Future Trading :Commodity Market

Futures markets have been described as continuous auction markets and as clearing houses for the latest information about supply and demand. They are the meeting places of buyers and sellers of an ever-expanding list of commodities that today includes agricultural products, metals, petroleum, financial instruments, foreign currencies and stock indexes. For those individuals who fully understand and can afford the risks which are involved, the allocation of some portion of their capital to futures trading can provide a means of achieving greater diversification and a potentially higher overall rate of return on their investments. By buying or selling futures contracts that establish a price level now for items to be delivered later--individuals and businesses seek to achieve what amounts to insurance against adverse price changes.

When individual know about the Futures market, following ideas are formed in his/her mind:

1. Information about the investment itself and the risks involved. !!!

2. How readily your investment or position can be liquidated. !!!

3. Who the other market participants are. !!!

4. Alternate methods of participation. !!!

5. How prices are arrived at. !!!

6. The costs of trading. !!!

7. How gains and losses are realized. !!!

8. What forms of regulation and protection exist ? !!!

9. The experience, integrity and track record of your broker or advisor. !!!

10. The financial stability of the firm with which you are dealing. !!!

11. In sum, the information you need to be an informed invests. !!!

Spurred by the need to manage price and interest rate risks that exist in virtually every type of modern business, today's futures markets have become major financial markets. Participants include everyone to their business needs and interest.

Futures prices arrived at through competitive bidding are immediately and continuously relayed around the world by wire and satellite. Every one has simultaneous access to the latest market-derived price quotations. And, should they choose, they can establish a price level for future delivery--or for speculative purposes--simply by having their broker buy or sell the appropriate contracts. Futures markets are a keystone of one of the world's most orderly envied and intensely competitive marketing systems. Should you at some time decide to trade in futures contracts, either for speculation or in connection with a risk management strategy, your orders to buy or sell would be communicated by DFT Trading Tool.

Fixing of Future Price

Futures prices increase and decrease largely because of the different factors that influence buyers' and sellers' judgments about what a particular commodity will be worth at a given time in the future (anywhere from less than a month to more than two years).As new supply and demand developments occur and as new and more current information becomes available, these judgments are reassessed and the price of a particular futures contract may be bid upward or downward. This process is continuous.For example:

In January, the price of a July futures contract would reflect the consensus of buyers' and sellers' opinions at that time as to what the value of a commodity or item will be when the contract expires in July. On any given day, with the arrival of new or more accurate information, the price of the July futures contract might increase or decrease in response to changing expectations. Competitive price discovery is a major economic function--and, indeed, a major economic benefit--of futures trading. The trading floor of a futures exchange is where available information about the future value of a commodity or item is translated into the language of price. In summary, futures prices are an ever changing barometer of supply and demand and, in a dynamic market, the only certainty is that prices will change.

Analysing Futures Contracts

Whatever type of investment you are considering--including but not limited to futures contracts--it makes sense to begin by obtaining as much information as possible about that particular investment. The more you know in advance, the less likely there will be surprises later on. Moreover, even among futures contracts, there are important differences which--because they can affect your investment results--should be taken into account in making your investment decisions.

Contract Pricing

Futures prices are usually quoted the same way prices are quoted in the cash market (where a cash market exists). That is, in dollars, cents, and sometimes fractions of a cent, per bushel, pound or ounce; also in dollars, cents and increments of a cent for foreign currencies; and in points and percentages of a point for financial instruments. Cash settlement contract prices are quoted in terms of an index number, usually stated to two decimal points. Be certain you understand the price quotation system for the particular futures contract you are considering

Minimum Price Changes

Exchanges establish the minimum amount that the price can fluctuate upward or downward. This is known as the "tick." You'll want to familiarize yourself with the minimum price fluctuation--the tick size--for whatever futures contracts you plan to trade. And, of course, you'll need to know how a price change of any given amount will affect the value of the contract.

Daily Price Limit

Exchanges establish daily price limits for trading in futures contracts. The limits are stated in terms of the previous day's closing price plus and minus so many cents or dollars per trading unit. Once a futures price has increased by its daily limit, there can be no trading at any higher price until the next day of trading. Conversely, once a futures price has declined by its daily limit, there can be no trading at any lower price until the next day of trading. The price is allowed to increase or decrease by the limit amount each day. For some contracts, daily price limits are eliminated during the month in which the contract expires. Because prices can become particularly volatile during the expiration month (also called the "delivery" or "spot" month), persons lacking experience in futures trading may wish to liquidate their positions prior to that time. Or, at the very least, trade cautiously and with an understanding of the risks which may be involved. Daily price limits set by the exchanges are subject to change. They can, for example, be increased once the market price has increased or decreased by the existing limit for a given number of successive days. Because of daily price limits, there may be occasions when it is not possible to liquidate an existing futures position at will. In this event, possible alternative strategies should be discussed. This is generalized. You follow the rules our exchange system has.

Selections for Trading

Just as different common stocks may involve different degrees of probable risk. And reward at a particular time, so do different futures contracts. The market for one commodity may, at present, be highly volatile, perhaps because of supply-demand uncertainties which--depending on future developments--could suddenly propel prices sharply higher or sharply lower. The market for some other commodity may currently be less volatile, with greater likelihood that prices will fluctuate in a narrower range. You should be able to evaluate and choose the futures contracts that appear--based on present information--most likely to meet your objectives and willingness to accept risk. Keep in mind, however, that neither past nor even present price behavior provides assurance of what will occur in the future. Prices that have been relatively stable may become highly volatile.

Stop Orders

A stop order is an order, to buy or sell a particular futures contract at the market price if and when the price reaches a specified level. Stop orders are often used by futures traders in an effort to limit the amount they. might lose if the futures price moves against their position. There can be no guarantee, however, that it will be possible under all market conditions to execute the order at the price specified. In an active, volatile market, the market price may be declining (or rising) so rapidly that there is no opportunity to liquidate your position at the stop price you have designated. Under these circumstances, the broker's only obligation is to execute your order at the best price that is available. In the event that prices have risen or fallen by the maximum daily limit, and there is presently no trading in the contract (known as a "lock limit" market), it may not be possible to execute your order at any price. In addition, although it happens infrequently, it is possible that markets may be lock limit for more than one day, resulting in substantial losses to futures traders who may find it impossible to liquidate losing futures positions. Subject to the kinds of limitations just discussed, stop orders can nonetheless provide a useful tool for the futures trader who seeks to limit his losses. Far more often than not, it will be possible. For the broker to execute a stop order at or near the specified price.