Starting Commodity Futures Trading - Overview

Taking part in trading is not a quick and simple ordeal. After you have determined that commodities and futures are actually, for you, you should commit yourself to learning all that you can possibly learn. This is an ongoing process; the possibilities are near daunting when it comes to considering the market conditions, your portfolio design, the various trading platforms, understanding trends, strategies, cyclical patterns, which is not to mention entering orders, risk management and all factors that affect trading the account. When just setting out to begin, therefore, it is an especially critical stage. Therefore, entering the sphere of trading should be taken for just what it is, an act of learning, and not a way to leap into quick gains.

Real World Experience
Make a practice of following the markets, and observe how they react over time and in various economic situations. Track a few traders of note, ones that have an intricate and abiding interest in the asset class, and watch it among others. See how they analyze activity over time. Study market indexes that have earned a reputation. Some traders test themselves by experimenting with a simulated platform to help gain a feel, though keep in mind, emulators are not real world experience. Neither are publications. Always look at a variety of in-depth sources.

Gain exposure to market fundamentals (group and individual markets) as well as technical analysis. Though you will likely veer to be inclined toward one of these.

Find a Broker
Find a full service firm, and don’t cheat yourself. Always look at least several that will discuss the associated risks (very important) and your needs. Do all you can do to find an honest, trustworthy, and seasoned broker that has a clean record over a number of years -- checking background and references and the CFTA and NFA about them. Look at their performance numbers as much as practical.

Usually new traders are encouraged to go with a full service firm, to help with guidance and advice, their portfolio, order placement, strategy and all main aspects of trading. There are also venues such as a commodity pool or investing in companies that deal in commodities to help get a better understanding first.

Open & Fund Account
Decide on an amount of risk capital (an amount that might be lost) that you can start with trading; beginning with modest amounts initially and then proceeding at your own pace of learning. A qualified broker should be able to help with determining an amount needed to achieve diversification, and there will be a minimum amount required, which you may want to take into consideration beforehand. Along with the margin requirement, depending on your chosen futures market (keeping in mind that the margin may need to be refunded by you if losses exceed this initial amount).

Choose Futures Market & Position
Choices broadly include energies, such as crude and natural gas, metals like gold & copper, and agricultural like wheat and cattle -- though the total possibilities are far more exhaustive. Markets traded also include certain indices and currencies. Planning the trade will take into account the contract expiration and your position size which does bear an influence on risk.

Some traders just starting out choose to lower risk by opting for the mini contract, which trades at a portion of the full contract size. It is available in different commodities.

Enter Trades
Whereas the experienced trader might call in an order to be executed directly, the beginner with a full service account has the broker that has been given authorization by you to trade on your behalf (though technically speaking, there are variations of the discretionary account; in regards to order price and time) In any case, the order is either called in or done by pc.

Placing the order does require an experienced hand. Whoever does so should have a complete and thorough understanding of the ways of orders. When it comes to placing orders, using a broker reduces the chance of error. There are many strong proponents that recommend placing an order with a stop loss on the position – aiming to manage risk by reducing losses incurred.

Following execution or cancellation of the order, a confirmation from the broker should ensue

Monitor/Tracking/Review
Be aware how often the broker is to review the positions and your account. Watch and study the trades yourself, ever learning, ever improving. Knowing that most all markets continually rise and fall.