Sunday, September 2, 2007

Commodities - An Overview

Commodities are products traded solely on the basis of price. The products are undifferentiated products, goods or services that are not traded based on quality and features, only on price. Historically, commodities were items of value, of uniform quality that were produced in large quantities by many different producers. The items from each different producer were considered equivalent. Commodities are defined by an underlying contract and standard, rather than the quality of the product.


Chicago was the birth place of the first commodities market, way back in the 1840s. Farmers would bring their wheat to the market and exchange it for good, hard cash. Futures contracts developed from there. A farmer would contract with a dealer to sell a set amount of produce to him at a set date for a set price. It was comforting for both parties the farmer knew how much he was going to get paid and the dealer knew exactly how much he was going to pay for these commodities.

This practice of commodities trading evolved over the years that ensued. The farmer would decide not to sell and cede the contract to another farmer to fulfil, or the dealer might decide that he did not want the produce anymore and then on-sell the contract to another dealer.

Naturally supply and demand entered the equation. If the harvests were poor, the produce would fetch a much higher price and if the crops were abundant, a leaner price prevailed. Before long, speculators were in on the act. They started trading the futures contracts in the hope of buying the commodities at a low price and selling these for a handsome profit.

What defines a successfully tradeable commodity?

To successfully trade, commodities must:
Be standardized. If the commodities industrial or agricultural, it must be unprocessed. Have an adequate shelf-life, if these are agricultural.

There should be sufficient fluctuation in supply and concomitantly price. The reason for this is that without the risk factor, profits are meagre and unappetising. Examples of commodities are: electricity, wheat, chemicals, metals, pork bellies, RAM chips, labour and currency.

Difference between commodities and stocks The main difference between stocks and futures contracts from a trading perspective is that, unlike stocks, which you could keep for a very long time, commodities are held for a very short time only. Futures contracts are used to hedge commodity price-fluctuation risks or to take advantage of price movements, instead of trading the actual cash commodities.

How are commodities traded? Commodity Future and option trading take place at exchanges such as the Chicago Board of Trade, Euronext.liffe, London Metal Exchange and the New York Mercantile Exchange, and other online trading systems. At the exchanges, areas are provided, each designated for a different futures contract. Those trading on the floor must be members of the exchange and registered with the Commodity Futures Trading Commission. Those traders, who are not members, work through brokerage firms who are.

To conclude Commodity future option trading is both complex and risky, so the shoe may not necessarily fit just anybodys foot. If you are considering commodity future option trading, you should evaluate how much you are prepared to lose should push come to shove. Choose a trading method that you are comfortable with and that is best suited to achieving your objectives. The bottom line in commodity future option trading is that, if you exercise good judgment and manage your risks effectively, commodities trading are likely to richly reward your efforts!

Discover awesome, proven techniques for trading online; stocks, shares, currencies, FOREX etc. for both the novice and experienced trader at

How To Make Money In Forex

As you might already know, forex is an acronym for foreign exchange -- is the international currency market where money is being sold and bought. Forex certainly is a new and exciting way to make money in the huge global currency market.

Making money in forex is very similar to stocks, options, or futures. You will be provided with a list of currency pairs each is coming along with graphs which you can select and trade. You can sell (or short) if you expect the graph to go down and you can buy (long) if you expect the graph to go up.

How Can I Make Money in Forex Trading?

When you buy a currency in the forex market, you are actually doing two trades. You are selling one currency and buying the other. You have known what currency you are betting for/against, as opposed to the stock market where you only need to know one stock.

Unlike stock trading, most online forex firms don't charge commission. They make money by giving you a worse spread then they get and by charging you interest on margin. This spread is usually two or three pips (explained below).

Margins are huge in currency trading; you can easily be accepted for 200 to margin on-line. Some forex firms will give you up to 400:1 margin. To be honest, there is very little regulation in this industry, which means you can move $2,000,000 worth of currency with only $10,000 in your account. You can even open an account with as little as $300.

Profits in forex are measured in "pips" or "points." A pip is 1/1000 of dollar. For example if you buy the dollar (USD) against the euro (EUR), and it went in your direction from $1.300 to $1.299, you have made a 1 pip profit. On a $10k order at full margin (200:1), this is equivalent to $50 in profit.

How Much I Can Earn?

Virtually, the limit is the sky. As much as how long you trade and keep earning. Trading will be within 24 hours 5 days a week. How fast you can earn is depending on the volatility of the market. If it is very volatile (moving ups and down quickly), you probably can earn a lot of pips if you are lucky.

However, average earning for professional trader is 100 to 200 pips a day that is equal to 100% to 200% return on investment. George Soros, the heart of inspiration for every forex trader, made a history in September 22, 1992 when he bagged US$1 Billion and ruined the Bank of England. This called The Black Wednesday.

What Do I Need to Trade?

The first thing you need to trade is a broker. Register with any of them and they will provide you a software platform that equip with a list of currency pairs, graph, technical indicators free to use. The broker usually provides you free practices by providing virtual money for you to practice enhance your skills.

There are two schools of thought like in stocks about how to make money in forex trading. On one side you have the technical, which are basically charts and other statistical methods that used to try and guess the market. On the other side you have the fundamentals, which study things like countries domestic product, interest rates, economic output, etc. to try and forecast currency movements based on these criteria.

Of course the best answer is always in the middle, using a combination of graphs and charts along with real world knowledge of political events and economic statistics to make the market more predictable for you.

If you want to learn more about mainstream technical analysis tools, in my experience, the most honest person who teaches mainstream technical analysis in the best way is Peter Bain (Forex Mentor). Whether Peter trades himself, and whether Peter ever made money in forex is definitely questionable. But if you want to get good education and overview of many different mainstream technical analysis tools, I think Peter is good for that.

Is It a Risky Business?

Is there any risk involved? Yes. Everything has risk whether it is involve time, life, money, etc. Risk unfortunately can not be avoided. No absolutely not, that's impossible for everything. But as any other thing else you can minimize risk and increase profit, thats how to make money.

I feel so grateful and lucky to be able to trade forex full time. Not only is it fun, and I feel passionate about it, but it's also monetarily rewarding, and it gives me freedom to do it from almost anywhere in the world. I hope to be able to share some of this luck and gratefulness with you. And truly from the bottom of my heart and my being, I am wishing you tremendous success and abundance in forex or any other business you do.

Martin Chandra has over years experience in marketing. Hooked on potential of the Internet since '97. Good at seeing the big picture with an eye to detail. If you want to learn more about forex, please take a look at my site.