Commodity Trading - Is This Stuff Blocking Your Way To Trading Success? - PART 4
By: Thomas Cathey | Posted: 21st February 2007
Even when trading conservatively and slowly there is a tremendous amount of money to be made in commodities. Most new traders try to rush it and swing for the fences. You can often control $100,000 worth of commodities with only $10,000 of margin money in your account. (5%-10% leverage) Here's how to take advantage of this leverage and why those who abuse it lose their shirts.
The commodity futures contract and option markets are highly leveraged. But it doesn’t have to be this way! It all depends on how much money you have in the account and how small you trade. The exchanges suggest the minimum margins for each position. You could make it 100% margin if you wanted. You could put up $70,000 for each E-Mini if you wanted. See what I mean? It’s up to YOU to decide how leveraged you want to be.
Leverage can work for you or against you. Make it work for you. Trade like a guerrilla warfare fighter. His number one priority is survival. He doesn’t want to get caught by being vulnerable. High leverage is being vulnerable. His secondary goal is to inflict damage. (Take profits) He is an excellent planner and knows how to take a small loss to be able to fight another day.
You need to plan, survive and be able to trade another day too. Work out a money management trading plan that will let you trade like a drunken sailor for short periods of time and still stay intact. Because everyone trades poorly from time to time, no matter how hard we try not to. Insist that your commodity broker describe his account survival plan to you. And don’t settle for the reply, “well, you can always send in more money if we risk everything now.” That’s a cop out. We must work with whatever account balance we have. Use only money you can afford to lose. This keeps your thinking clearer too.
What I am trying to avoid is the tendency to trade a $10,000 account out of control... risking 30%+ on each trade because there is $100,000 more sitting at home. There is one exception and a good reason to send in more money. If there is a cluster of high probability trades that you will miss because the account is too small, then this is a good reason to add more. We never know which high probability trade will work out and which will not. Staying under 7.5% risk for each commodity trade is the goal, no matter what account size you have.
This article may contain the most important trading tips you will learn from me. Take on “small” positions relative to your own financial net worth. Small positions that are traded well are the key to commodity futures contract and option trading success. Only after you have built up your account from successful trading should you increase your line.
Good Trading!
There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.
About the Author
Occupation: CEO and Money Manager
Thomas Cathey - 27-year trading veteran heads the managed futures division of Thomas Capital Management, LLC. View his TimeLine Trading market predictions and get his complete 44+ lesson, "Thomas Commodity Trading Course." http://www.thomascapitalmanagement.com/commodity/welcome.htm Main site: http://www.ThomasCapitalManagement.com
There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.
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Tags: amount of money, reply, cop, account balance, money management, leverage, commodities, fences, new traders, short periods, futures contract, commodity futures, option markets