Contracts For Difference Risks And More Facts

Contracts for Difference, or CFD, are contracts between two parties, usually sellers and buyers, stating that buyers will have to pay sellers any difference between the current values of an asset and the value it had during contract time. Should the difference be negative, sellers pay up instead. Essentially, this makes Contracts for Difference financial derivatives that investors can take advantage of when prices are moving up or moving down on underlying financing instruments. Also applicable to equities, they are also often used in speculating markets.

Can you take advantage of Contracts for Difference everywhere?

CFD trading is initially available only in the United Kingdom, Poland, The Netherlands, Germany, Portugal, Italy, Switzerland, South Africa, Singapore, Australia, New Zealand, Canada, Sweden, France, Norway, Ireland, Spain, and Japan. Others will also follow suit but they are not allowed in the US due to restrictions on over-the-counter financial instruments set by the US Securities and Exchange Commission.

Trading CFDs

This product trading is done with a market maker or a broker called a CFD provider, whose job is to define contract terms, rates for margins, and which underlying instruments are to be traded. CFD providers fall into two different models, impacting the price of the traded instruments.

The market maker is the most common model, wherein the Contracts for Difference provider comes up with the pricing for the CFD and takes all the orders onto its very own book. Most CFD providers will work to hedge these positions according to their own risk models, which can be as simple as selling or buying the underlying or as diverse as consolidating client positions or portfolio hedges. On the other hand, the direct market access was made as a response to various concerns that pricing in the market maker model may not always match the underlying instrument. Physical trade on the underlying is guaranteed by a CFD provider to match each order made. However, the Contracts for Difference are still between the traders, with the provider and traders sill not owning underlying instruments.

Risks involved

Like most things in finance, this derivative also has risks. These include market risk, liquidation risk, and counterparty risk. The most common kind is market risk, where these are designed to pay off the difference between the closing price and the opening price of an underlying asset. Liquidation risk, on the other hand, lets CFD providers call upon parties to deposit additional money to cover additional variation margin, while counterparty risk is connected with the financial stability of a counterparty to Contracts for Difference.




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Live Futures Trading Seminar: The Nots in Futures

Is there a future in futures trading? Depending on how you look at it, the answer can be either yes or no. So what is the importance in going to a live futures trading seminar and other forums? There are a lot of mistakes a trader usually commits. The first of that you may say is mistaking a commodity into a profit gain that is actually nothing but a profit loss in the end. No. The most popular misjudgment to avoid for any broker is by turning the gain into a loss. You had your $1000 profit by now. You have doubled your capital. The most sensible thing to do is either to dissolve it so you will have your solid cash or you can double it by investing again.

In this dilemma that a lot of traders lose all their chances of becoming rich for around 30% of the market trend tends to fluctuate. For those who didn't have any exit strategy the broker is left with either a price down or a zero earnings. So, again-what is the significance of going to a LIVE futures trading seminar? Seminars and conventions provide information to traders with not just the efficient strategy of earning profit but the possible way out too in case the market turns out bad. No other text could teach you that because at the end of the day, books are just meager theories and no practical application.

The second common mistake is believing that everything looks so easy and simple. Manuals are printed to invite every person to trade. There is nothing wrong with that, since you can actually make money from investing. However, what texts and manuals tend to disregard is to tell everybody that in each profit gain, there is also the big risk of profit loss. Many traders lose money not even finding out why. This is usually observed in a newbie in the business. Why?

Futures trading involves huge amount of money, thus the profit is also big. Almost every expert advises any trader especially in futures to implement a money management plan. Any broker who began even with paper trading knows how efficient a management plan is. It involves predicting when to buy a commodity, calculating how much money to risk and calculating when to cut losses. Especially with futures, one of the disadvantages here is the leverage (or risk, in simple terms). Big commodity is equal to high risk. In order to cover the losses many traders go for overtrade. Overtrading means buying too many commodities or buying a commodity with high leverage.

A lot of traders in fact profit from overtrading, but they instantly lose money too. Again, it is because purchasing in excess could never work. And again, a strong marketing strategy is the solution. Then the strong discipline to follow it. In every LIVE futures trading seminar you might go to, you may encounter many long-time traders who want to make it profitable next time. Learn from their errors and learn how to discipline yourself.




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Futures Trading Commodities

Futures trading is essentially the process of agreeing to buy or sell a particular asset or property, in a specified quantity and price for another date in the future. Each transaction or agreement is bounded by a futures contract, which is essentially a standardized contract that is duly signed by both parties to agree on a fixed price for the buying or selling of such assets even when the date is still set several months or years later. In a futures trading arrangement, prices are typically determined depending on the current supply and demand of the asset for sale and will not be influenced even if supply and demand forces significantly change later on.

Assets that are traded in a futures trading arrangement can be actual commodities but it can also involve assets like bonds, stock indexes, currencies, and interest rates. However, most commodities that are sold under this kind of agreement are typically agricultural commodities such as; oranges, wheat, pork bellies and other similar commodities. Precious metals are also sold under the contract arrangement.

Futures trading, just like any other kind of venture, involve a lot of financial risks. Most traders rely on trend predictions of particular commodities to determine their call of action. Supposing a trader finds out that the price of oil is predicted to go up in the future, what he would do is to invest in oil now through a futures contract so that he can profit from it in the future. However, if the price is predicted to significantly drop in the coming years, then he would have to sell his assets.

The primary reason that futures trading is a popular option among many farmers and other people involved in the agricultural sector is because of the frequently changing prices of commodities. If a farmer is unsure about how much he can sell his crops for in the future, as prices could possibly go up or down, he would naturally rather sell it under a futures trading agreement to someone interested, rather than risk not earning at all in the future.

The same principle applies to the buyer of the asset; since he is unsure about market prices, he would rather buy something now and agree on set price, rather than buying supplies when the market price goes up. Since the very nature of futures trading involves risks, traders have to be ready to lose a lot of money from time to time. However, if you know how to properly analyze trends, you can achieve so much success with this type of arrangement.





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As Rare Earths Get Rarer

China's role in the global rare earth market needs little introduction. China's restrictive trade policies have forced the rest of the world to rethink their own policies and explore rare earth resources in nations other than China. The governments of the US and certain European nations are trying to develop various strategies to secure their supply of rare earth metals.

Recycling and stockpiling are two options being considered as ways to hold rising prices and ease supply shortages. Urban mining is the new recycling buzzword. It involves the extraction of rare earths from e-waste. However, recycling is expensive and complex. Director General Ian Hetherington of the British Metals Recycling Association (BMRA) said, "The widespread use of these metals is a relatively recent phenomenon, and so there is not a significant amount recovered through (Waste Electrical and Electronic Equipment) recycling. Currently, recovering these materials can be costly and only produces very small quantities, making it uneconomical." He did add that the situation could change over the next decade.

The European Commission (EC) is investing about $23 million on research to improve underground technologies and to find substitutes for rare earths. The EC hopes to improve recycling techniques and make it economically viable. Germany, Japan and the US are working on recycling technologies too. Large players such as Hitachi and Mitsubishi are working to make recycling a viable option. China, on the other hand, plans to build a national stockpile of rare earths and that would naturally push prices upwards. China also intends to change its status from being a net exporter to a net importer of rare earth metals. Such a move is likely to further lower China's export quota and squeeze the global supply even more. Chen Zhanheng, director of the Chinese Society of Rare Earths said, "(There are) early signals that China is moving from sell-side to buy-side. China becomes a new market opportunity for producers outside China."

James T. Areddy of The Wall Street Journal says, "The reports say storage facilities built in recent months in the Chinese province of Inner Mongolia can hold more than the 39,813 metric tons China exported last year... Chinese state media reports say stockpiles may eventually top 100,000 metric tons." The US reportedly has the world's second largest rare earth deposits but extraction facilities are still under development. Emily Coppel, an American Security Project research assistant said, "The U.S. will need to develop new technologies and invest in mining operations to solve the long-term supply problem. In the short-term, stockpiling rare earths metals is one of the best ways to prepare for a future shortage until these new mines and technologies become available."

Other organizations have however spoken against stockpiling and instead support research in recycling, solar power equipment, wind turbines and electric cars. Robert Jaffe, Professor at Massachusetts Institute of Technology, said, "We do not recommend economic stockpiling which we believe is a disincentive to innovation and has backfired in the past. After all, many of these elements are not even found in significant deposits in the United States so mining independence doesn't even make sense." Other supply options being discussed are development of rare earth substitutes and international cooperation. Experts suggest that if nations join hands to develop new mines, they could reduce their dependence on China's monopoly.

China's unofficial ban on rare earth shipments to Japan last year forced the rest of the world to view China with considerable suspicion. Looking for alternate sources became a necessity. China's neighbors Japan and South Korea have already begun stockpiling rare earth metals. In fact, South Korea plans to spend up to $15 million by 2016 to build a stockpile of about 1,200 tonnes. In October last year, Japan's Prime Minister Naoto Kan said, "Stockpiling is one option we need to consider. While Japan is trying to secure supplies from countries other than China, establishing those agreements may take some time."

Efforts to undermine China's dominance are underway in South Africa as well. Canada's Great Western Minerals Group expects to produce about 2,700 tonnes per year of rare earth metals from its Steenkampskraal mine in South Africa. Chief executive Jim Engdahl said, "The big opportunity here that people haven't recognized is that China will become a net importer by 2014/15. We believe South Africa will become one of the leaders in this industry outside of China."

Japan has also expressed considerable interest in developing South Africa's rare earth industry among other sectors.




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Future Option Spreads Using Delta Neutral Trading

There are many traders who are interested in futures options. This is essentially an option on a futures contract.. Futures' trading takes place when futures contracts are both bought and sold. Amateurs in futures will need to learn many specifics when it comes to achieving success in this arena. One of the popular strategies being used today are credit spreads using delta neutral trading.

One of the primary focuses with futures options is decreasing risk. This is true here, as well as, with other types of trading. Seasoned traders have opted to institute delta neutral trading strategies. This neutral position is exactly what it says. It doesn't focus on the direction of the market. These strategies can be used, however, to take advantage of the market's movement.

Credit spread options play an instrumental role in this process. When the market trends are up, you can place a bullish future option spread. This is different when the trends are moving downward. In this scenario, you can place a bearish future option spread. Delta neutral trading uses the delta in trading decisions. Let's take a look at some of the ways that this affects futures trading.

What is the delta?

In futures trading the delta is important. It is in essence a ratio figure. This figure actually compares the change in the price of an asset with the change in price of a derivative. This is also referred to as the hedge figure or hedge ratio. When traders use delta neutral strategies the total delta figure is zero.

Credit spreads factor

Credit spreads can be used in futures options. These situations are created when you buy an option. At the same time, you will sell a related option to the one that you sold. There are many complexities to this type of procedure. When executing properly, this process can provide the best risk to profit scenario for traders. You do not have to buy an equal amount of options that you sell. You can actually put on what are called ratio spreads where the number of options you buy is different than the number of options you sell.




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Commodity Future Trading System: 5 Golden Rules To Follow!

The object for every commodity trading approach is to maximize gains while minimize the number of losses that come along the way. Flourishing trading business always requires certain guidelines and discipline that will help you in your quest for profit. Here are some commodity future trading system rules that can help you yield more profits.

• Control your emotions: online future trading system always demands you to control your emotion and never bring it in business. While trading, you should always allow yourself to think rationally every moment. Rational thinking gives you the ability to clear thoughts and analyze each situation better. This is the best quality of a successful trader.

• Cut expenses: it is very important in currency trading systems, to make sure that your opportunity cost does not exceed your losses. Losses are a part of every trading, but the ability to analyze the opportunity cost invested in doing your business with that of your losses, will make you come to a decision of continuing or backing out. Backing out does not mean that you stop your trading forever, but you can always re-enter the market whenever the stock prices are low. This comparison will always save you from big losses and can always help you in coming back again.

• Wise decisions: commodity future trading system always brings success to those who make good and wise decisions. Trading is always a game which needs to be played carefully and winning will take care of itself. Always have a plan with you while you play your game and keep it forever disciplined.

• Learn your lessons: when you lose while you are trading, push it away but always take it as a lesson in your business. Always keep your losses in mind and try not to repeat it again. Everybody learns from their mistakes and here you need to also learn from your mistakes rather than blaming it on others. This way, you can be able to succeed in the whole business.

• Overcome doubts: every person at the end of each day will be left with a stock without a reason. This is why you need to scrutinize your situation at all times and be willing to change direction at any point. This flexibility as an investor will always bring great advantages in the future.

• Keep your profile in check: your profits can out beat your losses even though the number of losses is greater than the winning trades. This is why you need to always manage your money, position, adhere to stops and guard your profits. This will always keep you playing in the game.

Last but not least, patience and endurance in commodity future trading system will always keep you in high optimism and confidence. Short-term patience will always lead to irrational decisions and finally end up in losses. Success doesn't come easy, and rarely are fortunes created overnight.

Charting Techniques Important To Futures Trading

The beauty of the futures market is that it is very similar to the principle of economics - demand and supply. If there are buyers for a particular stock or commodity, the price will rise and if not, it will fall. But the impression of many individuals who enter this market and feel that they can do some futures trading to make quick money needs to be viewed with skepticism and as many individuals would have found out, that impression is far from the truth.

However, there are advantages of futures trading in the sense that there is no physical delivery of shares and you are allowed to hold on to your position or get out of it before the contract term. That flexibility is indeed a great help and the fact that you can trade in a much larger quantity of shares by just paying some margin money is the main reason why many people buy and sell futures.

Now if you have to trade successfully in futures, you have to follow certain trading techniques that are based on mathematical models or charts. There is no point in trading just based on gut feel as you can lose money easily. The importance of charting in futures trading is as crucial as it is in physical trading of shares and it would be useful for you as a regular trader in futures contracts to be aware of the various line, bar and candle stick charts.

It has been found that the candle stick chart is usually the more referred to as it gives a quick snap shot of the performance of a stock during the whole day. Line charts are preferred when you have to look at the hourly movement of a particular stock.

It is obviously not very easy to pick up the nuances of charting and its various models all at once. The recommendation is that you pick up any one of the chart models and try to learn the maximum about it to the point of implementing it practically in your trading. That will actually tell you how well you have managed to learn that particular charting technique.

Once you get accustomed or are good at following a particular charting technique, stick to it and do not try to incorporate styles that are new to you. The fact that you find a particular chart style suitable to your trading indicates that you may have adapted to it far better and you must continue with it.




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Alternative Energy - Investments For The Future

Over the last few years there has been increasing concern about the rapidly depleting natural, non-renewable energy resources of coal, oil and natural gas. Human nature always seeks opportunity in adversity, and for the savvy there is the chance to capitalise. Governments and private companies have been investigating the renewable energy technology needed to harness these resources and the application of naturally replenished resources. These technologies include solar, wind, rain, geothermal, fuel cells, biomass, biogass and microturbuines.

There are several reasons why one might consider investing in renewable energy: to help fight global warming, to prepare for peak oil, to improve energy security and local economies, or to cash in on these trends. If you buy shares in a alternative energy company you can benefit forthese non-mutually exclusive goals. In fact, with one investment you can help the planet, feel good about your contribution and benefit from the spectacular growth story which is likely to lead to big profits in the future.

Just another bubble?

Just like the dot-com bubble there has been intense speculation, numerous no-profit start-ups and of course the established players diversifying to get their slice of the cake. Yet the internet has continued to grow and transform since the bubble burst. And as we now wade into web 2.0 more cautiously, we must concede that the reasons behind developing renewable energy are a lot more compelling than those behind the internet. The invaluable lessons learned from the last boom should guide your investments into the future. Unlike the internet, renewable energy companies are capital intensive and operate in a heavily regulated sector which is likely to impede rapid expansion.

Where and how to invest

Given the infancy of this complex industry it is hard to know where exactly to focus investing. There are many start-ups which may offer good value for money and many established companies turning their attention to this new sector.

Firstly, identify new companies involved in renewable energy. Focus on developing countries because these economies will be the driving force in alternative energy development. Classify these companies according to subsectors and the strength of business and opportunities for growth in the near future.

Secondly, identify established companies that are moving or have already started investing in alternative energy markets. Generally speaking this type of investment is less risky because established businesses have strong foundations and market capitalisation to offset losses.

Thirdly, identify companies that are part of the International Carbon Action Partnership or local Climate Action Partnerships. Besides developing alternative energy technologies these companies are heavily involved in lobbying governments for global reduction in carbon dioxide, methane, nitrous oxide, sulphur hexafluoride and other emissions.

Fourthly, watch for the formation of alternative energy focused mutual funds. Currently there is not too much to choose from and for the existing funds the relatively high expense and price ratios are a deterrent. For now, it makes sense that investors would be better off selecting individual stocks on merit and building their own portfolio. In addition, investors could negate the effect of speculative fluctuations by focusing on established companies who have already moved into the renewable energy arena.

Some experts believe there is considerable room for active management due to the complexity of these alternative energy technologies and the obvious lack of coverage by industry analysts. Success of actively managed energy portfolios is likely to be based on understanding the underlying technologies and being practical rather than emotional when it comes to selecting investment opportunities.

Investment solutions form part of a long-term financial plan to secure your financial future and a means for achieving your life dreams.




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Rare Earth Monopoly Coming To An End

Canada based Stans Energy Corporation is currently focused on developing mining properties in Kyrgyzstan. The company acquired the mining license for the past-producing Kutessay II rare earth mine in October 2009 and is now gathering and analyzing its historical data. Kutessay II along with the Kyrgyz Chemical Metallurgical Plant (KCMP) was the Soviet Union's most advanced mining properties at one time. It supplied 80% of the nation's rare earth metals for 30 years from 1960 to 1991. The mine was shut down in 1991 because of a fall in rare earth prices.

According to 1996 estimates, Kutessay II has over 20 million tonnes of rare earth metals (0.22-0.30% TEM range). This former open pit mine contains reserves of 15 metals that were earlier refined to produce 120 rare earths compounds. KCMP is supported by good infrastructure in terms of a railway line, qualified labor and steady power supply.

In January this year, Stans Energy announced that it had reached an agreement with the majority owners of KCMP to purchase 100% of the processing complex. Since the mine was a previously functioning mine, Stans Energy can save both time and money before beginning production. The company now owns the only past-producing heavy rare earth elements (HREE) outside China. With a 25-year mining license, Stans Energy is the only foreign company in Kyrgyzstan with a mining license.

Mining is a vital part of Kyrgyzstan's economy so Stans Energy's efforts have a lot of support from the government and citizens. Experts are of the opinion that Stans Energy is suitably positioned to create a promising non-Chinese resource.

California based Molycorp Minerals is on a similar path. It is reopening the Mountain Pass mine that operated for 50 years before it was shut down in 2002. Molycorp purchased the property in 2008 and spent the last couple of years studying and analyzing the mine. Interested parties predict that Molycorp Minerals could soon be a supplier of rare earth metals to China. Japan's Sumitomo Corporation is providing $100 million of the $531 million required to complete the project. The company plans to begin operations by producing about 3,000 tonnes initially and reach 20,000 tonnes by 2012. The final production rate is expected to reach 40,000 tonnes per year.

Australia's Lynas is another company that is ready to begin production. The company plans to begin initial operations later this year with the production of 11,000 tonnes per year. Production rates are expected to reach 22,000 tonnes per year by 2012. Andrew Sullivan, an analyst at BBY Limited said, "Lynas is in a good position because it signed a number of sales agreements. It definitely has first-mover advantage for Western or non-Chinese users that are looking to diversify. The same could be said about Molycorp. It's got agreements in place for quite a bit of its production."




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Three Factors Why You Should Invest in Commodities

With the national economy still in recovery mode, lots of investors who learned their lessons the hard way are now trying to knock monetary uncertainty by coming back to commodity investments, a traditional source of stability. Investments in gold bullion, silver bars, coins, and important mining metals help ease widespread fears about unsteady markets, the specter of a double-dip recession, and inflationary practices by in-the-red governments. Investing in precious metals quickly appears as an effortless, proven, and secure path to financial security for three basic reasons:

1. Play it Close to the Chest with Precious Metals
It is widely understood - and legitimately feared - that the zealous overprinting practices and reduced interest rates of central banks all over the world will derail global economic output and recovery. Printing additional money than a government can safely back forces investors and average citizens to worry themselves with palpable fears about inflation and stagflation, regressive economic states which will drive down the value of a dollar overnight.

The value of precious metals like gold, silver, and mining metals stays stable in the course of excellent times - and skyrockets in the course of the poor. When all of the economic indicators are pointing down, gold, silver, and other metals point up, precisely since these commodities are needed across the world for so many reasons. The reality that investors can store commodities like these in a secure or in non-fungible storage with a bank portends nicely for any person who requirements to rely on gold or silver. As soon as the economy recovers, or you need the cash, you'll be able to always exchange these commodities for their monetary worth.

2. Precious Metals are a Diverse Bunch
Events like recent uprisings within the Middle-East cause sudden spikes in the value of commodities. Gold is among them. One troy ounce of gold, or about 31.10 grams, worth $31.00 in early January, now rates at $1,396.30 as of this article's writing. Any person can follow the "yellow brick road" by investing in gold and riding the sudden surges to greater value for their investments.

For far more careful investors, silver bars and bullion emerge as commodities that are less complicated to fully grasp. Smaller markets for silver in the United States and U.K. translate to increased stability. Additionally, the slow rise up the silver ladder seems to be coming, with Money Morning forecasting that the value for silver can increase to $50 per ounce in 2012, signaling a 150% spike.

3. Emerging Markets Hunger for Precious Metals
In addition to the usual interest in gold and silver, precious metals also incorporate key baseline metals needed for the production of industrial products in emerging markets, such as those in China, India, and Brazil. Investors would be wise to ride bargain possibilities found in silver as well as coal and steel, which lots of markets rate in some of the exact same categories as their prettier cousins.

Why? It is no secret that state-funded organizations in China and India are gobbling up precious metals in domestic and foreign markets, importing large amounts of silver, coal, and steel. These commodities are utilized to fire up factories, produce sophisticated instruments for solar panels along with other alternative energy items. With a green-tech revolution past the tipping point, precious metals like silver will continue to rise in value and develop fresh capital opportunities for investors abroad.

Confident in the long-term reliability and new opportunities that these markets represent, any investor can see that now is the time to invest in commodities - and thus in the future.




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Commodity Market and Its Trading Strategies

A commodity is defined as goods for which there is demand in a market, but which is supplied without any differentiation in the market. The commodity market is divided in four segments and from it copper from base metals and petroleum from oils are main fluctuating ones copper fluctuates daily based on global supply and demand. So this can be considered as one of the characteristics of a commodity market good is that its price is determined as a function of its market as a whole. In commodity market well-established physical commodities is traded actively in intraday or spot market and other one is derivative market. There is another important class of energy commodities which includes electricity, gas, coal and oil. As commodities were things of value, of uniform quality, that were produced in large quantities by many different producers and the items in commodity market from each different producer were considered equivalent and traded on commodity exchange, it is based on standard stated contract that defines the commodity, not any quality inherent in a specific producer's product. Commodity is mainly traded on a commodity exchange and the list of some main exchanges are as follows:

1. Chicago Board of Trade.
2. Chicago Mercantile Exchange.
3. London Metal Exchange.
4. New York Mercantile Exchange.
5. Multi Commodity Exchange.
6. National commodity Derivative Exchange.

If we talk of commodity market in context of India then the Multi Commodity Exchange (MCX) and National commodity Derivative Exchange (NCDEX) are the main. Now we are going to talk over the main points of trading strategies to be laid in commodity market. The commodity market deals with four segments and trading in commodity will surely prove profitable if traded with strategy. Trading strategies to be followed in Commodity market:

1) In commodity market the trader should follow a strategy after checking their risk tolerance, comfort levels, knowledge of the markets. Doing this will clear your mind in case of risk tolerance that up to which amount of loss you can tolerate.

2) In commodity trading you can also follow "Trend Following" strategy that most of the professional traders use and recommend. The strategy says that the prices that are in a trend have a higher probability of continuing in that direction. Therefore, the odds should be in your favor by taking trades in the direction of the trend.

3) You also have a choice you can follow "Range Trading" when markets is not in a trend. In commodity markets range trading strategy, you would sell the commodity to market when it gets to the top of its range and buy it from the market when it gets to the bottom of its range. This strategy can work very well for a long period of time, but you have to be careful when the market breaks out of its ran. The person who is Trading in commodities can use these strategies and can grab profit. But first you has to have some knowledge of market you can also take help of advisory firms which provide commodity tips and MCX tips over the market.






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Seasonal Patterns Increase Your Odds For Success

What are they?

The most basic components of a seasonal pattern consists of its seasonal high, seasonal low, and the trends in between. They are basically cycles that repeat on a consistent basis, year after year. A good definition would be, the inclination for a given market to move in a certain direction, at specific times of the year. Seasonal analysis helps to identify when major market trends are likely to occur. It is important to remember, seasonal tendencies are only tendencies, and certainly not absolute.

Seasonal patterns are a valuable tool

Many commodities have a couple strong seasonal tendencies every year. Using seasonality as a tool in your overall analysis will increase your odds for success. All trading is based on probabilities. Traders who do not use seasonals are at a distinct disadvantage. Most seasonal patterns, especially in the grain market, are quite reliable. The trend, or price movement, should be your number one factor. Price is a function of not only current supply, but perceptions of supply in the future as well.

Think of seasonal patterns as a road map. When trading commodities, the past is a reliable and important guide. I have used seasonals as a major clue to envision market scenarios. Then, if the market meets your trading criteria, take a position, and implement good money management.

Two of my favorite seasonal patterns

The following examples work quite well. The key is to implement proper technical analysis, before taking a position in the market.

Corn will usually reach its seasonal low anywhere from July through October. Watch for a bottoming formation on the chart. Corn will typically reach its seasonal price high in the March through June time period. The price of corn usually goes down during the month of July. This happens as the crop is pollinated and matures.

Orange juice is an interesting market, due to the fact there are two different freeze seasons that directly affect the price. The market tends to go higher prior to the Florida freezing season, which peaks in November, and also prior to the Brazilian freeze season, which peaks in May. Orange juice tends to have its seasonal high price in the November to early December time period. The seasonal low tends to be near the end of February or June through August.

In summary

Seasonal patterns should not be used as the sole reason to get in a market. They are a good tool to use in your overall analysis. It is imperative to wait for the market to break out of a recognizable price pattern, one that has been proven successful over a long period of time. You want to put as many factors in your favor as possible, each and every time you trade. This is your edge, which will help you be successful in the long run.



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