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Saturday, December 1, 2012

Tips for Options Traders

People who are into the trading business can also consider options trading. However, this may not be the usual type of market where they get hold of the physical commodities or the stocks that are being traded. There are some important things that people should know and understand before they actually invest their money in order to diversify their trading portfolios. Although most traders would agree that options may be a risky business, they can still gain from it if they understand how this market operates and if they know how to apply various strategies.

When traders buy options, they are lessening the degree of risks involved in their investment. This is possible because they are not actually paying for the entire amount for a particular volume of assets. They only transact on specified portions that requires them to pay for a fraction of the total price involved. Those who are dealing with the actual commodities or assets have to be ready with their big capital in order for them to participate unlike traders in options who do not need to have lots of money in order to start with options trading. Options traders also limit their losses to the amount that they have invested as they do not have to pay for the entire value of the underlying assets in the contracts.

Beginner traders have to understand how they can make use of leveraging when it comes to options trading. They can buy calls even without having the entire capital for the commodities. Traders need to pick or buy the right call so that they may be able to mimic stock market positions as much as possible. Leveraging provides them with the chance of gaining more profit even without having a large amount as capital to start with. However, new traders also have to know when they can use this strategy as there are some market situations when they may lose their investment instead of gaining from it.

Traders who are into options can get into other forms of investments. They may try working with stock movements especially those that are considered as volatile movements because of the time element involved. Unlike the traditional trading platforms, options traders can work online and they can start with very low capital. They may also be able to find online brokers that would allow them to open practice accounts first in order to familiarize them with the procedures that are involved in making online options trading transactions. People may also consult with options trading professionals if they would like to be guided when they make investments in this type of market.

Pent Up Silver Demand and The CFTC Linchpin Pointers for Commodity Traders The Gann Technical Analysis of Price Movements Various Orders in Futures Trading Reasons Why China Wants Its Citizens to Own Precious Metal How and Why CFD Traders Fail?

Helpful Tips for Commodity Traders

Individuals who are planning to participate in commodity trading have to learn a lot of things before they put in their investment in any of the assets or commodities that are traded in the market. They may have the opportunity to really earn a considerable profit if they know what they are doing and if they are making the right trading moves given the prevailing market trends and conditions. In order for commodity traders to achieve this, they need more than enough knowledge and adequate trading skills to start their trading business.

Individuals also need to study more about the psychology of traders and to understand it accordingly. Commodity traders are at times driven by their emotions and this may not benefit them in terms of making errors as they are carried away by it. They have to think clearly and objectively based on their market analysis. However, there are situations when they go along with the decision of the majority of traders which could mean more loses instead of winning in the transactions. They need to make their decisions based on sound market analysis and not on the general consensus of the traders only especially when their decisions are hastily executed without careful thought and study of the real market trend.

Aside from the opinions of other traders, there are still other sources of information. Commodity traders have to filter whatever information they get hold of. They have to select those that will be helpful to them as they decide on which market moves to take. People who would like to enter the market will have to prepare themselves first aside from the capital that they have to put up. They will have to know their commodities well so that they may understand how market factors may influence its price movement in the market. They will likely win in their trading activities if they have sufficient background on the item that they are dealing with.

Those who are new in commodity trading may need the help of expert commodity traders. They may be able to seek out their wise pieces of advice when it comes to buying or selling the assets. People may choose some other types of investments too or they may opt for a wealth management company to help them select where they could invest their money. Commodity traders need to understand that they have various options when it comes to selecting the assets that they will trade. They do not need to put everything in one type of commodity only because when they do, they stand the risk of losing all in the end.

CFD Trading and Surrounding Regulations

In United Kingdom, the Financial Services Authority is the one regulating and monitoring the world of contracts for difference (CFDs). Aside from that, there are various European Union directives pertaining to this transaction. Most of those directives seek to make the trading field smooth all throughout the entire region. It is in this light that traders and investors need to comply with the policies of the FSA so that they can continue to trade without hindrance or discontinuance. The FSA is also the one that is regulating the brokers working on this field. Hence, investors who are hiring brokers need to make sure that the one they got is an authorized or regulated one.

With the foregoing, the other regulations surrounding the CFD trading touch other aspects too. Some of these include the taxation, pricing or costs and even assets that investors can trade.

Taxation: Gambling versus Investment

On the one hand, the taxation treatment for this is primarily dependent whether the law considered it as a gambling or a form of investment. In UK, it is not equivocally a form of gambling. Well, this is because gambling is about fortune and chance. However, CFD trading does not solely rely on pure chances and luck. This is also because there are measurable factors that traders can research and interpret in order to get over the risk and earn profits.

In this regard, the government of UK taxes the income of a trader from this transaction. In some countries, this is not taxable at all since some governments treat this as a form of gambling rather than an investment. In terms of the taxation, it is, in fact, liable to capital gains when the trader gains more than the annual exemption level of Â£10,000. However, this is not liable for a stamp duty unlike in share transactions.

Pricing and Costs of CFDs

Like most of the financial instruments, the pricing of CFDs is primarily dependent on the market rate, in addition to the weighted factor. The broker includes the said factor in order to have a more accurate impression of where the market is most likely headed. In terms of the costs, CFD trading is more cost efficient. This is because it consists of only the commission of the broker and the financing cost.

Assets for Trading

Investments can engage into CFD trading with a wide range of assets, markets as well as instruments. For instance, traders can participate in a transaction in FTSE 1000 shares or even on index. Aside from that, other popular fields where investors can trade on CFDs include different commodities like rice, pork, livestock as well as precious metals. Further, this can also be traded on currents, bonds and interest rates.

How to Trade Commodities

Individuals who are planning to enter the trading world need to understand more about it before they invest in order for them to gain and not to lose their money in the process. A clear understanding of what is being traded and the processes that are involved will greatly help people especially those who are still new in this business. First of all, commodities refer to the raw materials that most people need in order to live. There are three kinds of commodities namely agricultural products, energy and metals. These commodities are being traded the world over.

People also have to understand the basics of commodities such as tradability, deliverability and liquidity. They also need to know degree of risks that they are taking if they invest in specific types of commodities. However, people who would like to trade can also reduce these risks especially if they learn more about it. There are certain commodities that pose geopolitical risks such oil deposits in the Middle East. People can trade only with international oil companies that have established themselves in international markets over a period of time and companies that deal with economies of scale.

People have to be aware of traders who speculate on the price changes in the market. They have to learn how to discern real market trends and not to go with the speculators who only want to gain profit in a very short time. People also have to be careful when making trade transactions as they may also run the risk of fraud. Though commodities trading in exchanges are being regulated, there is still the risk of becoming a victim of fraudulent trading. People then have to study their options carefully including the firms that handle the commodities that they would like to trade.

People may have the option of getting a commodity trading advisor. However, they have to check the credentials of the securities professional that they would like to hire aside from him or her having the required license in this particular field. They may also dig into the trading background and the year of experience of the advisor in order for them to gauge his or her skills in providing sound financial advises as trading commodities may require people to put in their investments. People may gain a lot in terms of profits if they know how to trade commodities that they have chosen.

Gas Prices Jump More Than Expected

The recent jump in gas prices were expected to be much more gradual. We saw commercial traders as strong buyers of crude oil below $80 as June came to a close. We firmly believed that this would be the bottom of the cycle as the national average fell to $3.30 per gallon. What no one expected were the simultaneous mechanical failures of some of the main pipelines and refineries. This has caused the price of petroleum products like heating oil, gasoline and diesel fuel to skyrocket by 25% in little more than one month.

The refineries here in the U.S. use about 9 million barrels of crude oil per day. The last two weeks has seen nearly 2 million barrels per day taken off supply as unplanned shutdowns due to various mechanical issues and fires have popped up across the country. Further adding to the refinery issues is a cutback in supply that will be coming from Canada due to a leak sprung in the Enbridge pipeline, which has spilled more than a thousand barrels of unrefined crude oil in central Wisconsin. Enbridge has fallen under increasing regulatory scrutiny, as this is just the latest of a trail of pipeline failures. The most notable was a 2010 incident, which dumped 20,000 barrels of oil into the Kalamazoo River.

Mechanically, major refiners near Chicago and San Francisco have both been shutdown. There are two refineries that have been shutdown simultaneously in the Chicago area and both of them are among the 10 largest refiners in the country with the Whiting, Indiana facility ranking 7th and the Wood River, Illinois facility ranking 10th. These outages combined to raise the price of gasoline in the Chicago area by more than $.44 in less than a week. The Chevron facility in Richmond, California is responsible for 10% of the gasoline production on the west coast. Reports are conflicted on the how long these refineries will be out of operation. Estimates range from weeks to months on each individual facility with consensus that the Chevron facility in Richmond will probably be out of service the longest.

Political and fundamental factions had already begun battling over the true value of crude oil from March through July. This is seen as the battle between speculators and commercial traders. Commercial traders had been heavy sellers of crude oil futures from March through May when the market was trading above $103 per barrel based on Iranian threats and general unrest in the Middle East, which led to speculative buying. These threats were competing with a market that was massively over supplied. Eventually, over supply won and the Commitment of Traders analysis generated sell signals at both $109 and $106 per barrel. June's precipitous declines moved commercial traders to the buy side as they covered short positions and increased their positions by more than 30% during the month of June.

The final fuel to this petroleum rally is the expectation of further government stimulus to the economy. We've suggested over and over that the key to the upcoming election is the domestic economy and recent polls concur. The biggest thing President Obama could do to help himself would be to force a resolution in the Eurozone. The markets hate uncertainty and any conclusion to the drawn out death spiral of Ireland, Portugal, Spain and Italy would create a huge relief rally in the stock market. However, since his sphere of influence doesn't extend far past our shores, he'll do the next best thing by flooding the market with Dollars, which will lead to nominally lower interest rates and show that he is taking action.

Regrettably we will bear the unintended consequence of higher gas prices as our Dollar is devalued on the global market and our refineries find it more profitable to ship finished petroleum products overseas, rather than sell them on the domestic market.

Silver Prices: When Schrodinger's Cat Jumps Out of Pandora's Box

Although silver is traded as a commodity, it is also a form of money. You only have to go back less than a hundred years in the long span of human history to discover that silver once circulated widely as currency, typically in the form of silver coins.

In fact, the UK's paper currency the Pound Sterling originally obtained its name from the British currency that once represented the value of one pound of sterling silver, which is a mixed metal that consists of more than 92.5 percent pure silver.

Furthermore, as you look closely at the supply and demand profile for silver, the issue of its monetary status seems increasingly important.

Silver's Supply and Demand Profile Make it an Attractive Store of Wealth

All the silver ever mined that is currently available for use is known as the stock of silver, while the yearly amount of silver mined is known as its flow. Silver has a relatively high stock to flow ratio compared to other commodities, as does gold.

This means that silver's intrinsic value should remain fairly stable over time because the annual increase of the available amount of the metal is relatively low compared to the amount already in circulation.

This gradually increasingly supply of silver has supported its use by investors as a store of wealth over many centuries, and it makes silver far superior in this regard to easily printed paper currencies that facilitate an ever expanding money supply and which consistently lose value.

Despite Silver's Price Discovery Issues, it's No Schrödinger's Cat

Furthermore, a closer examination of silver's supply/demand situation and the nature of price discovery leads to a puzzling question: Why has silver's price remained muted for so many years?

Beyond any benefit that the few consistent shorts that make money covering when the price drops might reap, the current price of silver seems just too cheap on a historical basis. It typically falls far below conservative inflation-adjusted price estimates.

When this apparent undervaluation of silver is investigated further, one might just find a faulty price discovery mechanism. When seeking a motive for this apparent market inefficiency, the conversation typically morphs into a demand issue.

Nevertheless, a commodity that trades largely via synthetic derivatives, such as futures and options,means that its price is determined by those derivatives markets, rather than by actual physical demand. This situation reveals the paper market for the sham that it is.

Looking closely at price discovery reveals that silver trades like a commodity, but its price is dominated and even manipulated by the very entities that benefit the most from keeping the over-inflated financial system from naturally imploding.

Despite these ongoing price discovery issues, silver seems far from being a bouncing dead cat and seems more akin to Schrödinger's paradoxical 'half dead' cat that could well surprise the market by making a dramatic price recovery. The fact remains that silver is a valid form of currency, especially in a crisis situation, as well as a valuable commodity with strong underlying industrial demand.

Silver's Price Locked in Pandora's Box?

Muted silver prices in the context of higher production costs have relegated most silver mining activities to the 'by-product' variety. This situation makes it more difficult to make reliable predictions about the future supply of silver since it typically depends on the production of other mined commodities.

Furthermore, the 'Pandora's Box' of silver's price has been kept closed for years due to the official dishoarding of the precious metal by central banks that has resulted in price suppression or even manipulation, as some observers have claimed. When this box finally opens, the price of silver will be set loose to find its true level.

Taking a close look at industrial demand also involves peering into the depths of an economic crisis as a thirty or forty year credit expansion cycle unravels, often with disastrous consequences. When the solutions are examined, suddenly all of the commodities become attractive investment alternatives, and silver and gold simply rise to the top.

Basically, when you examine the roots of the current financial crisis, sooner or later one discovers that the use of an ever-devaluing and intrinsically worthless paper currency is the true weakness of the financial system, not a faltering economy. Silver will continue to offer investors a safer haven against both gradual and catastrophic forms of wealth erosion spurred on by ever-increasing national debts and quantitative easing programs.