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1. Commodity Futures Trading Introduction

This commodity futures trading introduction chapter describes the objective of this course, what commodity futures are and how you can profit by trading them.

A. Objectives of this Commodity FUTURES Trading Course^TM

This trading course describes a process that will help you to analyze futures markets and to develop useful trading skills. It presents you with common industry information, techniques and rules about commodity futures trading.

You will use this information to define a logical, simple and complete Trading Plan that will help you to intelligently pick markets that have the highest likelihood of success. You will also define a Money Management Plan to control your risk and loss. By doing this, you gain a significant advantage in your futures trading efforts.

I can't guarantee your success – but I will do my absolute best to teach you how to trade intelligently.

At the end of the complete Commodity FUTURES Trading Home Study Course^TM, you will know how to successfully do the following:

Identify futures contract specifications and what they mean
Recognize price chart patterns that suggest opportunity
Use Selection Tools to identify a commodity that will likely make a big price move
Use Confirming Tools to give additional "weight" to your market analysis
Use Timing Tools to determine when to get into and out of a trade
Devise a Trading Plan and a Money Management Plan
Paper trade to safely gain valuable experience and prepare you for actual trading.

There is only one way to make money in commodities: Buy Low and Sell High! And amazingly enough, you can do it in either order. That is, you can:

Sell a commodity futures contract first (even though you don't own it), and then buy it back at a later time; or,
Buy a commodity futures contract first, and then sell it back at a later time.

You'll learn more about how to do this in later chapters.

B. Why trade commodities?

As a speculator (that's you), there are good reasons to trade commodity futures.

Commodity futures trading is a business that deals in the buying and selling of basic, expendable items. Each in itself is a survival industry. They were here 20 years ago and they will be here 20 years from now.
The strongest reason for trading commodities is high financial leverage. It offers high profit potential for a low investment. A $1,620 security deposit or margin will control a Silver futures contract which contains 5,000 ounces of silver. So when the price of Silver is at $5/oz. the contract is valued at $25,000. The margin in this example is only 6.5% of the commodity's value. A change in the price of Silver by 1¢ results in a $50 change in the value of your futures contract either for or against you. A price move of 10¢ in your favor makes you $500 in profit.
Your business involves just you and the market. Because it has no resource-draining demands of other business activities, you don't have to manufacture or acquire a product; allocate financial resources to advertise, market and sell the product; implement and maintain telephone response capability to provide product information, accept orders and customer complaints; or pay for resources to provide order fulfillment. I think you get the idea. This is an ideal business to be in.
It moves you from a Linear Income model to a Geometric Income model.
Once you learn this process, it takes less than 30 minutes per week day of your time to work at your business. With more free time, you have the opportunity to change your lifestyle.

C. Commodity vs. stocks

With stocks, you need to put up the full amount of the stock value to buy the stock. With commodities, you control commodity futures contracts with a margin deposit which is usually between 5%-10% of the value of the commodity.
Stocks price provides no analysis information for selection except earnings (which is frequently manipulated by the company). Stock options allow a company to under-report wages, and therefore under-report expenses which misleadingly inflates earnings. With commodities futures, there are over 15 tools available to help you select potentially profitable commodities and time your entry and exit in the market. It's like having x-ray vision into the market!
There are over 50,000 stocks to evaluate. There are less than 50 commodities to review for profit potential.
Stock prices move slowly. Frequently stock price may linger in a narrow trading range (sometimes for years) causing your financial resources to be unproductively used. Commodities frequently have fast price movement, providing increased profit potential.
If you own stock, you get taxed twice. Once when the company pays 35 cents on the dollar on its earned income. Then again when you pay personal taxes on dividends or capital gains from your shares. The real tax can be as high as 75%. With commodity profits, you are only taxed on your income.
Stock is fictitious, there is no real basis for stock value other than earnings. Stock can be "delisted" overnight and become worthless. Commodities have intrinsic value and will always have value. People will always want grain and gold.

D. Notices

The Commodity Futures Trading Commission and The National Futures Association requires the following notice be stated:

There is a Risk Of Loss in Futures Trading

I am not an investment counselor or a commodity trading advisor, nor do I give advice on specific investments. This is an educational trading web site which is designed solely to give you the skills and insight that will help you to more successfully trade commodity futures.

Successful past results don't necessarily mean success in the future. There is a risk of loss in futures trading. Do not trade with money you can't afford to lose.

Over 90% of new people who trade commodities lose money. The other 10% are successful for the following reasons:

They learned about how the futures markets work,
They learned how to anticipate changes in the direction of a commodity futures market's price and position themselves to benefit from that price change,
They have defined and use both a Trading Plan and Money Management Plan.

This trading course will teach you how to do these things.

It is on strong recommendation that you completely read this trading course three separate times. The first reading should be done to get the general idea of what is involved in the entire process – that is, you get a general grasp of things. The second time, read it to help reinforce your knowledge as well as help you to better understand the process presented in this course. The third reading will be helpful, as you should be ready to start defining your personal Trading Plan and Money Management Plan.

Resources you will find both helpful and necessary in your trading activities are described in Appendix B.

The next chapter contains Commodity Futures Trading Terms.

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