Trading Commodities - Margins
Keywords: commodity trading, commodities trading, trading, online trading, commodity, commodities
If you’ve been reading the newspaper lately, you’ve doubtless seen how much inflation has gone up over the last two years. You might be thinking, as many do, that this is likely to continue for the next two years. However, you can hedge your portfolio against inflation and maybe even pick up some profits by investing in gold.
Don’t worry if you don’t have $58,000 to purchase 100 troy ounces of gold at the current market price of $580 per ounce. Instead, you can buy a gold futures contract, as many speculators do. Instead of having to come up with $58,000, you only have to invest 5% of that total, or $2900.
That 5% initial investment is known as the initial margin. The exchanges and brokerage firms set the exact percentages on a daily basis. This is done per individual commodities futures contract. The exchanges monitor volatility, price and many other factors to figure out what acceptable levels of risk are. Then, they said the margins accordingly. The minimums are set by the exchange, but but brokerages will sometimes use requirements that are slightly higher.
If the price of gold rises by five dollars before the contract expires, that excellent. You’ve made five dollars per ounce of gold, times 100 ounces, which equals $500, excluding commissions of about $20. If you had purchased the gold straight out, you might be surprised to learn that your profit is exactly the same. However, look at the difference between doing an outright purchase and doing a futures contract in percentage terms.
$500 divided by $58,000 times 100% equals 0.86%, or just under 1%. This compares to $500 divided by $2900 times 100%, which equals 17.2%. This difference is from the effect of what is known as leverage. Even though you only invest 5% of the total purchase price, you get 100% (besides commission) of the profits, instead of 5% of the profits.
However, this is not only good with no bad. This type of reward carries risk of loss. Let’s say the price had decreased five dollars and had never risen again before the contract expired. What you would have had would have been a $500 loss instead of a $500 gain.
Now, brokers have to protect themselves against the possibility of something like this happening, namely that you won’t be able to cover your amount at contract expiration. Therefore, they do what’s called a “margin call.”
What this means is that all potential profits and losses are both calculated and settled on a daily basis. If the price drops under the minimum set by the broker, which is based upon the exchange minimum, brokers require that their clients deposit additional funds in order to bring their account back up to the level they initially had.
Now, here’s the problem. Brokers may or may not give you enough time and notice to actually do that. Depending on what the price volatility is, the amount of money involved, and the quality of your relationship with them, brokers can and sometimes do liquidate your position and don’t wait for you to cover.
Normally, most brokers will give you enough notice and reasonable time to cover this “maintenance margin,” which is the amount needed to bring your account back up to the level they require. However, it’s you, the trader, who is responsible for monitoring your own position and knowing what the guidelines are.
In addition to bringing your account back up to the previous level, you might also have to come up with even more money. Exchanges and brokers often do raise or lower the minimums they require, depending on what the current market conditions are.
Simply put, futures trading is fast-paced and puts you at higher risk in the world of commodities. It’s not for everyone, but if you have a high tolerance for risk and can put additional funds in as necessary, and if you can withstand some losses as a matter of course, it might just be for you.
Visit www.123onlinetrading.com to find more great information about commodity trading. Besides a large selection of free educational articles you can also find powerful books about online trading in general.
Previous Articles Highlighter:
Myths About Real Estate Agents (1)
Fact: It's true that realtors are often trying to do too many things at once, but they like to be careful about it. And though realtors would like to make a good impression on you, more often than not they drive Hondas and Toyotas and hope that their hard work will sell you, not their Lexus.
The Benefits Of Buying Real Estate In A Bad Neighborhood (2)
- There is less worry of your neighborhood going downhill because it is already downhill. Good neighborhoods can get bad and bad neighborhoods can get better. Since the price usually reflects the current condition, buying in a neighborhood that has room for improvement might be a good idea.
Auto Loan Tips To Keep In Mind When You Buy Your Next Automobile (3)
In summary there is more to buying a car than the make and model. Your auto loan will play a big role in determining what you can afford. It can also affect your financial future.
Business Insurance Tips To Make You Feel More Comfortable (4)
Always make sure you feel comfortable talking to your broker. A deductible budget is good rather than going uninsured and exposing your business on being uninsured. Before you sign on the dotted line make sure you have the right business liability insurance.
Bad Credit? You Can Still Get A Loan (5)
They can also help get your loan approved faster than other programs. Although getting a bad credit loan may be easy, a low crdit score mortgage loan has its price - you will likely pay higher interest rates and higher closing fees.
Asheville NC Rental Houses Abound (6)
Some of the best places to visit in the area are the Biltmore Estate, The Folk Arts Center, The Mineral & Lapidary Museum of Henderson County, the historic Flat Rock Playhouse, and the North Carolina Arboretum.
Asheville NC Lakeview Real Estate Can Be An Excellent Investment (7)
Asheville NC lakeview real estate is scenic living in a natural area for you and your family. For information on lakeview homes or cabins available in Western North Carolina, contact Preferred Real Estate Center at www.preferredrealestatecenter.com the professionals with local experience.
Dental Insurance - Costs Far Less Than The Consequences (8)
Regardless of which method a person chooses to keep his or her mouth covered when it comes to dental care, the most important thing to keep in mind is that dental coverage is important.
Car Loans 'Could Save Britons A Bundle On A New Car' (9)
Steve Smith writes for 1 stop finance shop where visitors can apply for UK secured loans and also focuses on personal loans and bad credit loans for UK residents. Visit Today: www.1stopfinanceshopuk.biz
Overspending 'Could Lead To A Bad Credit Rating' (10)
By doing so he claimed consumers can check for any discrepancies in their file and identify where a change in their circumstances has previously affected their ability to pay off debts - with this possibly helping to determine what rate of interest loan providers decide to set.
Britons 'Do Not Know Personal Debt Figure' (11)
The company is sponsored by 30 product provider sponsors, including the likes of Clerical Medical and Prudential, and has around 9,000 independent financial advisers on its database that stretches across the UK.
Garden Improvements Add Privacy And Value (12)
"For example, if you've got an ugly block of flats behind you, or if you've got another house really, really close to you looking into your garden, it's quite nice to do something that's going to take your eye off that and give yourself some privacy from whatever's going on behind, [by] maybe planting a tree or something like that," said Alasdair Mackenzie, the Cluttons partner in charge of sales for Clapham and Battersea.
Home Insurance: Do You Really Need It (13)
It will definitely save you a lot of stress, money and family troubles when the time comes. It is the passport to better safeguarding your American dream. Craig Thornburrow is an acknowledged expert in his field.
Millions Of People 'Should Look To Debt Consolidation Loans' (14)
Research published in the company's debt index today reveals that as repeated increases in the interest base rate hit home, higher numbers are questioning their ability to keep up with repayments.
Credit Card Tips To Save You Money, Time And Worry (15)
Most times because the deal seems just so good, we take it up on impulse before we carefully consider the implications. It is always best to go through the Terms and Conditions governing the deal or promotion and the underlying disclaimers.
Consumers Warned Over 'Holiday Debt' (16)
According to the organisation's website, the CCCS was started in 1993 as a pilot in Leeds before centres were opened in Nottingham, Cardiff and Birmingham three years later. It is based on a concept from the United States.
What Are Credit Card Rewards? (17)
There may be blackout dates or seating restrictions. You should also know about and understand any redemption fees that may apply. If you have a particular brand or hotel or airline that you use a lot you may want to see if the company offers a credit card.
Credit Card Charges Abroad 'Costing Millions' (18)
According to new research from price comparison site uSwitch, the number and scale of charges being implemented by some card providers is leaving the public to foot a bill of around 759 million pounds.
The Basic Credit Card Types (19)
When you receive your statement, you can pay all or part of your balance each month, run up the balance again and so on. Being a credit line, the account comes with a pre-determined credit limit that depends on key factors like disposable income, credit history, etc.
Getting Smart On A Low-Rate Credit Card (20)
Interest rate - This will always be the most important factor when evaluating credit cards. You will have no problem finding the nominal rate because it is usually printed in big bold type in the credit card offer letter.
Newer Articles Highlighter:
Commoditiy Trading - Financial Indexes (1)
Stock prices can most certainly be volatile. There have been a few large single day price drops. However, by design, indexes typically move less and not as rapidly as other prices do.
Trading Commodities - Reading Prices (2)
The CME is one of the oldest and largest exchanges in the United States. Here, prices are established in cents per hundredweight. A standard contract usually deals with 40,000 hundredweight.
Homeowner's Insurance: How To Save Some Cash (3)
Your research should involve striving to keep your premiums and deductibles as low as possible. One way to do this is by not insuring the land your house sits on.
Borrowers 'Unrealistic' About Paying Back Loans (4)
Tom Dawson writes for Essentially Home Loans. Our visitors can apply for secured home loans online, for whatever reason with whatever credit history. Visit us today for the best rate loans available.
'Worrying' Number Of Young Brits In Debt (5)
And with the nation's financial management problems "completely out of hand", taking out debt consolidation loans was suggested as being a potential way of managing monthly outgoings Tom Dawson is the Editor in Chief for Essentially Home Loans where visitors can apply for cheap loans online.
Britons 'Would Rather Consult A Hairdresser' On Money Woes (6)
The survey conducted by the organisation stated that those consumers aged between 18 and 25 are the group most likely to be concerned about their financial situation, with more than a third suggesting that they have experienced concern about the issue - more than twice the national average.
Homeowners Insurance Guide (7)
Protection Against Liability This covers against lawsuits for any physical injury or property damage that the homeowner, or his/her family members, or pets cause other people. This liability policy covers a homeowner anywhere in the world.
Interested In A Home In Malibu? (8)
There are categories of homes and business properties as well as divisions in the types of real estate that are available to others. If you want to make a different type of investment in something that you know you can make a profit out of, such as a home in Malibu, then knowing the different types of real estate investments can help.
Choosing The Right Insurance For Your New Malibu Home (9)
Home owners insurance is one of the ways that you can keep cover with your investments and out of the damage. Visit www.moveinmalibu.com for information about Malibu real estate, and related useful resources about the Malibu area.
How To Sell And Rent Back Your Home (10)
Is it lower or higher than your current monthly payments? How long will you need to rent until you can get your finances together and get into your ideal situation?
The Right Penny Stock Can Make You Money (11)
Companies listed on the Pink Sheets trade as ridiculously low as $0.00001 per share, all the way up to $500 per share and sometimes beyond. Foreign companies often have some of their shares sold in the United States by listing them on the Pink Sheets.
How To Sell Your Home If You Are Faced With A Foreclosure (12)
After you find someone who is interested, you can move as quickly as you like. Consider all of your options carefully, try not to rush things unless you really need to, and you'll surely have a successful experience.
Finding The Right Student Loan (13)
Some schools offer Stafford Loans through banks or other lenders. These schools are known as FFEL schools (Federal Family Education Loan schools). With this type of student loan you find the lender yourself and then go to the school so they can complete the paperwork.
Foreclosure Epidemic Likely Means Additional Tax Liability (14)
For example: Joe obtained a creative home loan and purchased a home at the height of home values and during the most liberal period in sub-prime lending. Eventually, the appraised value of Joe's home began to drop and the "creative" part of his home loan kicked-in.
Student Loan Consolidation Rates - It Pays To Shop Around (15)
Keywords: student loans, student loan, consolidated student loan, alternative student loan, student debt In order to repay them within the ten year period most loan programs favor, the monthly payments are often expensive - more expensive than most people can afford, especially six months after graduating.
Student Loan Consolidation Information - What Are Co-Signer And No Co-Signer Loans (16)
Keywords: Student Loan Consolidation Info, Student Consolidation Loan Information, Student Loan Consolidation At the time of researching your student loan consolidation information alternatives you want to investigate co-signer and no co-signer loans.
Choosing Your Malibu, CA Real Estate Appraiser (17)
You can ask family and friends for their opinions, or search local papers, even the Internet. If you take your time and search for the best real estate appraiser that you can find, you'll normally get an appraisal that is right on target.
Student Loan Consolidation Information - How Credit History Affects Student Loans (18)
A range of students will not have a FICO amount at all, not having credit cards or other forms of loans that would generate the required information on which the amount is based, nevertheless most students are judged by their parents credit history in relation to granting loans, whilst student credit history is important it is the parents wages and credit history that typically counts for more in the final decision.
10 Reasons Why People Don't Want To Be Rich (19)
Why? Here are my ten reasons why I think people are not interested in being rich. 1. They are contented. This is probably the best reason to not want to be rich.
Enlightening Students About Credit (20)
In these cases, the credit cards come with a bunch of teasers that ease the burden on students to afford the card. Thus, there may be interest-free periods. There may be some very low rates of interest.