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Commodity Market Trading
Even when trading conservatively and slowly there is a
tremendous amount of money to be made in commodities.
Most new traders try to rush it and swing for the
fences. You can often control $100,000 worth of
commodities with only $10,000 of margin money in your
account. (5%-10% leverage) Here's how to take advantage
of this leverage and why those who abuse it lose their
shirts.
Commodity
Trading:
Be alert to aggressive commodity brokers who may try to
"load up" a new client quickly in an attempt to "lock
in" their capital. This means putting all your money
into the market right away. This tactic is sometimes
used when buying options. Options can create a false
sense of hope and safety. They claim there is plenty of
time for a move since commodity trading options can have
several months before expiration. Yes, lots of expensive
time to sit and hope and wait. But if the futures market
goes nowhere for a few months, the client is shocked to
find his capital has not remained intact, but rather has
eroded severely.
Commodity Market Traders
If the commodity market broker fears his own poor market
trading record, it is easier to make full use of the
client's capital by loading him right in the beginning.
In contrast, when committing to trades slowly and
holding cash in reserve, a client is more apt to close
his account if part of it erodes, before much damage is
done. So, you can see the incentive for a commodity
market broker with a poor trading record to try to put
most of the money into the market quickly. It's sad,
really. I have no problem with poor trading. There are
times when I can't trade out of a wet paper bag. We all
have our bad times. But what bothers me is putting too
much money at risk with an all-or-nothing attitude. Just
be alert to this. It's your money at risk.
Effective
Commodity Market Trading
Money management is important no matter what style of
commodity market trading. Risking less than 10% on any
one trade is the key to survival. Less than 5% is even
better if you have the account equity. I'm not saying
that futures contracts are better than commodity trading
options. I'm saying buying way out-of the-money, far out
in time commodity futures market options can make us
lazy in our market entries and risk analysis. The cry
is, "I have plenty of time!!... I'm not worried." But
that expensive time passes quickly. Just look at the
monthly chart of your favorite commodity (or stock) and
notice how often the market will chop nowhere for six
months at a time.
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