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Why Trade? |
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Why Trade the Commodity Futures
Market:
Efficiency
- a large number of traders gather in the pits, allowing prices to
be determined readily. The more readily prices are discovered, the
more efficient are the markets. Furthermore, a large number of
contracts traded increases the liquidity, and consequently the
efficiency, of the market.
Liquidity
- refers to the ability to move quickly in or out of a commodity
market at or near the last purchase price, and is related to the
number of participants in the commodities market. The more liquid
the market, the faster and more easily trades can be executed at or
near specific prices.
Easy Access
- anyone who needs to transfer risk, or is willing to accept risk,
has a readily accessible meeting place in which to do so. For every
buyer there is a seller.
Storability is not required
- Markets for the future delivery of commodities are not limited to
commodities that can be stored. As long as there are definable
standards of quality, price information is fairly accessible, and
there is broadly based production, a futures contract is viable; for
example, live cattle, which must be slaughtered within certain
weight parameters, T-Bills, and stock indexes, which are intangible.
These features arise from the inherent characteristics of a futures
contract. A futures contract is a legally enforceable agreement to
take delivery on a long position or make delivery on a short
position. If you believe a given commodity market is bullish (will
go up), you buy a futures contract or "go long". If you believe a
given commodity market is bearish (will go down), you sell a futures
contract or "go short". The ability to take or make delivery assures
the integrity of the commodities market. It is not necessary to hold
the contract until the delivery period which would require taking or
making delivery.
The central theme of commodity futures markets is standardization.
The industry evolved in the pursuit of efficiency, and to limit
deception and fraud. Futures contracts are standardized with regard
to commodity, quantity, quality and point of delivery. The delivery
dates are standardized within each delivery month; i.e., there is a
range of days during which all contracts must be performed. (CTO.com)
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1 - Commodity trading offers the
independent individual a career that can lead to great wealth,
provided you are clearly in touch with the underlying risk of loss.
2 - The commodity markets have grown tremendously.
3 - The commodity markets are leading economic indicators.
4 - Learning how to trade commodities can help you develop the
discipline necessary for success in many other investment areas.
5 - The ability to make profits beginning with a small amount of
risk capital is one of the most obvious and cogent reasons for
trading futures. |
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