Diversify Your Investment Portfolio With Commodities Futures

Among the many different types of investment options, one can choose commodities futures trading. In recent years commodities futures trading has gained popularity as a profitable investment option. There are different types of commodities such as oil, gold, corn, wheat, among many others that are traded through the futures markets. Before making any investment in commodities futures markets, it is necessary to understand the basics, including the terms used in the trading of commodities.

Basically, futures trading means getting into a contract. The agreement defines the terms and conditions to sell or buy a particular commodity at a specific price in the future. The quantity of the commodity is fixed in the agreement. Everything related to the actual delivery of the commodity is defined in the futures contract. There are even cash settlements for some of the futures contracts against the delivery of the commodities.

Trading in commodities is done through a commodity exchange using a futures brokerage. For investors this investment option presents a good way to diversify their portfolio away from the usual bonds and stocks. This also limits the risks that would be there if all the investments were made in a single option.

Among different types of commodities traded on futures markets, there is trading in oil futures. The crude oil prices are volatile and depend on demand and supply. To trade profitably in this commodity one needs to understand the basics of crude oil production and keep abreast of news related to its availability and future supplies.

Trading in corn futures involves contracts where the buyer agrees with the seller to take the delivery of the corn in a specific quantity, at a set date and at a set price. There are many commodity exchanges where corn futures can be traded. At the CBOT (Chicago Board of Trade) corn is traded in lot sizes of five thousand bushels or cents per bushel. Units of 50 tons are used for trading on NYSE Euronext Corn futures market.

Similar to corn, investors can trade in wheat futures through the commodity exchange. The buyer gets in contract with the seller and agrees to take delivery of the wheat in a specific quantity on a set date and at the set price. Wheat futures trading can also be done at the NYSE Euronext or at CBOT. Prices of contracts are quoted in cents per bushel and in dollars.

It was in Chicago, USA when a central dealing facility in 1878 was established that allowed dealers and farmers to carry out commodities futures trading. Over the years, the systems associated with commodities market developed considerably allowing more people to trade. In recent years with the technological advancements in communication and real-time data transfer facilities, more people are able to trade in futures market online and from home. Agreeing to futures prices, an investor can deal with different types of commodities and earn a good profit.

In order to trade successfully, investors must be able to establish the relationship between the expected future price and the current price of a commodity. Along with that they need good information related to the supply of the commodity that will affect its future price. Trading in commodities futures can be rewarding if one follows the basics of investment and remains informed all the time.

Take Profits Using Futures Swing Trading

Short Time Frame Trading

Futures swing trading is taking a new futures position and closing the same position within a fixed duration of time. The trades usually last a few hours or a few days. The main objective is to ride on short-term pricing trends until pricing exhaustion. Any financial instruments, such as commodities, stock indexes, equities, or bonds, has a tendency to move in a certain direction for a medium or long-term period.

Definition of Swing Trading

There are many books on swing trading and much has been written on it. It is an objective method of assessing any financial instrument’s price movement. Trading on price trends gives a rough indication of what a futures contract is likely to do, and this captures the market volatility on that futures contract price.

Without employing swing trading, it is nearly impossible or even difficult to predict futures price movements. This is because financial markets are moved by emotional and logical fluctuations. The emotional component of the up and down movements is difficult to quantify. Often there is a great impact, and other times little impact. Luckily, swing trading techniques can help us.

Analyzing Short-Term Trends

We can observe short duration price trends using trend analysis.Trend analysis shows how a financial instrument has moved in the past using regression tool to capture the likely future price movement of the futures contract.

Moving Averages Regression Line

A regression line could be drawn based upon past price movements. Any financial instrument with rapid movements below and above the regression line has a high volatility. High volatility is useful for trader who is looking to buying or shorting. Begin by measuring the past performance of the financial instrument. You can then use it to predict performance in the future.

Once you have elementary understanding of how a futures contract price moved in the past, you can begin to analyze how it will move in the future. A moving average is the average price over a fixed amount of time. You can set it to 3 days, 7 days, 50 days. Typically, a 20 day moving average is being used by professional traders as a regression line. If the price diverges from the regression line, it is likely to revert back to the line, as it may have resistance or support above and below the regression line. When the price diverges from the regression line drastically, you can profit from the volatile swings, and this is called swing trading.

Futures swing trading is trading futures contracts for a predetermined duration. As futures trading involves high leverage, it does allow you to profit greatly from the volatile price swings. Normally, you predict where the price of a futures contract will go in the future, from where it is today. Entering into a futures contract on a large swing in price thus allows a beneficial entry price for the futures contract. This is how you can use swing trades to profit.

Predicting stock, index and future prices is not difficult, but they do depend on micro and macro level financial and economic matters. There are no holy grail methods that can help you make 100% profitable trades. However, swing trading helps you in determining where the futures markets will be heading in the future and also whether the futures markets participants have correctly priced the futures contracts you are trading.