Trading Commodities - Commodity Types
Trading Commodities - Commodity Types
There are several different types of commodities. Commodities are categorized so that it’s easier to price compare, do research, and to make other trade tasks convenient. If you’re an investor who wants to get involved in commodities trading, you need to know the basics. This is indeed one of the riskiest areas to invest in, but it can also be among the most profitable if you know what you’re doing.
Energies
This area has been one of the most active in commodities trading recently. This category is comprised of products that are used to provide energy that will heat and power businesses and homes. The most common of these is petroleum and its byproducts, among them crude and heating oil, propane, natural gas, coal and some others, including subtypes or derivatives.
Each commodity has its own defined “tick” or price change; these are set by the exchanges. Each commodity also has a standard contract size. The standard contract size is the amount covered by a standard futures contract. For crude oil, for example, the amount is 1000 barrels. For wheat, it is 5000 barrels.
Grains
Wheat, oats, corn, rice and soybeans (although soybeans are not technically a grain) are agricultural products traded on various exchanges, including the well-respected Chicago Board of Trade, or CBOT for short. The exchanges trade the product as well as the futures and options contracts on these and other derivative products, such as bean oil.
Each of these products has its own tick or price change, standard contract size and unit. Some prices are listed in dollars per ton, such as with soybean meal. In this case, the standard contract size is 100 tons. It should be noted that most traders never see the actual commodity they trade in; you can see by the amount quoted here that there’s a reason why.
Softs
Orange juice, cotton, sugar, cocoa and coffee are all what are called “soft” commodities. Many of these are traded on the Coffee, Sugar and Cocoa Exchange, or CSCE. It should be noted that 80% of the oranges grown in the United States are turned into frozen orange juice concentrate, and that it is the juice itself traded as the commodity, not the orange.
There’s a relative newcomer on the New York Cotton Exchange, Frozen Concentrated Orange Juice, or FCOJ. This has been actively traded since the creation and widespread use and integration of inexpensive refrigeration, beginning after WWII.
Meats
Pork bellies, lean hogs and live cattle are traded on various exchanges, as are some derivatives. One of these exchanges is the Kansas City Board of Trade, or KCBT, which is the United States’ livestock trading historical center.
One very unique commodity here is pork bellies, because the bacon that comes from pork bellies can’t be substituted with a similar product. Their prices also usually interdependent with the price of grain, because hogs are fed a diet of corn and other grains. These prices are generally less volatile than they are within many other commodities.
Financials
Most traders invest in commodities futures or options rather than the good itself. Because of this, financial products are often listed on the same exchanges.
U.S. Treasury bonds futures are traded on the CBOT, as well as other places. A few indexes track stocks. The S&P index futures contract is one popularly-traded item.
It should be noted that some sites will list abbreviations showing the expiration month of the futures contract within the prices quoted. For example, these are shown are as follows, listed by quarter:
January - F, February -G, March - H
April - J, May - K, June - M
July - N, August - Q, September - U
October - V, November - X, December - Z
For example, you might see an item listed as PBH07; this is a pork belly contract that is due to expire in March of 2007.
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Trading Commodities and Financial Futures: A Step by Step Guide to Mastering the Markets, 3rd Edition
“Thanks to his wealth of experience, George Kleinman has written a user-friendly guide to trading futures that no trader can afford to ignore.”
–Patrick L Young, author, New Capital Market Revolution and Chairman, erivatives.com
“Congratulations to George Kleinman for writing a comprehensive futures compendium that should be mandatory reading for anyone considering futures trading. Kleinman dispels the myth that the individual trader always loses against the Goliaths in the markets.”
–Mary Cashman, Head of International Operations, Global Commodity Intelligence
“Discipline and execution are the two most important and difficult aspects in trading. George Kleinman offers the solutions to the problems, and they are superb. Clear, crisp writing that will keep you reading and help you become a superior trader.”
–Yiannis G. Mostrous, Editor, Wall Street Winners, Financial Advisory
“Without a doubt the best book I have read on the industry! Perfect for the novice speculator, yet comprehensive enough for the seasoned veteran to refer back to time and again. The trader who has been around awhile will enjoy reading the stories. Believe me, they are true!”
–Joseph M. Orlick, The Chicago Board of Trade
More fortunes are made and lost more quickly in the commodity futures markets than anywhere else. It is a game of consequence where profits won by one player are lost by another. The stakes are high, but for those who know how to play well, the rewards can be immense. Trading Commodities and Financial Futures shows you how to play the game to win.
In this book, one of the world’s most experienced traders introduces a new step-by-step methodology built on more than twenty-five years of success. George Kleinman begins with the basics–including a complete primer on how futures and options trading works, how traders’ psychology impacts the markets, and how to avoid the pitfalls that trip up so many traders.
This edition offers updated coverage of electronic trading, the latest contracts, and state-of-the-art trading techniques you won’t find in any competing book. Previous editions of Kleinman’s Commodity Futures and Options became international best sellers. This one offers even more insight for winning the commodities game–and winning big.
Winning in a zero-sum game
For every commodities winner, there’s a loser: here’s how to be the winner
The trend is your friend
How to use techniques designed to generate profits in a trending market
The fundamentals: supply and demand in every key market
Mastering the markets, from crude oil to soybeans, gold to coffee, foreign exchange to stock index futures
TMVTT: The most valuable technical tool
A unique trading methodology–how it works and how to use it
When to get in, when to get out
How to recognize the beginning–and end–of major market moves
Twenty-five trading secrets of the pros
A lifetime’s experience, distilled into twenty-five crucial tips
George Kleinman is President of Commodity Resource Corp., a well-established futures and options advisory, brokerage, and trading firm headquartered in Lake Tahoe, Nevada. Kleinman has been trading for over twenty-five years on behalf of individuals and commercial commodity users. He entered the business in 1977 as a futures broker with the commodity division of Merrill Lynch, becoming a member of its “Golden Circle,” its top ten commodity brokers worldwide. In 1983, he founded CRC, a firm that has been highlighted repeatedly in national publications for its trading performance.
Kleinman has been an exchange member for over twenty years, currently a member of the New York Mercantile Exchange (COMEX Division) and the Minneapolis Grain Exchange (former board member). He is a member of the National Futures Association, executive editor of Trends in Futures, and contributing editor to Trading Floor Pro.
Winning big in commodities and financial futures: The insider’s guide for beginners and experienced traders alike
- Profit from the new commodity bull market!
- Outstanding quick-start guidance for new traders… proven techniques for every trader
- What you need to know about trading psychology
- Riding market trends: rules for when to get in and when to get out
- Expert insight from one of the world’s most experienced traders
© Copyright Pearson Education. All rights reserved.
Rating: 
(out of 19 reviews)
List Price: $ 49.99
Price: $ 22.50
The Blog Entry that Accompanies this Video is at: investorandtrader.blogspot.com My Daily Blog is at: investorandtrader.blogspot.com Free Issue of Airelons Market Tactics davianletter.com Airelon’s Market Tactics Newsletter: davianletter.com This vlog entry is a continuation in a series of videos, the “Commodities Trading and Futures Speculation”, and is continued from the previous entry. Introduction: I discussed some of the myths regarding commodities speculation, and introduce the entire series. The Reason for the Markets Existence: We discussed that the commodity futures markets exist, to allow companies, farmers, and others involved in production within the economy to hedge themselves against catastrophic losses. This in turn, keeps unemployment lower, and reduces volatility in the economy. So why are traders within the commodities market? We discuss this topic in thefollowing vlog entry … * * * Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have over 13 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.
Question by Sterkwell: What is the difference between a purchased Commodity (in the commodities market) and Futures.?
Is there a difference between buying wheat in the commodities market, for example, and buying wheat futures?
Best answer:
Answer by jeff410
The spot price is what you can buy or sell it for right now for immediate delivery, the posted prices at the grain elevators The futures prices is what you can buy or sell it for at some point in the future using a futures contract.
What do you think? Answer below!
You will gain a new insight on commodity futures trading once you have decided to learn about trade commodities fr… http://bit.ly/aVyi83 - by TradingMadeSmpl (Trading Made Simple)
Tags: Agricultural Products, Bean Oil, Byproducts, CBOT, Chicago Board Of Trade, commodities, commodities trading, commodity, Commodity Trading, Contract Size, Derivative Products, Futures And Options, Futures Contract, Gas Coal, Heating Oil, Oil Propane, Options Contracts, Several Different Types, Soft Commodities, Soybean Meal, Soybeans, Trading, Trading Commodities, TypesPosted in
Review by W. Robertson for Trading Commodities and Financial Futures: A Step by Step Guide to Mastering the Markets, 3rd Edition
Rating:
Too much novice information, considering this is the internet age and three quarters of the book can be found for free by just looking a little which is what the internet/search is for. Hardly anyone that knows “nothing” about investing is going to start trading commodities first, which it seems the book is addressed to.
This book would have been hot about 1985, helping you calculate a simple moving average with a pencil and paper. It really needs updating to remove anachronisms.
The big illustrated trading system TMVTT should be taken with a pound of salt. I have tested these kind of algorithms using trading software on historical data and their results are unimpressive in my opinion. I wrote special code to test the “trend reversal day trading system” as published, and ran it against two years of U.S. Dollar / Swiss Franc through February 2006. Doesn’t work. As a concept these systems have their merits as serious reminders of how important it is to trade with the trend, but mechanically they don’t work in real markets in general. This has surprised me every time I test mathematically the actual results of these approaches, since I do believe the author is correct in saying they are commonly used in markets, and frankly it could be a big reason why technical analysis has a bad name for a lot of people with casual exposure.
If your trading plan is to hold a contract for a fairly long period (many weeks, months), or you want to be convinced to, this is where the wisdom of the book shines.
The book does have its appeal in the oddest places (some comments on contract terms, agricultural trading rules from the grave) that make you aware of the sincerity of the author and appreciate him overall for the effort.
It took me 2 hours to get through the whole book, and another hour to write the code and test the algorithm. And I’m pretty much done with it. But I’m no novice. But then, you probably aren’t either.
Review by Vahania63 for Trading Commodities and Financial Futures: A Step by Step Guide to Mastering the Markets, 3rd Edition
Rating:
The book gives a very good overview of commodities trading and mostly intended for somebody, who is totally new to this field but has at least some background in stock trading (like myself). It doesn’t provide a complete coverage of the matter. In other words, you will not be able to start trading futures (at least with some probability of success) after reading this book. Nonetheless, the book is a first step towards understanding of this very complicated subject and does it very well. I found a second half of the book, where the author shares his personal (very extensive) experience, especially useful. A lot of this insight could apply to stock trading but there are also a lot of nuances, specific to commodities. Overall, highly recommended!
Review by David Rankin for Trading Commodities and Financial Futures: A Step by Step Guide to Mastering the Markets, 3rd Edition
Rating:
If you’re interested in how the commodities and currency markets work, this is definitely the book to read. If after reading this book you decide to stay with stocks, then you still benefit by getting a better handle on money management. If you’re in stocks, you may think to yourself that since you never or rarely trade on margin you are a good money manager, but after reading this book you may reconsider your opinion. For example one of your bad practices might be putting so many eggs in one basket that you won’t or can’t get out if the trade goes against you. Another one might be buying against the prevailing trend, failing to use stops, averaging down, or cashing out profitable trades to chase losing ones. Money management is the central theme of the book and you had better make sure you’re good at it before moving from the fairly forgiving stock market to the totally unforgiving commodities market.
Review by W. Pritchard for Trading Commodities and Financial Futures: A Step by Step Guide to Mastering the Markets, 3rd Edition
Rating:
This book was very easy to understand and read. Being an experienced stock trader, for my own account, I may have more of a “jump start” on the markets than someone who has never seen a breaout pattern or heard of support/resistance. This book is for both the beginner and advanced trader. Good illustrations, etc.
Spend $30 bucks on this book and you will agree.
Review by Davep557 for Trading Commodities and Financial Futures: A Step by Step Guide to Mastering the Markets, 3rd Edition
Rating:
Excellent, thorough and clear coverage of the title topics.
The best of a dozen books I have on the topics.
Full of clear explanation, without being dull and boring.
Recommend highly.
Well I think this needs more study on my part. I am sure some academic somewhere has created a model. Either way I think we both agree that politicians will blame the traders rather than dealing with the root issue - peak oil.
The difference between us is that you don’t think traders push the price around too much. I think they may be able to and hope they can. Because if they bet right they will make money and price discovery will happen faster, if they are wrong the market will break them.
Ah no mate, I don’t see it as an argument mate at all. Enjoying the discussion.
Well, it’s not that the prices won’t rise because of the fundamentals. They will. The traders just provide future liquidity while that occurs. The traders can’t make it go up. The economic fundamentals do that. Less oil = higher oil prices. Traders will just make it easier for commercial interests to hedge properly.
I just hope that I don’t get demonized when the inevitable happens.
I’ll have a look at the CoT report Airelon. I am a new investor (2 years) so I’m not going argue against you dogmatically. However, I hope you’re wrong. We are running out of oil - I hope speculators can bid it up so that the economy is forced to adjust to high oil prices now when there is time, rather than later.
True enough. As a matter of fact, the vlog that will come out today talks about that.
Because when the govt started talking about screwing with the futures markets? Those large institutions started going to the spot market, and did just that.
To the point price will be whatever demand will support. I prefer that many (retailers) partake of the profits than few (massive institutions) gather it all.
From the blog entry that accompanies this vlog:
If those contract cannot be traded with ease on the market, then the hedging interests may not be able to enter the positions; in order to properly hedge themselves. With traders present it becomes much easier to protect themselves, at the exact price, time and size that they wish to weight their hedge. Without them, they can’t do so easily, and the whole purpose of the market breaks down.
Thanks much.
And amen to that …
Thanks it great having you here.
Personally I feel retail traders and investors are “true tax”(my term). The only way to get your fair share of the pie is to be part of the game. The government ain’t gonna do it.
If you look at the CoT (commitment of traders) report each week, for as long as the commodity markets have ever existed, the commercial interests have always … always made up exactly, to the decimal point - 1/3 of the market
I hear you, up until “major players taking up a major portion of the market”
Let’s remember that you CANNOT buy or sell a contract, unless there is someone else to take up the other side of the trade. It’s not like other markets.
Just the very structure of the market is that the commercial interests who hedge MUST - by definition - always make up 1/3 of the market.
I’ll talk about this in the next video.
Traders are providing liquid price arbitrage with collective crowd wisdom on the economic fundamentals that are outside of their control - that the producers and the consumers are trying to agree to - for the future. Those economic fundamentals would be there, regardless of whether or not the traders were there or not.
Once I believed that Santa Clause brought me gifts.
Santa Clause didnt.
But I did receive presents!
They were from Mom & Dad.
Oils was like $150!
Now its way not.
So if it is not the traders the what?
It cant be true use demand because use hasnt dropped by 2/3!
Somebody somewhere is speculating on something.
This isnt good guys and bad guys.
I just want to know what is determining the price.
It certainly isnt me going from driving 150 miles per week to 50 per week.
I personally think that this is a much more complicated issue than, “traders provide liquidity”. However, oil is running out and prices hit that high when the world economy was still overheated from Greenspans unltra low rates. I would say that is a much larger factor than the speculators; though we cannot dismiss speculation because it was out of hand with major players taking up a major portion of the market. Some of those guys do take delivery!!! I’m no expert but this is not black and white.
i like your commentary, looking forward to the next vid, 5 stars
And as I’ll discuss in the future entries in this series …
What about when they pressure the price down? And as I present in this video - their bids are not in the spot market, and cannot take place in the spot market.
They’re not affecting the price, up or down, on the price of oil today. The price of oil today has no traders, and never has. That’s the spot market. Traders are only helping hedging interest in future contracts for corporations, not the spot market.
In the 70’s and 80’s, the big time markets was the commodity markets, and the volume was MARKEDLY higher than it is today.
Compare that to other, more liquid and stable markets, like Eurodollars, which has volume in the hundreds of thousands, and is much less erratic.
In the commodity markets. They are suffering from a marked lack of volume, which is liquidity.
Which has had a predictable result. The markets begin to swing more erratically. You know what the volume was in Oats today?
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First - you present your statement in the form of a unsubstantiated claim, which is a logical fallacy, petitio principii. You cannot begin your statement with the end conclusion.
Secondly, you assume there wasn’t increased volume in these markets in the 40’s, 50’s, 60’s and 70’s. If it’s one thing the commodity markets are suffering from - than when I started, is DECREASED volume, not increase. The pork belies market is almost dead, as is oats.. Volume is down across the board
I hear this liquidity arguement all the time from traders. so how did the markets operate in the 40s 50s 60s 70s? small retail traders didnt have access to the markets like they do now and the markets were fine. i really think traders cause huge swings in the market…
It allows producers or consumers of the actual commodity, who need it for business to more accurately hedge themselves. In other words, a producer may have his commodity, in his warehouse, it’s risk of loss is very low, so he doesn’t need to worry about if he can gather his commodity into the ‘warehouses’ in March.
But he still has to see if he can get in, say, a crop, in for the next season. So he may need to be involved, or hedged, further out in time.
Thanks Dan,
great series about futures traders!
I have a question.
Whay are the march, april, may and june contracts being traded at the same time in the crude light oil?