22 August 2013
Commodity Futures Trading Account - The Sensible Approach to Opening Your Trading Account
You are considering the trading of commodities, or the options on futures as a wonderful way to supplement your income. You can even go one step further and determine that trading commodities and futures is a wonderful way to make a living. This is a great idea! The futures can only go two directions; up or down. All one needs to do is determine the commodity direction and jump on board. What could be easier?
The next logical step is to find a place to execute your trades. You begin by going to the internet to find commodity and futures brokerages. You quickly discover that there are many futures brokerages offering a number of services to the commodity trader. Through your research you discover there are three basic levels of service futures brokers provide to commodity traders, which are full-service, discount, and online futures trading. Through more intense research you find out the very cheapest means to execute your trades is through online trading. Generally speaking the majority of beginning commodity traders will opt for online futures trading because it is normally the least expensive choice. Also, there is the sense of independence when online trading because one can place their own trades, bypassing a commodity desk clerk or futures broker.
The next thing needed is to call several futures brokerages and negotiate the cheapest online commission possible. It has been my experience over the years that beginning commodity traders spend a great deal of time and effort negotiating a commission rate. I believe the primary reason new futures traders spend so much time looking for the cheapest commission rate is because it is what they understand best. By this, I mean when they were young they saw their father haggle with the car salesman to get the the very best price for the new car and mom scouring the weekly grocery ads to find the best price for needed groceries. It is what we all have been exposed to all of our life. This approach is fine for most endeavors but probably the very worst approach to take when establishing a commodity trading account. As explained earlier, pursuing a cheap commission rate is what a new futures trader understands best.
We will now explain the sensible approach to take for a commodity trader when opening a futures trading account. The very first thing one should consider once they have decided they would like to trade commodities is to find a broker that they feel comfortable working with. A commodity broker who has the years of experience, understands charting analysis for the many commodity markets, and also incorporates seasonal tendencies into their futures analysis. Many commodities such as gold and silver have strong seasonal tendencies, not just the agricultural commodities. Make sure the commodity broker you are considering will take the time to work with you, teaching you futures chart analysis, provide you seasonal information, and generally speaking, increase your overall trading knowledge, so you can become a successful commodity trader.
Please keep in mind that the leverage when trading commodities is tremendous. For example; the margin required in your trading account to hold a Corn futures contract is $2100.00. Corn futures pay $50.00 per one cent of movement. You purchase a Corn contract and it moves twenty-five cents in your favor the very next day, your profit for that one Corn futures contract would be 25 x $50.00 = $1250.00. That is almost a 60% return on your original investment, which in this case was the margin money that was required for you to hold a Corn futures in your commodity trading account. That is some significant leverage! The tremendous leverage associated with commodity contracts is the very reason why you need a well qualified, professional commodity broker to work with you, assisting you in improving your trading skills.
Finally, when deciding on a broker to work with, go to the National Futures Association website and check out the history reported by the NFA for the broker you have an interest in working with. Also, check out the Futures Commission Merchant that your commodity broker clears his trades through. This only takes a few minutes of your time and you can verify that your broker is licensed and registered with the proper authorities and does not have a history of poor trade execution.
Working with the right futures broker for you is the first and most important step in a reliable approach for trading commodity futures. Rather your trading full-service, a discount futures trader, or an online daytrader trading the Mini S&P, a qualified, professional commodity broker will significantly enhance your skills as a commodity futures trader.