Before discussing commodity future online trading further let us examine what a future contract is. A futures contract is basically a legal agreement between two parties, the seller and the buyer, in which both parties agree to receive or deliver the specified commodity or a financial instrument at a fixed future date. It is important to note that in the case of commodity trading, to receive a commodity means to have long positions and to deliver a commodity means to have short positions. The agreement or contract gives a future date certain at which time it must be exercised but the agreement is entered into by the parties at the current time.

Therefore all future contracts mature at a future date and are clearly identified as for each contract reference is made to the date when the contracts mature. For example, a trader may enter into a contract in Febuary 2009 for December 2009 Corn. One of most important aspects regarding futures trading is that as the futures contract nears expiration when they react to any external factor or circumstance there is a strong tendency for the cash market and the futures contract to move in similar directions by almost the same amount.

Commodity Future Trading:

Commodities fall into different categories like agricultural and non-agricultural commodities. They are also traded like stocks at the exchanges. Similarly, commodity future trading is done at the centralized exchanges and the trades are performed electronically rather than the handing over of commodities in the physical way. For example, in Canada, commodity future trading takes place with the help of the Globex System at the Chicago Mercantile Exchange. Similarly in India, it takes place at MCX or the Multi Commodity Exchange. In the US there are a number of commodity trading exchanges with the Chicago Board of Trade being the most important one.

Online Commodity Future Trading:

The Internet has many brokerage houses that allow trading in commodity futures online. In all the online commodity future trades, the clearinghouse of the exchange plays the role of buyer and seller in different types of trades and in each trade, performance and settlement of the commodity future contract is guaranteed. Buying an initial commodity future contract means taking long positions and selling an initial futures contract means taking short positions.

The online commodity future trades are regulated by the governing bodies in all the countries where the commodity trading takes place. For example, In United States, online commodity future trading is regulated by the CFTC or the Commodity Futures Trading Commission. This is a federal agency that has been assigned the role of regulation of futures market. All the brokerage houses that provide the facility of online commodity future trading must be registered with the CFTC and must abide by the set rules and principles established by the CFTC otherwise the commission is empowered to cancel their license. Two main roles of any regulator of online future commodity trading are risk transfer opportunities and the price discovery.

For carrying out online future trading, a person is required to open an online future commodity trading account with a commodity brokerage firm. This helps him to trade in commodities at the selected exchange. There are also some sources that provide multiple accesses to all the leading commodity future exchanges in the world.

The number of commodity future products varies from one exchange to another. There are more than 300 commodity future products worldwide in which a person can easily trade. Online commodity future trading can be done with respect to number of commodities like grains, metals, energy, livestock etc. Commodity futures also include financial futures that include interest rates, stock indexes and the currencies.

Benefits of Online Trading:

Though commodity future trading can be done by calling the brokerage house, there are many benefits that are obtained when a person opens an account for online commodity future trading. First, a person is able to get trading opportunities round the clock. This means that during the trading week, i.e. from Monday to Friday, a person can easily trade during the market hours. Even when the commodity future markets are closed, a person can make a trade by means of after hours.

This is possible only when a person has an online commodity future trading account. If the access is provided to other commodity futures market of the world, the person gets the opportunity of online trading in commodity futures round the clock. For example, if a person living in the United States open his commodity future account with a brokerage house that provides access to commodity future markets world-wide he can virtually trade round the clock. Of course, to be a successful trader and not burn out traders must carefully regulate the hours per day that they allocate to trading. Too much of a good thing can lead to trouble.

An important benefit of online commodity future trading is that contracts are carried out at government regulated centralized exchanges, thus there is little risk of any unfair practice being adopted by the brokerage house.

This confidence is also substantiated by the fact that the commodity exchanges provide guarantees
about clearing the commodity futures transactions and the buyers and sellers of the online commodity future transactions are both protected from counterparty default. Since the centralized exchanges, at which the future trading takes place, are liquid, a person can easily establish as well as offset his different commodity futures positions.

When people apply for an online account for commodity future trading, they are asked about the commodity exchanges that they wish to trade at. If required exchanges are not listed, they can easily contact other brokerage firms. Yet another advantage of online commodity future trading is that a person can be assured about the execution of futures contracts. This is because when traded online, all the commodity future trades are executed in a very fast manner.

It is really amazing that a person can route the online commodity futures transaction to the required destination in less than one second. Another advantage of online commodity future trading is that you can easily open and close your future positions. In fact, this is the feature that is now attracting more and more customers towards the online commodity future trading as liquidity has risen and trades of most futures contracts can be made very fast and at fair prices.

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Commodities are usually traded in the form of futures. They carry a great deal of risk and are not suitable for most investors. You could easily lose a lot of money.

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However, for those who take the time to learn as much as they can about the commodity trading business before trading real money there is the possibility of starting out with a small amount of risk capital and trading it up into a sizable fortune. It is important to realize that you will be competing with some very smart, well informed individuals who will be pleased to take your money.

With that said it is also important to know that you will never have complete information about any market and that the outcome of any commodity trade can not be known for sure in advance. While it is important to know what you are doing you must be able to operate knowing that you will never know everything. If you are unable to pull the trading trigger when your trading system indicates a favorable trade is offered you had best give up commodity trading right now. Even tiny delays in executing trades can be fatal to your results.

You might be lucky for a little while trading against aggressive seasoned commodity traders but probably your luck will soon turn into financial grief. So beware. Don’t be in too big of a hurry to start trading before you at least have put together a trading plan and have decided how much capital you are willing to put at risk.

There is another very important item that you must decide upon before starting to trade commodity futures. You must choose a commodity brokerage firm. You may also wish to select a commodity broker although these Internet days you may decide to trade online in a self directed account using a trading platform provided by your brokerage firm. You must do your homework to insure that the brokerage firm that you are dealing with is not running a scam.

The Commodity Futures Trading Commission (CFTC) offers guidelines to help you with your home work. A few guidelines follow. Before opening an account you should visit the CFTC website. The CFTC will not assist you to make winning trades but they can help you with your commodity trading education which may very well help to get you started in the right way.

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Things to look out for from the CFTC:

Foreign Currency Trading (Forex):

* Foreign currency trading scams often attract customers through advertisements in local newspapers, radio promotions, or on attractive Internet sites. These advertisements may peddle high-return, low-risk investment opportunities in foreign currency trading, or even highly-paid currency-trading employment opportunities. Precious metals scams often work the same way.
* The CFTC urges you to be skeptical when promoters of foreign currency trading claim that their services or account management will earn high profits with minimal risks, or that employment as a currency trader will make you wealthy quickly.

Take a look at the CFTC’s brochure on forex fraud available in PDF or in HTML.

Commodity Pool Operators:

* Commodity pool operators often solicit investments from friends, neighbors, co-workers, and fellow religious or social group members by using their reputations in the community or their personal relationships. In many cases, however, these investment schemes turn out to be fraudulent, and you can lose your entire investment, in many cases as a result of outright theft.
* Individuals and firms that fraudulently solicit funds from investors for commodity futures and options trading are usually not registered with the CFTC. They may operate “Ponzi” schemes in which little or none of the money sent in by investors is ever invested as promised in the commodity markets. Instead, the operator of the scam steals the funds, and creates the illusion of a successful business by using some of the money put in by later investors to pay phony “profits” to earlier investors. This tactic makes it appear to investors that the investment is actually making money, which in turn attracts additional investors. Be wary of such payouts if you do not fully understand their source.

Introducing Brokers:

* Introducing brokers often use advertisements and infomercials on radio and television to promote commodity futures and options. These advertisements may claim that seasonal trends in the demand for certain commodities or well-known current events (such as a hurricane or a terror attack) create an opportunity to make big money by trading in commodity futures and options. They promise quick riches, like turning $5,000 into $20,000 in just a few months, with little risk.
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When you trade commodity futures you want to make every effort to at least start out on a fair and level playing field. Selecting an experienced and reliable commodity brokerage firm is critical to your trading success.

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Hope this helped.

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The next lesson in my free online video futures trading course which covers how futures are traded.

Duration : 4 min 46 sec

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Thank u

Futures contract is a type of Derivative trading…

A futures contract is an agreement to buy or sell an asset at a certain time in the future at a specific price. The Contractual terms of the futures contracts are very clear. The Futures market was designed to solve the shortcomings in the forwards contracts. Unlike forwards, futures are traded in organized exchanges. They also use a clearing house that provides the necessary protection to both the buyer and the seller. The price of the futures contract can change prior to delivery. Hence, both participants must settle daily price changes as per the contract values.

An Example of a futures contract would be an agreement to 100 tonnes of Steel at Rs. 10000/- per tonne at some date say in December 2008. If no interim payments are made and if the price of Steel moves violently, a considerable credit risk could build up. To avoid this a margin system is used by the exchanges. As per the margin system, both parties must deposit a small sum with the exchange. This amount will be a small percentage of the total contract. This amount is called the initial margin. As the steel value changes, the contract value also changes. If the contract value changes, the margin must be topped up by an amount corresponding to the change in price of steel. The margin money is the property of the person who deposits it and would be returned to them if the contract gets cancelled/completed.

Characteristics of Futures contract:

1. They are traded in organized exchanges
2. Credit risk is eliminated with the margin system. Both parties deposit a portion of the contract with the clearing house.
3. Both the buyer and seller are bound by the contract terms and are expected to honour their end of the contract.

For more details on the different categories of Derivatives you can visit: http://anandvijayakumar.blogspot.com/2008/10/derivative-categories.html

Cheers,
Anand
mail me at anandvijayakumar@ymail.com if you need any more details.

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Although the junior mining sector began crumbling in May, savvy investor Mike Halvorson, president of Halcorp Capital, still ended up having a very busy summer. Welcome to the world of a substantial investor in mining stocks, who gets in early and then enjoys sizeable profits as, one by one, his companies become takeover targets. “I’ve been fortunate,” the humble Halvorson told us, “I’ve gotten associated with top explorationists, the people who do know a quality project.” And because they have credibility, quality projects come to those geologists. Halvorson claims his wealth-building strategy comes from investing in the projects of these credible geologists.

On May 3rd, Glamis Gold acquired Western Silver. “I recognized the project and the main geologist behind it, Tom Patton,” Halvorson explained. “I was a director of Western Silver. I didn’t stay associated for the whole run, but I was there for the best part of it.” August has been his busiest month. As a director of NovaGold, Barrick Gold recently announced a hostile takeover of this company, and which is now being disputed. In mid August, Yamana Gold made a bid to take over the shares of Viceroy Exploration, which has proven and probable gold reserves in excess of seven million ounces in Argentina.

So how does someone emulate Mike Halvorson’s success in picking major winners in the mining sector? “The average investor is going to have a tough time,” he commiserated during our phone conversation. “If I were an average investor, I would rely on some sort of advisory service, or two or three, to help me pick my stocks.” We both agreed some of the uranium projects weren’t going to make it. “So many of these uranium projects will never see a shovel to the ground, they will never see anything close to production,” he cautioned.

But many advisory services look out for themselves first, then their subscribers, maybe if at all. He advised us to avoid the self-serving ones. “I have a long record with a couple of guys that are honest and have good abilities,” Halvorson said. He subscribes to Bob Bishop’s Gold Mining Stock Report. “I like Bob,” Halvorson told us. “He covers people. He knows a lot of individuals in the industry. One of the gifts, a guy like Bishop has, is he doesn’t try to fit the same model over every company, like a lot of analysts do. He just tries to figure out whether the stock is going up. What makes Bob Bishop better at picking stocks than most of the guys is that he doesn’t walk around with a model. He walks around with instincts and the ability to judge the people involved. He has a great network to check facts out with.”

“I guess for the average person, if they don’t rely on an advisory service, they should go to the (resource) conferences,” Halvorson recommended. Such conferences occur throughout the year. One resource conference takes place this week in Las Vegas. Another popular resource show will be held later in September in Toronto.

Valuing Uranium Mining Stocks

“The (uranium) companies are so new,” Halvorson said. “Some of them aren’t really that acquainted with their own assets, let alone the assets of other companies. It’s not like the oil and gas business where you’ve got … in western Canada, there are a dozen or fifteen blue-chip engineering firms that provide reserve and reservoir evaluations. If you see one of those engineering reports, you can really put a market value on those assets.”

Not so in the uranium business. With uranium assets, Halvorson explained, “A lot it is historical work, some of them are National Instrument 43-101 and some aren’t.” But he warned that despite the regulatory insistence that companies file independent geological documents confirming their resources, “You have to be careful if you run out and buy some 43-101 resources.” He added, “I’m not sure that one would solely base investment decisions on them.”

For example, he described how it might be possible that a company could only solution mine (ISR uranium recovery) the resource. What happens if after doing the tests, the company discovers solution mining won’t work? “That is something that will concern me,” he told us. “I think there are an awful lot of projects out there that are being called ‘good projects’ by companies that have them. And I don’t think these people have a clue as to what is required for solution mining.”

If so, then what should investors be looking for in uranium mining stocks? “At this stage, I would try to look at undervalued companies because that’s the least risk,” Halvorson advised. “I don’t think I would look at the market leaders, per se. Companies like Cameco and Denison are awfully pricey. International Uranium is pricey in my opinion.” So where would Halvorson look today? “I would look at the undervalued ones, the ones that have projects, but for some reason maybe not as much traction in the market,” he suggested. “I think ultimately the market will recognize those values or they’ll get taken over at premiums.”

Two of Halvorson’s favorites came from his network. “I originally got involved in Strathmore Minerals because I knew they had some good properties and some very good consultants and contacts in the business,” he explained. “And, they have David Miller, who really knows the business inside out. Talking to him, I got comfortable with those U.S. assets. So, I literally backed the truck up and bought lots of stock.” Halvorson subsequently became a director of Strathmore Minerals.

Another Halvorson favors is Kilgore Minerals. “With Kilgore, it is because Norm Burmeister had such a good track record with Silver Standard and Bull Run,” Halvorson said. “Norm is the kind of guy who has a great appreciation for an economic play. I got involved with Kilgore fairly early on and was semi-responsible for the stock moving out of the 30 – 50 cent range. Norm has a huge gold property. We both laughed about Kilgore’s major downside, and he added, “There’s a company that if it was aggressively promoted, would probably be trading at maybe three times where it’s at. Their gold property is probably worth what they trade for.”

Halvorson discussed his other uranium holdings, “I was a fairly substantial shareholder of UR-Energy, but you can’t own all your stocks all the time. They had a very good market so I left.” He noted those were his three substantial holdings and that he also has minor holdings elsewhere. One of those holdings, Santoy Resources, comes from his association with Ron Netolitzky, who is also a director of Viceroy. “There’s not anybody who’s got a better track record than Ron of recognizing an economic deposit early,” Halvorson said of his long-time acquaintance. “Ron worked in the uranium field in the 1970s and 1980s, as well as the gold sector, so he knows all about uranium exploration.”

Of the sector, Halvorson believes there is more consolidation ahead with the quality uranium companies. “Some of these guys have got pretty rich valuations, such as SXR Uranium One with their pricey currency and extremely strong market support from Europe and Canada,” he told us. “Because of their market cap, they’re big enough that they can use their currency and do acquisitions.” He spoke highly of SXR Uranium One, “I’ve been to their main project in South Africa. They’re building it. It’s happening. They will be mining. And they are miners.”

And that’s the big difference, going back to his comment about some projects which will never see a shovel in the ground. “How do you compare Denison to some of these other companies?” he asked. “That’s part of the difference. Denison looks like it’s priced through the stratosphere, but they are mining. I think if Strathmore Minerals, which is sort of undervalued right now, if we could get Church Rock producing, I think there would be a huge revaluation.”

He sees a bright future ahead for the mining sector, and believes investors can do well if they study companies before investing in them and get the right advice. “For people coming new to the market, I would look for undervalued stocks,” Halvorson advised. “I would probably take a portfolio approach. I wouldn’t buy just one. I would buy several.”

Halvorson expects more consolidation in the uranium sector. “As the companies get more comfortable with everybody else’s share price, and also getting more comfortable with other people’s assets, then you will see people saying, ‘We can use our shares as currency because we’re trading at roughly our Net Asset Value (NAV), but this company is trading at a discount of 30 percent to their NAV. So, if we can do a transaction with them, it’s going to be accretive.’”

That’s not the case right now, though. “You’ll hear companies talking about this wonderful asset they’ve got,” he said. “Then, I’ll go ask somebody I know in the business about the play, and he might say, ‘Oh god, I don’t like that.’ Right now, I don’t think people have any way of judging a lot of these properties. If you remember the analogy I used in the oil and gas business, where you have companies trading properties all the time, it’s because people can rely on engineering.”

Right now, a lot depends upon the underlying commodity. Rising spot uranium prices have helped a large number of the uranium ‘development’ companies, such as Strathmore Minerals, UR-Energy, Uranerz Energy and Energy Metals, move higher. Most recently, according to TradeTech LLC, the spot uranium price reached a new high at $52/pound. Many of the U.S. uranium projects became economic above $30 and $40/pound, which offers investors more opportunity for profit. “I think I’m going to make a lot of money in the resource sector over the coming years,” Halvorson said with excitement in his voice. “But you have to be nimble. If you buy high and just hold, you might just get your money back at the end of the day. If you like the sector and trade around core positions, I think it’s going to be one of the most attractive sectors out there.”

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