Futures FAQs

faq

 

Why trade the commodity futures markets?

As you will learn through the service product, trading on a short-term basis requires markets with good trending ability, volatility, and liquidity. These allow for both profit potential and proper risk control. The commodity futures markets provide these factors and are “hard assets” – which more traders / investors are forecasted to be involved with in the future.

Does the strategy ever change?

Ag Futures Trading spends far more time researching and developing trading strategies than trading, so if anything discovered is a good addition to the trading approach it will be included. These discoveries don’t come along nearly as often as everyone would like.

Aren’t yearly returns over 100% really unrealistic?

If you expect them to come every year like clockwork …then, yes. Trading is not like drawing a salary where you can count on a reliable amount of funds on a regular basis. All traders are dependent on cooperation with market conditions, and market conditions are always fluctuating. However, the ability to make large percentage returns does exist in the futures markets and looking over past track records should inform you how frequently returns of 100% can occur. Trading always has some risk, and past results are no guarantee of future returns, so trade wisely!

What are the money management rules?

Ag Futures Trading will teach you to trade very liquid markets and attempt to use prudent stop losses that you are able to apply each new day.

What kinds of trading order types are there and what do you do?

The most common order types used in this service:

Stop Order
Stop orders are similar to market orders, in that they are orders to buy or sell a contract at the best available price, but they are only processed if the market reaches a specific price. Stop orders are often used to exit the market –either to take profit with “profit stops” or to protect large losses with “stop loss” orders.

Limit Order
Limit orders are orders to buy or sell at a specific or better price. Limit orders may or may not get filled depending upon how the market is moving, but if they do get filled it will always be at the chosen price or at a better price if there is one available.

What is the value of an agricultural contract or the average of what this service trades?

A very small percentage of the actual value of the commodity futures contract is required by the margin account. For example, corn is traded by an amount of 5,000 bushels per contract. If the price of corn is currently valued at $4.25 per bushel, then the value of that contract is $21,250 (5,000 x $4.25), however, only 4% – 10% of that value is required by the brokerage house: $2,125. As of this writing, the amounts required for each contract have ranged in the past year from $800 – $2,400 (currently $1,350).

Will I ever lose money?

Traders and investors will all lose money at some point. Losing “trades” are an inevitable part of trading for a living. What Ag Futures Trading does is teach each subscriber solid money management rules, for example, attempting to place trades where the probabilities are clearly in favor with the underlying trend. Probabilities are not “certainties” so trades will sometimes be on the wrong side. However, over an extended period of time the probabilities of following this trading methodology should be in-line with past trading results. Markets do get very aberrant during random time periods and losses can accrue.

Are the futures accounts “margin accounts”?

Yes, futures or agricultural accounts are normally margin accounts.

What are the margin requirements to trade the commodity markets?

This will vary depending on the specific commodities you decide to trade. You can see current margin requirements at the Chicago Mercantile Exchange website www.cmegroup.com/.

What is the difference between stocks, commodities, futures, options, Forex, and ETFs?

Stocks
A stock is simply a share in the ownership of a company. You can buy hundreds, thousands or millions of shares in a company through a brokerage firm.

Commodities
A physical substance, such as food, grains, oil, precious metals, and which investors buy or sell, usually through futures contracts. The price of each commodity is subject to normal supply and demand. Examples of commodities are wheat, corn, lean hogs, gold, and heating oil.

Futures
A standardized, exchange-traded contract which requires delivery a commodity, bond, currency, or stock index. The contract includes the obligation to buy at a specified price, on a specified future date. Futures contracts are traded based on prices moving up and down as a result of supply and demand.

Options
The right, but not the obligation, to buy (call option) or sell (put option) a specific amount of a given stock, commodity, currency, index, or debt, at a specified price (the strike price) during a specified period of time.

Forex
Global market where world currencies like the US Dollar, Japanese Yen, and the British Pound are traded and their conversion rates are determined. It is the world’s largest financial market in on average, some one and one-half trillion dollar worth of currencies are bought and sold every day.

ETF
A fund that tracks an index, but can be traded like a normal stock. ETFs bundle together the securities that are in an index. ETFs can be bought and sold at any time during the day unlike most mutual funds.

Index
Indicator for a group of securities. There are many different kinds of indexes.

What are the differences between an ASK and a BID?

In any freely traded market there are participants attempting to buy and others needing to sell. The sellers want the price as high as possible so they tend to “ask” for a price that is above whatever the last transaction price was. The buyers want to buy low so they “bid” to buy at some price below the last transaction. When buyers and sellers agree on a price the transaction actually takes place. This process is ongoing, and both the BID and ASK prices move up or down based on market conditions. You will sometimes hear commentators say that a market was “bid up.” This means they were willing to pay higher and higher prices for the security.

 

We hope that these FAQ’s have been helpful for you, but if you need some additional questions answered please feel free to contact us. 

Call us directly at (888) 519-7804

 

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