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 Madtowntripper
Sun-Beams out of Cucumbers
Registered: 03/06/03
Posts: 21,279
Loc: The Ocean of Notions
Last seen: 8 days, 8 hours
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 April Wheat Up 1/4, Pork Futures Steady... 
#8144762 - 03/14/08 05:14 AM (5 years, 2 months ago) |
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I grew up in Chicago my whole life and am an avid consumer of talk radio. Well, the main station I listen to is a 24/7 news channel and w/ their stock updates they always give the prices at the Chicago Board of Trade. Prices on wheat and corn and livestocks and oils and all of that jazz. So what are all of these things they are trading there? This is a commodities market, no?
And what is the basic premise of this? Is it more or less the same as a stock market, but with the speculation being on crops and livestock as opposed to corporate profits? Am I right in understanding that this is a more lucrative but much higher risk type of investment?
Any commodity traders here? Also, can you do this from home or is it necessary to be on the floor to do this type of trading? If you can do it at home, what would be the benefits of being in the actual Board of Trade building? I've been there several times and it always seems like an amazingly chaotic place that you can feel the energy of as soon as you walk in the door.
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After one comes, through contact with it's administrators, no longer to cherish greatly the law as a remedy in abuses, then the bottle becomes a sovereign means of direct action. If you cannot throw it at least you can always drink out of it. - Ernest Hemingway
If it is life that you feel you are missing I can tell you where to find it. In the law courts, in business, in government. There is nothing occurring in the streets. Nothing but a dumbshow composed of the helpless and the impotent. -Cormac MacCarthy
He who learns must suffer. And even in our sleep pain that cannot forget falls drop by drop upon the heart, and in our own despair, against our will, comes wisdom to us by the awful grace of God. - Aeschylus
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phi1618
old hand
Registered: 02/14/04
Posts: 4,102
Last seen: 3 years, 12 days
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Re: April Wheat Up 1/4, Pork Futures Steady... [Re: Madtowntripper]
#8145217 - 03/14/08 10:51 AM (5 years, 2 months ago) |
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This is commodity trading, and you can do it from home.
Commodities are traded as futures contracts. Each contract type will have an underlying (which could be a commodity like wheat, copper, or oil, an interest rate, a stock index, or something else), a size (for example, the light crude contract on NYMEX is for 1000 barrels of oil), and a strike date.
Futures contracts are traded freely and have their price set by the market until the strike date, at which point they are settled. Settlement depends on the exact contract being traded - sometimes, it involves physical delivery of goods, some contracts are financially settled. If you don't have the ability to deliver or receive goods, you need to close your contract before settlement.
There are three participants in any futures contract trade - a buyer, a seller, and the clearing house. For example, if I sell a NYMEX Light Crude contract with a strike of May 1, 2008 today at a price of 109.12, I am entering into a contract to deliver 1000 barrels of oil to the buyer of the contract in New York on May 1 for a price of $109,120. Since I don't have the ability to make this delivery, I will need to buy an offsetting contract sometime later.
In order to open a contract, I will need to have some money on margin with the clearinghouse, and as the market price of the contract changes, I'll either need to post more money to offset the change or I'll receive any gains.
For example, when I sell my May 1 Light Crude contract, my broker will deposit about $7100 of my money with the clearinghouse as margin. If the price at the end of the day is $100, I will have $9,120 in profit, which I will receive in my account. When I close the contract at that price, I'll also receive my initial margin. If the price goes to $111.12, I'll need to deposit my loss, $2000, with the clearinghouse as additional margin. If I don't have that money, my position will be closed for me, and I'll suffer any additional losses - which could very well exceed my posted margin - in other words, I could lose more money than I deposited with my broker.
There is nothing inherently more dangerous about commodities than any other type of investment - what makes trading commodities dangerous is the potential to abuse leverage. If you'll look back at my example, I traded a contract with a notional value of over $100,000 posting only $7000 as margin. If I only have $7000, I'm almost certain to lose all of my money to the inevitable short term fluctuations in the price of the contract - to trade this contract safely, I should be able to lose tens of thousands of dollars without being forced to close my position - that way, if I'm right that the price of oil in May will be lower than $109/barrel, I will make money even if the price in the meantime hits $120.
There's nothing inherently dangerous about trading commodities, but leverage is inherently dangerous and trading futures contracts enables you to use massive leverage.
IRL, the only futures contract I trade often is Globex E-Mini S&P 500, which is a stock index based futures contract that I have been shorting recently to offset the losses I take on my long stock positions.
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lonestar2004
Live to party,work to affordit.
Registered: 10/03/04
Posts: 8,978
Loc: South Texas
Last seen: 2 years, 1 month
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Re: April Wheat Up 1/4, Pork Futures Steady... [Re: Madtowntripper]
#8145301 - 03/14/08 11:36 AM (5 years, 2 months ago) |
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Interesting I've always wanted to invest in the commodities market.
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America's debt problem is a "sign of leadership failure"
We have "reckless fiscal policies"
America has a debt problem and a failure of leadership.
Americans deserve better
Barack Obama
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Madtowntripper
Sun-Beams out of Cucumbers
Registered: 03/06/03
Posts: 21,279
Loc: The Ocean of Notions
Last seen: 8 days, 8 hours
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Re: April Wheat Up 1/4, Pork Futures Steady... [Re: phi1618]
#8146213 - 03/14/08 04:18 PM (5 years, 2 months ago) |
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This is exactly what I was looking for.
Thanks for taking the time to write that up.
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After one comes, through contact with it's administrators, no longer to cherish greatly the law as a remedy in abuses, then the bottle becomes a sovereign means of direct action. If you cannot throw it at least you can always drink out of it. - Ernest Hemingway
If it is life that you feel you are missing I can tell you where to find it. In the law courts, in business, in government. There is nothing occurring in the streets. Nothing but a dumbshow composed of the helpless and the impotent. -Cormac MacCarthy
He who learns must suffer. And even in our sleep pain that cannot forget falls drop by drop upon the heart, and in our own despair, against our will, comes wisdom to us by the awful grace of God. - Aeschylus
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GnosticWarrior
Hermit
Registered: 03/11/07
Posts: 241
Loc: Oahu, Hawaii
Last seen: 4 years, 1 day
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Re: April Wheat Up 1/4, Pork Futures Steady... [Re: Madtowntripper]
#8146350 - 03/14/08 05:05 PM (5 years, 2 months ago) |
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I invest in commodities via etf's and etn's. I currently own two natural gas ones, UNG-etf, and GAZ-etn. They both are managed differently but at the end futures contracts are involved.
I also own RJA-etn which is the agriculture sub-index of the the Roger's International Commodity index. Commodity ETN's currently have a favorable tax treatment over ETF's. But I own mine in IRA accounts, so it doesn't matter.
ETF's and ETN's don't use any leverage, but they do charge you an annual expense fee. the ETN's are about .75%. That means if the underlying index or commodities, does not rise by more than .75% per year, I'm losing money.
My personal feeling is that, instead of holding cash or foreign currencies, I'd rather hold agricultural commodities.
http://www.elementsetn.com/Default.aspx
http://www.ipathetn.com/action/home?investorType=ind&
http://www.powershares.com/default.aspx
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