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: Though occasionally real estate agents do have big hair, most are regular people who get up in the morning just like you do, and go to work just like you do.
The Benefits Of Buying Real Estate In A Bad Neighborhood (2)
And this makes sense to want a neighborhood that is safe and enjoyable. But there are some benefits to buying real estate in the rough part of town or on the wrong side of the tracks.
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)
Know what you getting and if you are comparing apples to apples. Question the broker on his knowledge in your type of business or the industry your business is in to be sure you will getting adequate coverage for your needs.
Bad Credit? You Can Still Get A Loan (5)
You can also solve your poor credit problems with time and knowledge about finances. Perhaps you might decide to wait on a home loan while you work to bring up your credit score.
Asheville NC Rental Houses Abound (6)
There are four popular man-made lakes in the greater Asheville and Hendersonville areas. They are: Biltmore Lake, Lake Glenville, Lake Lure and Lake Toxaway. Each lake offers water-front real estate if you are interested in living or vacationing lakeside.
Asheville NC Lakeview Real Estate Can Be An Excellent Investment (7)
The lake has many sandy beaches, and private waterfront property or cabins are usually available. Lake Lure is approximately 720 acres and is known as being one of the most beautiful man-made lakes in the country.
Dental Insurance - Costs Far Less Than The Consequences (8)
(c) 2007 Best Dental Health Guide. If you want to find the best information and product ideas to keep your teeth healthy and bright. You can, right here, on Martin Haworth's fascinating website at www.BestDentalHealthGuide.com
Car Loans 'Could Save Britons A Bundle On A New Car' (9)
With a Halifax loan, customers do not need to make payments for the first three months, which will help when it comes to sorting out road tax and other expenses." Halifax has also urged potential car buyers to take into account a number of things related to the finance option that they choose.
Overspending 'Could Lead To A Bad Credit Rating' (10)
In addition the study indicated that men are overspending on their cars by 1,964 pounds per year, with women shelling out an extra 1,068 pounds. Just over a third (38 per cent) were also shown to be spending more than they would have liked on presents for their work colleagues.
Britons 'Do Not Know Personal Debt Figure' (11)
Research from the website - designed to emphasise the benefits of independent financial advice for consumers across the country - has reflected that young people aged between 18 and 24 years old may be the worst group when it comes to determining their indebtedness, with 41 per cent unaware of what their total debt figure is to within 500 pounds.
Garden Improvements Add Privacy And Value (12)
is attempting to get credit providers to use scenarios for customers to see the outcome of, for example, leaving a balance on a store card, some of which carry APRs approaching 30 per cent.
Home Insurance: Do You Really Need It (13)
It is the passport to better safeguarding your American dream. Craig Thornburrow is an acknowledged expert in his field. You can get more free advice on home insurance and home insurance quotes at www.homeinsurancegroup.co.uk
Millions Of People 'Should Look To Debt Consolidation Loans' (14)
However, Mr Gardner reassured the public that taking action can help to assuage money worries. "There are however plenty of ways for people to get their debts under control from consolidating their borrowing to using the equity in their home through a secured loan.
Credit Card Tips To Save You Money, Time And Worry (15)
Try Waiving the Late Fees: If you have never been late before paying your balance and fees, you can call up the credit card company to have them waive the late fees for you.
Consumers Warned Over 'Holiday Debt' (16)
"If you really can't afford to go on holiday you have to accept that and not go on holiday - or look around for ways of making it a very cheap holiday.
What Are Credit Card Rewards? (17)
One issue that you should keep in mind about credit card rewards is that they only really pay off if you pay off your balance on a regular basis. If you do the math on this you will see that the rewards rarely pay off more than what you will have to pay in interest when you carry over a balance.
Credit Card Charges Abroad 'Costing Millions' (18)
Mike Naylor, personal finance expert at uSwitch, observes: "Holiday spending can be difficult enough to budget for at the best of times, without the bill creeping up by way of these hidden charges.
The Basic Credit Card Types (19)
Discover Card, once owned by Sears, was probably the biggest house card until it was purchased by a financial institution to become a distinct credit card company. Merchants are very much in favor of house cards as these cards are valuable in helping them to both develop customer loyalty and enhance sales; you may appreciate the shopping convenience they give you.
Getting Smart On A Low-Rate Credit Card (20)
You should study these conditions every time consider new credit cards. It's not that you begrudge the credit card companies the right to impose interest and credit card fees; it's just that you would not want any surprises and would prefer to get the better end of the deal.
Newer Articles Highlighter:
Commoditiy Trading - Financial Indexes (1)
Therefore, it gives traders a broad view all the entire stock market. The companies listed within the S&P 500 represent 80% of the entire market capitalization. The top 40 stocks in the S&P 500 represent 50% of the total market.
Trading Commodities - Reading Prices (2)
Movement on price change is comprised of one quarter of one cent. A standard contract is for 5000 bushels. Therefore, a price listed as 290 means a cost of $2.90 per bushel.
Homeowner's Insurance: How To Save Some Cash (3)
To start, your land is not exposed to thieves, property fires, or other conditions covered by your homeowners insurance policy. When picking the right homeowners insurance, the value of the land should not be taken into consideration.
Borrowers 'Unrealistic' About Paying Back Loans (4)
David Kuo, head of personal finance for the Motley Fool, said: "It is worrying to learn that two out of three people have taken on debts without fully understanding what is involved or how long it will take to repay the loan.
'Worrying' Number Of Young Brits In Debt (5)
Commenting on the figures, Andrew Smith, marketing director for the financial services firm, said: "We found it worrying that 48 per cent of the 18 to 24-year-olds we sampled were already in debt.
Britons 'Would Rather Consult A Hairdresser' On Money Woes (6)
According to the commission, 330 people are being made insolvent in the UK every day while the nation's personal debt levels increase by 1 million pounds every four minutes. 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)
Coverage For Contents Of Home This policy covers personal belongings such as furniture, clothes, electronic goods and other household items that get destroyed by any of the insured disasters. Most companies offer coverage of 50% to 70% of the amount insured for the building.
Interested In A Home In Malibu? (8)
Each of these has specific guidelines set with them which will make a difference in the functions of the real estate. After you have determined what type of real estate you will be looking at, you can divide up what is available to you.
Choosing The Right Insurance For Your New Malibu Home (9)
It is always a good idea to transfer large financial risks. And that is exactly what the insurance does. Home owners insurance will be divided into a variety of categories, all which will beneficial to different situations.
How To Sell And Rent Back Your Home (10)
You will probably deal with a company that specifically deals with buying houses from people and renting them back. This means that they have a specific system that they use based on your equity and your home.
The Right Penny Stock Can Make You Money (11)
The hard part is finding the right company to invest in, because for every successful startup company, there is also one that fails within the first year or two. To find the right company, there are a few things you need to look for.
How To Sell Your Home If You Are Faced With A Foreclosure (12)
Consider all of your options carefully, try not to rush things unless you really need to, and you'll surely have a successful experience. Need to make a quick house sale?
Finding The Right Student Loan (13)
A student loan calculator is a special kind of calculator. It must be capable of factoring in a deferment period. This is because student loans are unique in the sense the payments don't start until after graduation.
Foreclosure Epidemic Likely Means Additional Tax Liability (14)
The sale is "short" because the value of the home does not cover the amount of the mortgage. The lender may forgive the additional $50,000 owed by the borrower in order to avoid the foreclosure process, or to avoid litigation expenses in pursuing the borrower for the deficiency balance, and essentially cut its losses.
Student Loan Consolidation Rates - It Pays To Shop Around (15)
The best place to find a consolidator for your student loan is by calling whichever student loan organization you send your payments through. Sallie Mae and ACS are two of the most widely used student loan programs.
Student Loan Consolidation Information - What Are Co-Signer And No Co-Signer Loans (16)
One popular co-signer plan shows a 4% plan paying $5,489.00 in interest over the period of the loan, rising to $10,647.00 at 6% a 2% difference doesn't sound like a lot, however given contemporary borrowing patterns and compounding such a scenario is not unrealistic, one more instance that isn't uncommon these days is for students and parents to borrow as much as $100,000.00 to help finance an undergraduate education, even if interest is paid right away (therefore it does not collect as long as the student is in school, adding to the total amount to be re-paid), interest at 6.8% is nearly $567.00 per month and the annual interest total is approximately $6,600.00.
Choosing Your Malibu, CA Real Estate Appraiser (17)
Appraisers will also taken into consideration the replacement costs as well. Also, they will have to very land descriptions as well. There is a lot of work involved with appraisals, which is why it is so very important that each step of the process is performed correctly by a qualified real estate appraiser.
Student Loan Consolidation Information - How Credit History Affects Student Loans (18)
Limiting the number and maximum balance amounts on credit cards will additionally assist, excessive credit inquiries suggest to lenders that someone is having difficulty meeting existing debt loads, that is a signal that re-payment of further loans may be harder, that increases the lenders default rates on loans that are not re-paid, financial institutions will try very hard to keep that default rate as low as possible, to do that they sometimes deny credit to borderline applications.
10 Reasons Why People Don't Want To Be Rich (19)
They think the stock market will crash tomorrow if they buy today. They figure maybe an earthquake would flatten the investment property they just bought. They think businessmen are crooks.
Enlightening Students About Credit (20)
However, if you are a student with a newly-acquired credit card, see to it that you do not end up having to spend more than is necessary. Using your credit card prudently is the best way to make certain that you avoid getting ensnared in the web of credit card debt.