Today I will cover what a Futures contract is. What the purpose of the contract is. I will also point out some of the various different commodity contract specifications. This will identify the specific sizes or "contract unit size" and "minimum tick fluctuation". Also will be the monetary amounts for each commodity selected.
Futures are contracts on commodities, stock market indexes, currencies and all of the other entities that I covered in Commodities. The contract is an attempt to predict the value of the commodity at some date in the future.Thus the term Futures.
Futures contracts come in all different sizes and shapes. However, they are standardized in quantity and quality. Let's look at some examples. We'll start with Corn Futures. One contract of corn is 5000 bushels i.e. 127 metric tons. the "grade" is described as this: #2 Yellow at contract Price, #1 Yellow at a 1.5 cent/bushel premium, #3 Yellow at a 1.5 cent/bushel discount. We won't be concerning ourselves with the grade of corn unless you are actually planning on receiving it on your front lawn. The pricing "unit" of corn is "cents per bushel" and the minimum "tick" is 1/4 of one cent per bushel or $12.50 per contract.
Another example is a familiar one under the header of "Energy". Let's look at "Light Sweet Crude Oil" or "WTI" as it is more popularly referred to. WTI stands for "West Texas Intermediate". It is used as a benchmark in oil pricing. It is low density and "SWEET". Sweet meaning it has a low sulfur content. So if you have read my earlier posts, you won't have to taste the oil to see if it is "sweet", or "sour". Back on track. A contract of WTI is 1000 barrels of oil. The minimum tick for oil is $0.01 per barrel and is quoted in U.S. Dollars and Cents per barrel. Can you figure out how much a minimum tick is worth for each contract of oil? If not, don't worry, I'll be covering that a later date.
Let's look at "Metals". More specifically GOLD, another hot commodity. Gold is traded in "troy ounces". The troy ounce or ozt is most commonly used to gauge the weight and therefore the price of precious metals. One troy ounce is equivalent to 31.1034768 grams. There are 32.1507466 troy oz in 1 kg. Again we will not concern ourselves on just exactly how much gold that really is unless you are actually planning on taking delivery of it. Each contract size is 100 Troy ounces. The price is quoted in U.S. Dollars and Cents per troy ounce and the minimum fluctuation is $0.10 per troy ounce.
Cattle, hogs, pork bellies have contract sizes of 40,000 pounds or 18 metric tons. Different variations of how the product is identified or displayed is under each separate futures contract. A contract of milk is 200,000 pounds. How about lumber? A lumber contract size is 110,000 board feet or 260 cubic meters. The product description is: 2-inch by 4-inch lumber, 8-20 feet long. The pricing per unit is: Dollars per 1,000 board feet or mbf and the minimum tick size is: $.10 per mbf or $11 per contract. MBF is the term used used in the lumber industry to describe 1,000 board feet.
We covered bushels, barrels, ounces, pounds and board feet. I think you get the drift. Time to look at something different. How about something under the "Equity Index". Let's examine my favorite, The S&P 500. I'll cover this one in a little more detail. Don't worry if you don't quite understand all the "lingo" for I will be covering this index in greater depth at a later time. The S&P 500 has first public records going back to 1926 and it contains the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock market exchanges: the New York Stock Exchange and the NASDAQ. The contract size is $250 x S&P 500 futures price. The tick minimum is 0.05 index points=$12.50 in a calendar spread but is 0.10 index points=$25 in an outright cry.
I now have covered just a few of the basics in what futures contracts are and their underlying meanings or contents. It is important to understand that when an individual is trading commodities there is a REAL, qualified product that is being traded. A certain commodity can and WILL be actually delivered to your doorstep if you are not careful. Of course there are safeguards in place so this does NOT happen. But "buyer beware", the potential is still there. There are also different ways to trade futures that are much safer than trading actual contracts and will limit your liabilities and make you a more confident and successful online commodities trader. See ya in the pits!
Wednesday, June 29, 2011
Tuesday, June 28, 2011
Commodities
Today I will talk about Commodities. Explain what the word Commodity means and how many different products the word encompasses. I will only be listing some of them. There are "Old School" Commodities and newer Commodities that have been recently developed. I won't be pointing out the old from the new for it is immaterial at this time. What I want to do is inform the reader of the BASIC opportunities available. You may know more about one specific Commodity than any other. In which case you may want to study that particular commodity as we travel down this learning path. If you know nothing about commodities at all, sit down and read for a spell. It is an adventurous road indeed.
What is a Commodity? A Commodity is a "good" for which there is a demand for. There are "soft commodities", which are goods that are grown and there are "hard commodities", which are goods that are obtained through mining or extraction processes. There are also others that have NO underlying product. To break this down further so you can see the difference, we have commodities in Agriculture, Energy, Equity Index, Forex or FX as it is better known by, Metals and Interest Rates just to name a few. Different exchanges trade different commodities. I will cover the different exchanges and what they trade at a later date.
So to break these commodities down even further I will start with agriculture. First off, "Grains & Oil seeds. There is corn, wheat, soybeans, soybean meal, soybean oil, crude palm oil, oats and rough rice. My favorite in this category is soybeans. Back when I first started my online commodity trading, this was my first big winner. I can't remember the circumstances exactly but I was positive, because of the weather we were having at the time, soybean prices would skyrocket. I was right and the trade even surprised my broker at the time. More on that later.
Under the same header of "Agriculture" we have "Livestock". This includes: Live cattle, Feeder cattle, Lean hogs and Frozen pork bellies. People laugh at Pork bellies but what do you think happened to the prices when the commodity trading communities first heard the words "Swine Flu"? Think about that. There is "Dairy". There are various "Milks", Milk powder, whey, butter. "Softs": Cocoa, Coffee, Cotton, Sugar. "Forest": Lumber and Pulps. Enough on "Agriculture", let's move on.
The next header I move to is "Energy". I'm sure most people find this one interesting because of it's popularity in the news on how it affects our pocketbooks. The first title under energy is: "Crude Oil". But did you know that under the title of Crude Oil there are 6 other oils beside "Light Sweet Crude Oil"? Which by the way, closed at 90.85 per barrel Friday on the floor, but Globex has it at 91.10. More on Globex MUCH later. There is also "Gulf Coast Sour Crude" for one. I never have tasted oil, not intentionally anyway. So how do you tell if it turned sour? Food for thought.
Another header is FX or Forex. This is a whole world all by itself. The main titles under this header are: "G10 Currency Pairs" and "Emerging Market Currency Pairs". G10 is of course the top 10 industrial nations which has been increased to 11 but they never changed the name. Currency pairs is the comparison of one of the top 10 currency dollars against another dollar, typically the U.S. Dollar or USD as it is more popularly known and traded as. Emerging Market Pairs is of course just it says. Newcomers doing well, or not. Forex trading is huge and deserves a lot of attention if one is going to get involved. Not that any other Commodity deserves less, but the fact of following different countries currency rates comes under close scrutiny. I will be covering in great detail the aspects of Forex investing at a later time. This includes looking at Forex accounts. I will strive to bring all of the available tools that the future FX trader may need.
The next header is "Metals". What comes to your mind first? GOLD of course. Gold is under the title of "Precious". Also under that same title is: Silver, Platinum and Palladium. Under the title of "Base" is Copper. Another is Uranium. You can't actually take possession of any Uranium. Uranium futures are a hedging tool for producers and users of uranium. More on "Hedging" at a later time. By the way, August Gold closed at 1502.80 and Globex has it at 1503.40.
Another header is "Interest rates". Under that header is "STIR" Short term interest rates. And under STIR is Eurodollar, Euro yen, 30 day federal funds, and 13 week T-Bills. The title "US Treasury Futures" has: US T-Bonds, 2,3,5, and 10 year T-Notes, just to name a few. More titles are "Swap Futures", Interest Rate Index Futures, and Sovereign yield spreads. Under those titles are many itemized listings. I don't want to bore the reader with everything available.
I saved the best header for last. I say the best because this is the one I love. It is called the "Equity Index". The main titles under Equity Index are "US Index" and "International Index". Under the International Index is basically the Nikkei. BUT under the US Index you have listings for: S&P 500 and many variations. NASDAQ and its variations and DJIA (Dow Jones Industrial Average) or DOW, and its variations. I like these because you can trade the WHOLE index. All those little stocks make up the index and you can trade the entire entity. We all have our "pet peeves", and in trading, the S&P 500 is mine. Again, a more involved discussion will come after we cover basic online commodity trading.
I have now covered what a commodity is and a FEW of the different world products the word covers. Did you find a commodity that spiked your interest or know a little something about? If so, study it as we move along. Not familiar with anything? You just learned a LOT! If you're not new to commodities I'm probably boring you to death. BUT if you are new, you have to be amazed at the opportunities that are available in today's commodity markets. See ya in the pits!
What is a Commodity? A Commodity is a "good" for which there is a demand for. There are "soft commodities", which are goods that are grown and there are "hard commodities", which are goods that are obtained through mining or extraction processes. There are also others that have NO underlying product. To break this down further so you can see the difference, we have commodities in Agriculture, Energy, Equity Index, Forex or FX as it is better known by, Metals and Interest Rates just to name a few. Different exchanges trade different commodities. I will cover the different exchanges and what they trade at a later date.
So to break these commodities down even further I will start with agriculture. First off, "Grains & Oil seeds. There is corn, wheat, soybeans, soybean meal, soybean oil, crude palm oil, oats and rough rice. My favorite in this category is soybeans. Back when I first started my online commodity trading, this was my first big winner. I can't remember the circumstances exactly but I was positive, because of the weather we were having at the time, soybean prices would skyrocket. I was right and the trade even surprised my broker at the time. More on that later.
Under the same header of "Agriculture" we have "Livestock". This includes: Live cattle, Feeder cattle, Lean hogs and Frozen pork bellies. People laugh at Pork bellies but what do you think happened to the prices when the commodity trading communities first heard the words "Swine Flu"? Think about that. There is "Dairy". There are various "Milks", Milk powder, whey, butter. "Softs": Cocoa, Coffee, Cotton, Sugar. "Forest": Lumber and Pulps. Enough on "Agriculture", let's move on.
The next header I move to is "Energy". I'm sure most people find this one interesting because of it's popularity in the news on how it affects our pocketbooks. The first title under energy is: "Crude Oil". But did you know that under the title of Crude Oil there are 6 other oils beside "Light Sweet Crude Oil"? Which by the way, closed at 90.85 per barrel Friday on the floor, but Globex has it at 91.10. More on Globex MUCH later. There is also "Gulf Coast Sour Crude" for one. I never have tasted oil, not intentionally anyway. So how do you tell if it turned sour? Food for thought.
Another header is FX or Forex. This is a whole world all by itself. The main titles under this header are: "G10 Currency Pairs" and "Emerging Market Currency Pairs". G10 is of course the top 10 industrial nations which has been increased to 11 but they never changed the name. Currency pairs is the comparison of one of the top 10 currency dollars against another dollar, typically the U.S. Dollar or USD as it is more popularly known and traded as. Emerging Market Pairs is of course just it says. Newcomers doing well, or not. Forex trading is huge and deserves a lot of attention if one is going to get involved. Not that any other Commodity deserves less, but the fact of following different countries currency rates comes under close scrutiny. I will be covering in great detail the aspects of Forex investing at a later time. This includes looking at Forex accounts. I will strive to bring all of the available tools that the future FX trader may need.
The next header is "Metals". What comes to your mind first? GOLD of course. Gold is under the title of "Precious". Also under that same title is: Silver, Platinum and Palladium. Under the title of "Base" is Copper. Another is Uranium. You can't actually take possession of any Uranium. Uranium futures are a hedging tool for producers and users of uranium. More on "Hedging" at a later time. By the way, August Gold closed at 1502.80 and Globex has it at 1503.40.
Another header is "Interest rates". Under that header is "STIR" Short term interest rates. And under STIR is Eurodollar, Euro yen, 30 day federal funds, and 13 week T-Bills. The title "US Treasury Futures" has: US T-Bonds, 2,3,5, and 10 year T-Notes, just to name a few. More titles are "Swap Futures", Interest Rate Index Futures, and Sovereign yield spreads. Under those titles are many itemized listings. I don't want to bore the reader with everything available.
I saved the best header for last. I say the best because this is the one I love. It is called the "Equity Index". The main titles under Equity Index are "US Index" and "International Index". Under the International Index is basically the Nikkei. BUT under the US Index you have listings for: S&P 500 and many variations. NASDAQ and its variations and DJIA (Dow Jones Industrial Average) or DOW, and its variations. I like these because you can trade the WHOLE index. All those little stocks make up the index and you can trade the entire entity. We all have our "pet peeves", and in trading, the S&P 500 is mine. Again, a more involved discussion will come after we cover basic online commodity trading.
I have now covered what a commodity is and a FEW of the different world products the word covers. Did you find a commodity that spiked your interest or know a little something about? If so, study it as we move along. Not familiar with anything? You just learned a LOT! If you're not new to commodities I'm probably boring you to death. BUT if you are new, you have to be amazed at the opportunities that are available in today's commodity markets. See ya in the pits!
Monday, June 27, 2011
Types of investments
There are many different types of investments. I will not be covering all of them for I do not know probably even half of what's out there. People tend to start with long term diversification. As time goes by, realization of retirement goals may or may not be met. My goal is to inform the reader that online commodity trading can be very costly if approached without all of the knowledge and tools that are available. If an individual HAS the knowledge and tools, it can also lead to windfall profits without the risk.
So let's start with some of the safe investments. I will give a short description of some of these and will provide links to some of the websites that have more information if you so desire.
The first to come to my mind are "Government Securities" or "Treasuries". These types of investments are considered to be extremely secure because they are backed by the government. The following website describes all of the different types of treasuries available: http://www.publicdebt.treas.
Another almost risk free investment are "Municipal Bonds". These are issued by Cities, Counties and States. For more information this site is very useful: http://en.wikipedia.org/wiki/
A real obvious choice is of course is collectibles. Go through Grandpa and Grandma's attic or cellar and see what you can find. My Grandfather had a 1947 Studebaker sitting in one of his sheds for as long as I can remember. The motor was froze up, upholstery was junk, paint was gone but the body was perfect. Told him I'd give him $50.00 for it. For YEARS I tried to buy that car. But alas...he finally sold it for scrap. Probably got $55.00 for it. I never asked. Should have upped my offer.
Life insurance is good for peace of mind for you and your loved ones.
Mutual Funds are good for diversification depending on how aggressive you want to be. Again, Wikipedia has great information. http://en.wikipedia.org/wiki/
Now let's up the ante a little bit and throw some not quite so safe investments out there. I put "Common Stock" into that category. Unless you are positive that the company you are investing in is going to be profitable, or if you are going to trade the stocks yourself, you may be in for a letdown. The most common philosophy is "Buy low, sell high". If it were only that easy. Many of the same maneuvers I will cover in Commodity trading can be used in every day stock trading.
So let's cover trading commodities. High risk indeed, if you don't know what you're doing. Many people consider Commodity trading is like a trip to Vegas. Costs money to get there and when you DO arrive, you lose whatever you had and possibly more, without the fun. But there are safe ways to invest in commodities or as most people prefer, the all encompassing term: Futures or Futures Contracts. There are many different avenues of approach when looking at Futures contracts. A portion of this falls into Forex investing. There are Index futures and one of my favorites, Options futures. All of these and more will be discussed and studied in future posts.
We now have covered just a few of the many different types of investments. We touched on safe investments and some not so safe investments. If any of the readers want more information on ANY or MORE of the topics I touched on, please let me know. I will be covering online commodity trading, futures contracts, Forex trading and options on futures in the near "Future".
So let's start with some of the safe investments. I will give a short description of some of these and will provide links to some of the websites that have more information if you so desire.
The first to come to my mind are "Government Securities" or "Treasuries". These types of investments are considered to be extremely secure because they are backed by the government. The following website describes all of the different types of treasuries available: http://www.publicdebt.treas.
Another almost risk free investment are "Municipal Bonds". These are issued by Cities, Counties and States. For more information this site is very useful: http://en.wikipedia.org/wiki/
A real obvious choice is of course is collectibles. Go through Grandpa and Grandma's attic or cellar and see what you can find. My Grandfather had a 1947 Studebaker sitting in one of his sheds for as long as I can remember. The motor was froze up, upholstery was junk, paint was gone but the body was perfect. Told him I'd give him $50.00 for it. For YEARS I tried to buy that car. But alas...he finally sold it for scrap. Probably got $55.00 for it. I never asked. Should have upped my offer.
Life insurance is good for peace of mind for you and your loved ones.
Mutual Funds are good for diversification depending on how aggressive you want to be. Again, Wikipedia has great information. http://en.wikipedia.org/wiki/
Now let's up the ante a little bit and throw some not quite so safe investments out there. I put "Common Stock" into that category. Unless you are positive that the company you are investing in is going to be profitable, or if you are going to trade the stocks yourself, you may be in for a letdown. The most common philosophy is "Buy low, sell high". If it were only that easy. Many of the same maneuvers I will cover in Commodity trading can be used in every day stock trading.
So let's cover trading commodities. High risk indeed, if you don't know what you're doing. Many people consider Commodity trading is like a trip to Vegas. Costs money to get there and when you DO arrive, you lose whatever you had and possibly more, without the fun. But there are safe ways to invest in commodities or as most people prefer, the all encompassing term: Futures or Futures Contracts. There are many different avenues of approach when looking at Futures contracts. A portion of this falls into Forex investing. There are Index futures and one of my favorites, Options futures. All of these and more will be discussed and studied in future posts.
We now have covered just a few of the many different types of investments. We touched on safe investments and some not so safe investments. If any of the readers want more information on ANY or MORE of the topics I touched on, please let me know. I will be covering online commodity trading, futures contracts, Forex trading and options on futures in the near "Future".
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