Futures Trading Advisors

Futures Trading Advisors – Who’s Going to Help You

Deciding on a futures trading advisor is actually more of a decision about commitment. Some people want no sense of responsibility beyond depositing money in their commodities account while others want to grab the bull by the horns and make all of the decisions themselves. Each successful trader has one unique trait: the ability to know oneself and seek the futures trading advisor that will best help that investor.

There are four basic ways to manage a commodity account. Each method has its advantages and best fits certain personality types. These four methods of account management are: trading your own account, enlisting an account manager, using a commodity trading advisor and joining a commodity pool. No matter which method you choose, there is a futures trading advisor that can help you with your commodities trading. Here is a brief introduction to each method:

Trading Your Own Account
This is the most daring method of the bunch. With this method, you start a commodity account and with or without the help of a futures trading advisor, taking responsibility for your own trading decisions. You will do your own research, ensure adequate funds are available in your account, and initiate your own positions. Many brokerage houses have divisions related solely to futures trading and some even cater to those who manage their own accounts, focusing their efforts on providing the most comprehensive, up-to-date information available. This is the most economical method of the bunch since the only expense you have is maintaining the account and paying premiums on your trades. This type of account is only intended for those with significant experience in commodity trading.

Having Someone Manage Your Account
This is the “play it safe” method. When a futures trading advisor manages your account, he or she will have power to make and implement decisions for you. You will still be contacted for all investment options that your account manager suggests and you are financially responsible for your account, but you are counting on someone that is a professional to do the dirty work for you. This is a good method for someone who doesn’t have the experience, training or time to successfully handle an account. You are able to rely on the experience of your account manager.

Utilizing a Commodity Trading Advisor
This method is somewhere between the previous two. A commodity trading advisor is someone who is paid to offer advice on commodity trading, including specific trading recommendations such as when to establish a particular long or short position and when to liquidate that position. A commodity trading advisor will help you with your investment philosophy but is not assigned specifically to your account. This method offers the ability to manage your own account yet have the advice of an expert at your fingertips.

Participating In a Commodity Pool
The final method of account management is called a commodity pool. This method is similar to a stock mutual fund. It is the only method that does not require you to have your own individual trading account; the money you invest will be combined with that of others in the pool and traded as a single account.

Continue to read about the futures markets as well as educate yourself on the different futures exchanges.

 

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Futures Exchanges

Futures Exchanges – Knowing Where To do Business
Good for you! You have been reading and have put together trading rules to lay the foundation for your futures trading plan and you have even been paper trading to prove your trading plan. Now you are ready to learn more about where you will be doing your business; it’s time to talk about the futures exchanges.

General Futures Exchange Information
As you know at this point, you will not actually do business with the futures exchanges listed below. You will work with your broker who will take your futures orders to the exchange floor for you. Since you have been paper trading futures, you probably have already established an account for commodities trading so we won’t go over that again. While there are futures exchanges throughout the world, we will focus on the ones in the US. The markets we will outline are in Minneapolis, Kansas City, New York and Chicago.

History of Futures Exchanges in the US
The modern futures trading began in Chicago, IL in the early 1800s. Chicago, with its location at the base of the Great Lakes, is close to the farm of the U.S. Midwest which made it a natural center for transportation, distribution and trading of agricultural produce. Gluts and shortages of these products caused extreme changes in price. An exchange was needed that would bring together a market to find potential buyers and sellers of a commodity instead of making people bear the burden of finding a buyer or seller. In 1848, the Chicago Board of Trade (CBOT), the world’s first futures market, or futures exchange, was formed. Trading was originally in futures and the first contract was written on March 13, 1851.

Futures Exchanges
Different futures exchanges trade different commodities. In addition, each future exchange accepts different futures orders. Since not every exchange allows every order it is necessary to talk with your broker about which orders are permitted in the markets you trade. The following is a list of the major commodity exchanges, their commodities, and the orders that they accept:

Chicago Board of Trade
Location: Chicago, IL
Commodities

  • Corn
  • Oats
  • Soybeans
  • Soybean Oil
  • Soybean Meal
  • T-Bonds
  • T-Notes
  • Muni Bonds
  • 5 Year Notes
  • 2 Year Notes
  • DJIA Index

Acceptable orders: Market, Market on Close, Limit, Stop, and Fill or Kill Orders

Chicago Mercantile Exchange
Location: Chicago, IL
Commodities

  • Live Cattle
  • Lean Hogs
  • Lumber
  • Feeder Cattle
  • Pork Bellies

Acceptable orders: All futures orders are acceptable.

Index and Option Market
Commodities

  • S&P 500
  • Mid-cap 400
  • NASDAQ 100

Acceptable orders: All futures orders are acceptable.

International Monetary Exchange
Location: Chicago, IL
Commodities

  • T-Bills
  • Euro Dollars
  • Canadian Dollar
  • Euro Currency
  • Australian Dollar
  • Mexican Peso
  • Euro Yen
  • Japanese Yen
  • British Pound
  • Swiss Franc

Acceptable orders: All futures orders are acceptable.

New York Comex
Location: New York, NY
Commodities

  • Copper

Acceptable orders: For Copper only, acceptable are Market, Market on Close, Limit, Stop, and Fill or Kill.

Commodities

  • Gold
  • Silver

Acceptable orders: For Gold and Silver, acceptable are Market, Market on Close, Limit, Stop, and Fill or Kill. Stop Limits are acceptable only on a not-held basis.

New York Cotton Exchange
Location: New York, NY
Commodities

  • Cotton
  • Orange Juice
  • Dollar Index

Acceptable orders: Market, Market on Close, Limit, Stop, and Fill or Kill.

New York Coffee, Sugar & Cocoa Exchange
Location: New York, NY
Commodities

  • Coffee
  • Sugar
  • Cocoa

Acceptable orders: All futures orders are acceptable.

New York Mercantile Exchange
Location: New York, NY
Commodities

  • Unleaded Gasoline
  • Platinum
  • Palladium
  • Heating Oil
  • Crude Oil Natural Gas

Acceptable orders: All futures orders are acceptable.

New York Futures Exchange
Location: New York, NY
Commodities

  • New York Stock Exchange Index
  • CRB Index

Acceptable orders: All futures orders are acceptable.

Kansas City Board of Trade
Location: Kansas City, MO
Commodities

  • Kansas City Value Line
  • Kansas City Mini Value Line

Acceptable orders: All futures orders are acceptable.

  • Kansas City Wheat

Acceptable orders: Market, Market on Close, Limit, Stop and Fill or Kill.

Minneapolis Board of Trade
Location: Minneapolis, MN
Commodities

  • Minneapolis Wheat
  • Minneapolis White Wheat

Acceptable orders: All futures orders are acceptable.

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Futures Analysis

Futures Analysis – Reading the Future with Japanese Candlesticks
The name is definitely appropriate; futures analysis rests on being able to predict future movements with a reasonable level of accuracy. For many people, bar charts are their tool of choice; it is familiar for sure but it leaves its users without valuable futures analysis information. When reading a commodity trading chart, the Japanese Candlestick signals provide users with a big advantage because they offer more information and predict trends that the bar chart simply can’t.

The history of Japanese Candlesticks
Japanese Candlestick signals were invented around 1700 as a method of futures analysis and developed over the past few hundred years while trading rice. The Japanese Rice traders analyzed reoccurring signals on their commodity trading chart when trying to pinpoint the exact times to get in and get out of rice trading. Futures analysis with these signals made the Honshu family immensely wealthy. The signals they identified are as effective today in as they were centuries ago.

Why Candlesticks are so powerful
Candlestick patterns are the only trading system for futures analysis that considers human emotion. Emotions will always be the same. Whether you are analyzing a stock trading chart or a commodity trading chart the same factors that have moved prices for centuries will still be in effect today. This is not anything new and the human psyche is very predictable when it comes to investment decisions. Candlestick charts give a visual representation of the investor’s sentiment to futures analysis.

For futures analysis, a commodity trading chart will show a distinct advantage over a stock trading chart. The trends in a commodity trading chart will be more consistent, lasting for longer periods of time. The outside influences on a commodity are dramatically less than those found in a stock price. That can be used to an investor’s advantage when using futures analysis for a commodity trading chart.

You will find through futures analysis that most commodities have fewer elements to affect the supply and demand than do stocks. Grains and some of the soft commodities might have weather affect supply and different currencies may be affected by each other. The British pound, the Eurodollar and the Swiss franc will usually trade the opposite direction of the US dollar.

The ability to analyze a commodity trading chart very quickly with Candlestick signals produces a huge advantage for being able to analyze what the equity markets would do. Crude Oil prices, the US dollar, Gold or any other commodity that could be affecting the direction of the equity markets can be seen and analyzed very efficiently using Candlestick signals.

There are 12 major candlestick signals that relate to trading commodities just as much as they do stocks and probably even more so! The bullish signals contained in them are just as powerful and effective as the bearish signals. Demonstrating when to get into a position is very important; however, what is more important is being able to analyze when to get out of a position. Commodity trading information comes to investors in different forms and different times. The analysis of that information can be interpreted dramatically different by investors. When the media creates euphoric buying at the top, it is hard for many investors to take profits. What if this is the position that is going to make the big money? Should I be buying? I don’t want to be selling with all this great Wall Street news around. Emotions such as there keep most investors from selling at the appropriate times.

In futures analysis it is important to avoid reacting based on emotions. This is why you should have trading rules, a trading plan, and follow the signals you find with candlesticks. Futures analysis with Japanese Candlesticks is a highly developed means of looking into the future.

Be sure to read more about futures trading and the futures markets  in addition to learning about the multiple candlestick patterns available.

 

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Futures Orders

Futures orders have a simple definition but a wide variety of possibilities. Not unlike options trading in the stock market, futures orders cover a number of different trading scenarios.

  1. Market Orders – This is the most basic of futures orders. It is the same for either buying or selling; once the order reaches the trading pit, it is executed for the best price available.
  2. Limit Orders – A limit order is a futures order used for buying or selling when a certain price is reached. A limit order to buy is placed below the current market price and a limit order to sell is placed above the current market price. When the target price is reached, a market order is executed to buy or sell based on the limit order.
  3. Stop Orders – Stop orders are used in futures markets as protective techniques for either buying or selling. Three purposes of stop orders are:
    • Reducing losses on long or short positions
    • Opening new long or short positions
    • Protecting a profit on an existing long or short position
    • Note: A buy stop order is placed above the market and a sell stop order is implemented below the market.
  4. Market If Touched – This futures order is the direct opposite of a stop order. Sell Market If Touched orders are only executed if the price is above the market while buy Market If Touched orders are only executed if the target price is below the market when implemented. An MIT order is usually used to enter the market or initiate a trade. In commodities trading, an MIT order is similar to a limit order in that a specific price is placed on the order. However, an MIT order becomes a market order once the limit price is touched or passed through. An execution may be at, above, or below the originally specified price. An MIT order will not be executed if the market fails to touch the MIT specified price.
  5. Stop Limit Order – A stop limit order is a futures order that lists two prices and is an attempt to gain more control over the price at which your stop is filled. The first part of the order is written like a regular stop order. The second part of the order specifies a limit price. This indicates that once your stop is triggered, you do not wish to be filled beyond the limit price. Stop limit orders should usually not be used in commodity trading when trying to exit a position.
  6. Market On Opening – This is a futures order that is to be executed within the opening range of futures trading.
  7. Market On Close – This is the opposite of a Market On Opening. This futures order is given to execute a trade in the closing seconds at the best available price.
  8. Fill Or Kill – Fill Or Kills are futures orders used by customers wishing an immediate fill, but at a specified price. A floor broker will likely bid the order two or three times and immediately return either a fill or an unable.
  9. Spread – An investor is likely to use a Spread to take advantage of the differences in two prices. For this futures order, a long and short position will both be taken hoping to exploit the difference in price. For example, buy 15 October Corn Futures , sell 15 November Corn Futures plus 2 to the November sell side. This spread order means to sell the spread when the November corn is 2 points higher than the October corn.

Conclusion
In addition to these futures orders, there are additional orders that some but not all markets recognize. It is important to discuss your futures orders with your broker so that you are aware of the available orders. If you are trading oil futures your broker can tell you whether you can implement Spreads or if Fill Or Kill is unavailable in your particular market. Knowing the terms involved with futures orders will help you to be a more successful trader in the futures market.

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