Understanding the Basics of Futures Options

New traders who would like to test the waters of the trading world may opt for future options instead of going right away into futures contracts. However, they have to get a clear understanding of the concepts related to it for them to get the most from their investments. A futures option is a right to buy or to sell commodities at an agreed strike price through a futures contract. Traders buy options at present as they bet on the price of future contracts to increase or decrease at a given time in the future. Those who engage in futures option mostly settle the agreements in cash. This may be an advantage to investors who do not have enough capital to pay for the value of the underlying assets such as commodities.

There are specific terms that new traders have to learn before they plunge themselves into the trading business through the futures options.

Calls

Traders may consider buying call options if they think that the price of the underlying commodities will increase. If they expect that the prices of corn futures will rise for example, then they may think of buying corn call options.

Puts

On the other hand, if traders expect the underlying commodities to decrease in price in the future, they may opt to be buying put options instead.

Premium

Traders have to pay some fee or price when they buy either a call option or a put option and this is called the premium. However, the prices may vary depending on whether the bet is more likely to happen or not in the near future. Traders will have to pay higher prices for options that they are most certain will happen at a given time frame.

Contract Months

The contract months refer to the timeframe. Call and put options do not last forever as they are bound to expire. Traders will have to decide to close their position before the date of expiration comes. Those who have longer time to hold their options generally will have to pay more for it as these options are more expensive.

Strike Price

Traders may sell the underlying contract on the commodities before it expires. Traders usually do not decide on converting their options but they just close their positions and reap their profits that they have earned.

Commodities such as gold for example may be expected to increase in a few months time. Traders may then buy a gold call option in order for them to gain profit from it when the prices rise before the expiration date

Knowing the Proven Tips and Strategies in Futures Trading

Among the most important things that any trader needs to keep in mind in order to be successful in futures trading are the proven strategies and tips. In this regard, I will discuss in this article the four (4) essential aspects related to the useful tips. Specifically, these are about the consistency, organization as well as cut research time and even exploring in becoming the expert. On the other hand, I will also briefly discuss the five (5) very common strategies like scalping, hedging, going short or long as well as the arbitrage.

On the one hand, the first very useful tip is to be consistent. Well, you actually do not have to take too much effort because consistency is actually one of the major advantages of futures trading. Secondly, the third aspect is about organization. This actually simply refers to the advantage of having a trading strategy, which provides organization to the portfolio of the trader. Hence, managing of an open position is much easier with a strategy. Thirdly, it is also very vital to have a trading strategy because it helps the trader to improve his or her efficiency when it comes to trading, which refers to the third aspect that is related to cut research time. Fourthly and lastly, having a strategy also develops a trader to become an expert in the field.

On the other hand, when it comes to the strategies, one of the most common is scalping. This simply refers to the technique when a trader profits from short-term gains. This is commonly being implemented in a matter of minutes or just few hours. Aside from that, this is being done for several times within a trading day.

Secondly, hedging is another strategy in futures trading that is worth noting or exploring. This is because it is one of the premium strategies or approaches when it comes to this field. There are many forms or methods of doing this. Among the most common are trading in pairs, having industry comparisons as well as though instrument hedges.

Thirdly, going short or long are another strategies that any trader can explore when it comes to buying or selling futures contracts. Going short, on the one hand, is about selling position in order to plainly buy them at the latter part of the trading period and hopefully for a lower price level. This will require the trader to spot the short opportunities. Going long, on the other hand, is the reverse strategy of the former one I have explained.

Fourthly and lastly, arbitrage is technically defined as a process of having two (2) different positions in futures trading, which both are expected to have or deliver gains to the trader regardless when the market goes up or down.

Analyzing the Market Through the Gann Technique

Most traders follow certain philosophies or trading principles in making trading decisions. They also employ proven methods such as the Gann Technique in analyzing the market price movements. This technique has been used since its conception by William Delbert Gann who was a stock trader during his time. He developed this technique in order to have a systematic way of analyzing the possible trading opportunities that would bring profit. The Gann Trading Technique uses angles that present the relationship between price and time. Traders make use of 45° angles that represents 50% of the price that falls between the important high and low points with time and price being considered.

The Gann Technique when applied to trading works on different frameworks. The first of these refers to the psychological framework. Traders have to master all of the concepts and the strategies that pertain to this technique. They have to be able to determine their average limits when it comes to their trading activities every day. Those who are in the trading business also have to know when to apply the Gann Trading Technique in various types of situations. There are strategies that need to be employed in a Bull market or in a Bear market.

The Bull and the Bear markets refer to the upward and downward movements of the prices. The Gann Technique would help the traders to predict where reversals from these different markets would likely to occur. They may not exactly tell when but traders will have the opportunity to earn profit if they know when it could possibly happen. Those who are using the Gann Trading Technique may trade according to the market trends. However, they have to determine that there is consistency in the uptrend or the downtrend when they trade. If there are conflicting tops and bottoms, they may have to wait a little until they are able to identify a firm trend in the market.

Traders who employ the Gann Technique are advised to keep an eye on their price charts especially at the points where they expect it to bounce back. This technique works on finding the support as well as the resistance levels that may come at 25%, at 50% and at 75%. They also have to take note of time as trends come back after some time. It is then important for traders to remember when big changes have occurred in the market because there is a higher chance that the same scenario may occur again.

Beaten Bean Bulls

The month of May has not been kind to the soybean market. In fact, I'd say it's bearing the brunt of a perfect storm of bad news. Old crop, July soybeans are down more than 10% for the month while this year's crop is fairing only slightly better. This beat down has come from all angles, including weather, speculative traders and the global economy. However, once the dust settles, this may prove to be the best buy of the summer.

The U.S. agricultural markets are all well ahead of schedule thanks to the exceptionally warm spring. The most recent crop reports show that soybeans are 76% planted. This record high is 34% above the five-year average for this time of year and 31% ahead of last year's pace. These figures account for the 95% of U.S. acreage. This amazing crop progress has taken the starch out of the spring planting fear premium we normally see.

The crop progress reports signaled a cautionary note to the upward trend that began in earnest this past February. The early rally was fueled by the tightening global supply and exports to China far ahead of schedule. Small speculators and managed funds jumped on this rally in record numbers. I posted the overbought nature of the bean market when they set their first long position record in the March 20th Commitment of Traders report at 385,619 contracts. This compares to a net position of just 18,082 at the end of January. I think it's safe to assume that last week's record position of 480,586 will set the high water mark as many of these traders have been forced out of the market during the course of its 10% decline.

The final straw that's broken the soybean bull market's back has been the increasing concerns of a fractious European Union and its effect on the U.S. Dollar as a safe haven currency. The month of May has seen currency fly out of the European Union pushing the Euro to its lowest levels since September of 2010. Considering that the European Union is now China's largest trading partner, it's no wonder that China's economy has also shown unexpected weakness. The last link is that China is our number one soybean export market. Therefore, it is expected that China's purchases may slow, as U.S. beans become more expensive on the global market.

Now that we've identified the causes of the decline, let's focus on where the bean market is headed. The early plantings were no free lunch. The early spring and the continuation of the same weather patterns are now raising concerns. The lack of rain is causing a crust to form in the fields and hinder the germination process. Furthermore, farmers who intended on growing early wheat and late soybeans (double cropping), need more moisture in the soil to get their late beans in the ground. Estimates vary as to how much double crop beans will add to total U.S. output but there is certainty that the weather is the key for next couple of weeks.

Finally, now that the froth is off the top we can return our focus to the supply and demand factors that called so many speculative dollars to the market in the first place. Soybeans and more specifically, high protein soybean meal are near record low supply levels. The decline in South American production has amplified the emphasis on this summer's U.S. crop. Bellies must be filled regardless of the economic uncertainties. Global demand for food will be the last of the cutbacks made. Therefore, this decline is fortuitous for patient traders. There is strong technical support for this year's crop near current prices of $12.50 per bushel. There is the possibility that a complete, "risk off" event could push the market to $12.25 or lower. Either way, the supply and demand numbers certainly suggest a test of the all time highs above $16 per bushel is well within the realm of reality.

A Brief History of Contract for Difference (CFD)

If you want to enter the world of trading contracts for difference or CFDs, then one of the basic things that you need to learn is its history. This is because by understanding this, you will be able to appreciate how it has been developed as well as the vital points of its progression or innovations. With that, you can use those pieces of information in order for you to have better positions and overall strategies when it comes to making strategies. It is in this light that this article will be discussing its history briefly.

Originally, in 1990s, CFDs were developed in London in order to serve as a type or way to swap equity that can be traded based on margin. Its invention or creation is commonly credited to Jon Wood as well as Brian Keelan. After its inception, this kind of instrument wans then initially used by hedge funds as well as various institutional traders in order to primarily hedge their exposure to the stocks in the London Stock Exchange. It was seen as a very cost-effective way to trade because a trader will only be required a small amount of money, which is the margin, to have the trade. Aside from that, traders were also able to avoid paying for the stamp duty tax in United Kingdom since there is no physical share being traded at hands.

It was only in late 1990s when CFDs were introduced to the retail traders. This is when the innovation of the online trading platforms was introduced as well. Hence, this time and with all innovations and developments in the market, traders had easier lives in seeing live prices of stocks and markets in real tie.

By the start of the new millennium in 2000, retail traders began to realize that the real advantage and benefit of trading CFD is not because they are exempted from stamp duty taxes. Rather, its true benefit lies on the fact that they are able to leverage and trade on underlying instruments. Hence, this is the beginning of the significant growth in CFD trading. As a response of CFD providers, they have expanded the products that they are offering, which consequently included indices, global stocks as well as commodities and even bonds.

In 2001, CFD providers and traders realized that it has almost the same benefits with financial spread betting. Of course, this is except to the fact that they are treated different in terms of taxation. Hence, traders have then utilized this along with the other financial transactions or opportunities to earn profits free from taxation and in a more efficient way. Further, years after that, this has expanded in the overseas market.