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Trading Commodities: Futures Market for Beginners

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Chicago board of trade

With high valuations and increasing uncertainty in the world’s stock markets, it is no surprise that investors are looking for stable alternatives for investing their money. Fortunately, commodities are there to take over as global stocks are losing their appeal, and investors are seeking effective ways for managing risks.

What Are Futures?

Futures contracts are basically financial contracts that obligate the seller to sell an asset or the buyer to buy an asset. The type of asset concerned could be a financial instrument, a commodity, stock market indexes, and currencies, and has a predetermined future price and date of delivery.

The futures contract itself contains details of the quantity and quality of the underlying asset and is standardized so it can be traded on the futures exchange. Some futures contracts call for payments to be made in cash, while others require physical delivery of the asset. The futures markets are particularly well known for their ability to use very high leverage, as compared to stock markets.

For the purposes of this article, we are focusing on futures as an instrument for trading commodities like oil, gold, silver, sugar, or even coffee beans. Lots of commodities and agricultural products are traded in the futures markets, but keep in mind that some of them might not be very liquid.

Marketplaces for Futures Trading

Futures floor trading

There are many marketplaces around the world where futures are traded. A few of them include the New York Mercantile Exchange, the Minneapolis Grain Exchange, the Chicago Mercantile Exchange, and the Chicago Board of Options Exchange.

The futures market is vast in size and typically increase in popularity during choppy times in the stock market.

Benefits of Futures Trading VS. Forex Trading

Some traders might be wondering which market they should choose; forex or futures. The truth is that they both offer some pros and cons. Some of the reasons for choosing futures over forex might be:

  • Liquidity: The futures market is extremely liquid with huge volumes being traded every day. Of course, forex is also a liquid market, but the dynamics of the markets may often be different.
  • Low cost: Futures is actually a very low-cost way of trading, and in some cases it can cost you less in fees than what is possible when trading forex.
  • Reduced screentime: Some traders who have made the switch from forex to futures also say they have managed to reduce the amount of time they spend glued to their screens, while at the same time improving their profitability.

Traders have also experienced that their trading strategies are working better in the futures market than in forex. There is some indication that certain instruments in the futures market are actually responding better to technicals than is usually the case in the forex market.

In fact, some futures instruments such as the E-Mini Nasdaq and E-Mini Dow Jones even have a tendency to trend very nicely during certain hours of the day, providing shorter term trend following traders with great opportunities for making profits.

Choosing a Broker

Futures broker

When you are researching the best futures broker, there are some features you should keep a look out for before you ultimately make the decision. These features include:

  • A transparent fee structure
  • Quick execution of trades
  • Trading platforms are intuitive and fully functional
  • Ability to access several futures exchanges

Some well-known online futures brokers you might want to take a closer look at include:

  • TD Ameritrade
  • E*TRADE
  • Interactive Brokers
  • Optimus Futures

These brokers all have different fees and minimum deposit requirements, meaning you need to go through each of them to make an informed decision regarding which one best suites your particular situation.

Educational Resources

Another great benefit of trading futures is the sheer amount of educational resources available to anyone online. There are huge forums such as futures.io that are dedicated to discussing anything related to futures, which can be a big help on the way for a beginning trader. In fact, there are even podcasts like the the Futures Radio Show that talks about all kinds of interesting topics related to futures trading.

As you have probably understood by now, futures trading can be a viable option for many retail traders and offers some real benefits over other markets. It may seem overwhelming at first to get started in futures, but for the traders who constantly strive to learn and improve themselves, chances are the efforts will pay off.

Featured image from Wikimedia Commons/Lars Plougmann.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.3 stars on average, based on 37 rated postsFredrik Vold is an entrepreneur, financial writer, and technical analysis enthusiast. He has been working and traveling in Asia for several years, and is currently based out of Beijing, China. He closely follows stocks, forex and cryptocurrencies, and is always looking for the next great alternative investment opportunity.




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Analysis

Platinum Update: Faces Life or Death Showdown

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The Platinum/US Dollar (XPT/USD) pair has been in a decade-long downtrend. In July 2008, the pair broke out of a double top pattern on the weekly chart after taking out support of $1,850. There were numerous attempts to reverse the trend and break out of the slump. However, every single effort was denied as bears held $1,850 resistance. As a result, XPT/USD is now trading around $800.

While bears seem to have the upper hand, there’s a case for a bullish reversal. In this article, we explore the bearish and bullish scenarios for the XPT/USD pair.

The Bearish Case for Platinum

In technical analysis, the prevailing trend remains until there’s a clear sign of trend reversal. As mentioned, XPT/USD is still in a downtrend. The downtrend was recently confirmed by a breakout from sideways consolidation on the daily chart in June 2018.


XPT/USD daily chart

The breakout quickly brought XPT/USD down to $800 support. While bulls are managing to hold on, it appears that their mettle will be tested soon.

Large Descending Triangle on the Monthly

The descending triangle is often a continuation pattern with a bearish bias. The lower highs of this pattern put enormous pressure on the support that it eventually snaps. We see this pattern emerging on the monthly chart of Platinum/US Dollar.

XPT/USD monthly chart

The pattern is enormous. It is large enough to keep many retail investors on the sidelines. From the looks of it, XPT/USD appears to have just completed the E-wave or the final dead cat bounce. With a new lower high in place, bulls are in for the fight of their life at $800.

The Bullish Case for Platinum

The good news for the bulls is that not all descending triangles are bearish. Sometimes, bulls use the price compression at the apex to take out the resistance.

The key issue to understand is that the pattern must be triggered first. If bears take out $800, then the market sinks deeper. If bulls breach the resistance, then that might just be enough to kickstart a bull run.

Double Bottom on the Monthly

If bulls win this battle, then many investors will look at the possibility of a double bottom reversal pattern on the monthly chart.

Possible double bottom of XPT/USD

The preservation of $800 support amidst the threat of a huge descending triangle paints a bullish picture. It should send a reverberating message that $800 is bull territory. This would attract all types of investors and may generate sufficient momentum to push the market back up to previous highs and create a double bottom reversal pattern.

Bottom Line

Bulls and bears are bound to have a showdown at the $800 support level. Whoever wins this fight gets to control the market in the coming months or even years. Bears have the upper hand but it looks like bulls have what it takes to pull out one big surprise.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.6 stars on average, based on 225 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Commodities

Gold Price Is Getting Crushed as Dollar Reaches New 2018 Highs

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Gold’s brisk selloff deepened Thursday, as investors put higher interest rates on the front burner following two days of testimony from Federal Reserve Chairman Jerome Powell.

Gold Price Levels

According to Bloomberg data, the price of gold bottomed at $1,212.70 a troy ounce on Thursday, extending a three-month selloff that has shaved 11% from the yellow metal’s value. Gold peaked slightly above $1,360 in March and April before plunging over the next three months.

Bullion is trading at its lowest level in over a year, with technical charts putting the next major support level around $1,200-$1,202 an ounce.

Silver, which often trades in the direction of gold, was off more than 2% Thursday to a low of $15.19 a troy ounce. The grey metal later recovered around $15.30 but was still down more than 12% from January’s settlement high of $17.61.

Dollar Rally Intensifies

A surging dollar has largely underpinned the massive exodus out of gold over the last three months. The U.S. dollar index (DXY), which tracks the performance of the greenback against a basket of currencies, has gained nearly 7% compared to three months ago. DXY is up 3.6% for the year, more than offsetting its worst annual start in decades.

On Thursday, the dollar index rose more than half a percent to a high of 95.65, its best level of the year.

The dollar’s strength combined with Brexit woes triggered a fresh slide in the British pound, which fell on Thursday to its lowest since August.

The Canadian dollar declined sharply on tariff fears, sending the USD/CAD currency pair to its highest level of the month.

A stronger U.S. currency makes the purchase of gold and other commodities more costly for international buyers, which reduces their relative demand. On Wall Street, investors have shown a renewed penchant for stocks in anticipation of a strong earnings quarter.

Fed Chairman Jerome Powell on Thursday wrapped up his semiannual testimony before Congress where he fielded questions on the economy, protectionism and cryptocurrency. Although Powell didn’t strike an overly hawkish tone, he left little doubt about the central bank’s plan to raise short-term interest rates.

On Wednesday, Powell told lawmakers they can expect several years of economic growth under the current policy regime.

“With appropriate monetary policy, the job market will remain strong and inflation will stay near 2% over the next several years,” Powell said in prepared remarks.

The central bank “believes that – for now – the best way forward is to keep gradually raising the federal funds rate” in a way that keeps pace with the economic recovery, he added.

Federal Open Market Committee (FOMC) members will next meet July 31-Aug. 1 to set short-term interest rates. No change is expected before September.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 555 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Commodities

Oil Prices Plunge as Saudi Arabia Prepares Record Output

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Oil prices declined sharply Monday amid reports that Saudi Arabia is heeding to President Trump’s request to keep the energy market well supplied. OPEC’s kingpin is stepping up its contractual obligations to key Asian markets amid disruptions from Venezuela and Libya, among others.

Oil Prices Drop

Crude futures in New York and London were down more than 4% on Monday. U.S. West Texas Intermediate (WTI) contracts for August settlement bottomed at $67.92 a barrel on the New York Mercantile Exchange, the lowest in nearly a month. Prices would later consolidate at $68.11 a barrel for a decline of $2.90, or 4.1%.

ICE Brent futures for September delivery bottomed at $71.80 a barrel, the lowest in three months. It was last down $3.16, or 4.1%, at $72.17 a barrel.

Saudi Arabia Ramping Up Production

Bloomberg reported Monday that the Saudis are planning to offer extra crude volumes to some of their Asian buyers less than a month after Riyadh convinced fellow OPEC members to crank up daily production levels.

Saudi Arabian Oil Co. has offered extra cargoes of its Arab Extra Light crude to at least two buyers in Asia, Bloomberg said. If approved, the additional supplies will be shipped for August.

Last month, the Organization of the Petroleum Exporting Countries agreed to raise production by 600,000 barrels per day, paving the way for an eventual 1 million-barrel-per-day increase for the cartel and its allies. The Saudis are planing to pump at record levels to offset supply disruptions elsewhere.

OPEC’s secondary sources indicate that the Saudis began ramping up production before the biannual meeting in Vienna on June 22, where cartel members agreed to ease supply restrictions. According to the data, Saudi Arabia boosted its daily output by 405,400 barrels in June compared with May.

Riyadh is also looking to pick up the slack from Iran, which faces renewed sanctions after U.S. President Donald Trump pulled out of the 2015 nuclear deal. The Saudis are said to be targeting crude output at 10.8 million barrels per day, the largest on record.

Trump Succeeding in Reining In Oil Prices

President Trump has criticized OPEC’s policies and has called on producers to raise their output in order to cap runaway price growth.

“Oil prices are too high, OPEC is at it again. Not good!” Trump tweeted in June. Earlier this month, he said: “The OPEC Monopoly must remember that gas prices are up & they are doing little to help. If anything, they are driving prices higher as the United States defends many of their members for very little $’s. This must be a two way street. REDUCE PRICING NOW!”

With political pressure to rein in oil prices intensifying ahead of the midterm elections, the Trump administration has announced it is considering tapping the nation’s emergency crude supply. The Strategic Petroleum Reserve currently houses a total inventory of 660 million crude barrels, though options under review suggest that figure is between 5 million barrels and 30 million barrels lower.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 555 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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