Commodities Trading - Managing Risk with Order Types

Just as with the stock market, you can do a lot to mitigate the risks on entering and exiting a position with the smart use of different order types. Here is a look at several different order entry types that will limit the potential of the market or the market maker to move against you.

The most basic knowledge needed is that of the different kinds of orders that can be executed: Market, Limit, Stop and their variations.

Types of Commodities - What are the Different Commodities?

There are several different types of commodities that are traded on the commodity exchanges today. They break down into a few major areas. Commodities are categorized for ease of price comparison, research and other conveniences in trading. Investors interested in getting involved in one of the riskiest, and potentially most profitable, areas will need to know the basics.

Trading Crude Oil - Factors to Consider in Trading Crude Futures

Over the last few years, the major moves that the price of crude oil has made has become attractive as oil along with some other commodities have outpaced the stock markets. For decades, commodity trading in petroleum products was a club for only the big guns. At 42 gallons per barrel, and a minimum contract size of 1,000 barrels, the prospect of delivering oil was only for professionals. But several changes have occurred in the last few years to alter the scene. This makes it possible for the average investor to trade crude rather than trading oil etfs or oil stocks.

Oil prices remained stable for decades until the explosion of the mid-70s. Political and technological changes resulted in shortages, uncertainty and rising prices.

Commodity Exchange - What are the Major Commodities Exchanges

There are more than a dozen major commodity exchanges around the world, reflecting the global nature of speculation today. Let’s take a look at the biggest commodities exchanges.

The Chicago Board of Trade (CBOT, for example trades a wide variety of commodity types. On the exchange, traders will find everything from corn, soybeans, wheat and oats to several metals contracts: 100 oz Gold, 5,000 oz silver and newer ‘mini’ contracts for both. Mini’s are contracts in which the amount covered by a standard contract are smaller than the traditional amount, allowing for a lower initial investment and smaller price increments or ‘ticks’.

Commodities Definition - A Look at a Sample Commodities Trade

To continue our look at the definition of commodities, let’s examine a highly simplified commodities future contract trade.

Suppose a trader buys a contract to purchase oil trading on NYMEX (The New York Mercantile Exchange) at $70 per barrel for WTI with an expiration date of August 6th. (Oil comes, obviously, from a variety of major sources, including the North Sea near England, Alaska, Saudi Arabia, West Texas, etc. The locations often lend their names to the different sub-types of commodity and generally have different prices).

Commodities Definition - What is a Commodity and Why Trade Them?

What is a commodity and why trade them?

Why aren’t paintings commodities? Because each one is unique. Commodities are uniform and one individual or portion serves the same purpose as any other. An ounce of gold, a barrel of oil, a bushel of wheat. In every case, one is pretty much like another. It makes little difference to most of those buying it whether they receive this ounce of gold or that one.

Disclaimer: This material is for your private information. We are not soliciting any action based upon it. Opinions expressed are present opinions only. The material is based upon information considered reliable, but we do not represent that is accurate or complete, and it should not be relied upon as such. We, or persons involved in the preparation or issuance of this material may, from time to time, have long or short positions in, and buy or sell the securities or options of companies mentioned herein.
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