case 1 : 4.
So, we now know as indicated by the futures contract, by which delivery of the month are the most active trades and when they end, what time of day is best to participate in the exchange trade and how to do this, you need to keep money in the account. On the example of transactions with the futures contracts on gold we discussed practically the whole algorithm of the start of trading. In principle, this knowledge is enough to buy and sell any futures contracts for electronic trading in the United States. To the questions «so, all the same, to buy or sell? and when exactly?» meet the fundamental and technical analysis, which are the main subject of hundreds of books on trading. And the last tip for beginners, don't forget to take with your broker «emergency» phone number of the Trading Desk, which can be urgently to place an order or to close the deal, if you suddenly lose access to the Internet or fails computer with the trading platform
