Profitable Online Commodity Trading Strategies
Commodity Options and Futures Trading Online Systems for Profits
Oct 5, 2009
Virtually all commodities trading is online now rather than going directly through floor traders and brokers known as Futures Commission Merchants. Online commodities trading offers significant advantages over working with floor brokers directly. While computers rather than humans often handle commodity quotes and orders, Futures Commission Merchants and floor traders still often handle the trade.
Online Commodities Trading Works with Commodity Brokers
Online stock trading goes directly through electronic systems for matching the buyer and seller. Online trading of commodity options or futures however, very often still works through a Commodities Broker / Futures Commission Merchant. Knowing this, there are three techniques that can be applied for enhancing the chance for profitable trading.
1. Basic Commodity Options Trading Strategy
Options can provide 200% profit potential from a small investment while minimizing loss to only what is invested. The underlying commodity futures contract partly sets the commodity option price. Stock options are priced partly off the underlying stock, as logically follows. Time effects the options price as well, generally making the option less expensive as time passes. Professional options traders in both commodity and stock markets call this time decay in the options price.
If an investor determines that the underlying commodity futures market will change trends either up or down, then buying an option that is both far out of the money, and expires 90 days or more from the options purchase date, can minimize time decay. Online commodities trading tools such as full options chain quotes including volume, bid and ask spreads, stop loss triggers can help this trade work.
Find the highest volume, longest dated, and closest to the money with minimum bid and ask quotes for the options of the commodity traded. Then apply the stop loss triggers that online commodity trading allows to prevent significant losses or lock in profits.
Online Commodity Trading Brings New Techniques
2. Use Commodity Futures for Triggering Options Trades
Here is where online commodity trading shines. Certain online commodity brokers offer the commodity trader the ability to trigger an option trade based on the movement of the underlying future price movement. This is a giant advantage over working directly over the phone with a Futures Commission Merchant where this type of Futures-triggers-Options trade is almost impossible.
Possible ways to apply this include buy long dated call options if a price increase in the underlying future occurs beyond a certain point. More importantly, selling options after locking in profits when the underlying futures price begins to drop. Only online commodity trading brings this sophisticated computer based trading to online traders and investors.
3. Inter-market Trading Systems
An online trader can also trigger commodity options or commodity futures trades based on technical indicators outside of the commodity market. Many commodities move based off of the value of the U.S. dollar. With online trading systems, a trade can be triggered by a change in the USDX or the value of the USD relative to another currency. This is a powerful method for trading gold or silver.
 |
