# Beginner commodity trading



## It's Snake Pliskin (10 November 2010)

What would be the best guide for a trader wanting to trade commodities? Broker variety, and costs etc.


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## Joe Blow (10 November 2010)

Hi Snake,

I've moved this to the "Commodities" forum as the topic of the thread is primarily about commodities even though it's a beginner question.


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## It's Snake Pliskin (10 November 2010)

Joe Blow said:


> Hi Snake,
> 
> I've moved this to the "Commodities" forum as the topic of the thread is primarily about commodities even though it's a beginner question.



Thanks Joe.
I wan't sure as both threads could have been ok I thought.


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## Steve Arthur (11 November 2010)

Hi Snake, I trade commodities with CFD's. They offer access to all the major commodity markets. They are flexible and diverse and with careful money management provide begginers with a relatively low cost entry into these markets.


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## skyQuake (11 November 2010)

Steve Arthur said:


> Hi Snake, I trade commodities with CFD's. They offer access to all the major commodity markets. They are flexible and diverse and with careful money management provide begginers with a relatively low cost entry into these markets.




Relatively low cost?

The ones i've seen have a fairly large spread.. some of them up to 20% of ATR...


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## Steve Arthur (11 November 2010)

I am not aware of the spread relative to the ATR. However I think the spreads are reasonable considering their volatility.  Some examples;

Gold - 60c - $1
Oil - 4c
Nat gas -2c
Sugar  - 5c
Wheat - 80c

But I guess it depends on the time frame that you are trading them on and the amount capital you have to trade with.


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## Trembling Hand (11 November 2010)

You would be mad to use CFDs to trade commods the spreads are insanely expensive for "free" brokerage.


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## Steve Arthur (11 November 2010)

TH, can you offer an safe alternative for begginers new to those markets, who often only have limited capital to start with? 

The begginer will want a guaranted stop and would only want to risk a few hundred dollars per trade.  

The spreads offered, I suspect reflect the fee of this service and risk involved.


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## Trembling Hand (11 November 2010)

Steve Arthur said:


> TH, can you offer an safe alternative for begginers new to those markets, who often only have limited capital to start with?
> 
> The begginer will want a guaranted stop and would only want to risk a few hundred dollars per trade.
> 
> The spreads offered, I suspect reflect the fee of this service and risk involved.




Nonsense. What point is it chasing a guaranteed stop in a 24 hour market thats going to cost you an arm and a leg ??

If you're  only risking a few hundred per trade thats $10,000 capital (10,000 X 2% = $200). Plenty to trade the min futs short term. Stay away from the CFDs. They are the most expensive instrument in the market. They ARE NOT a low cost entry. On top of that you miss seeing the volume & the real market. Not good for a beginner.


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## Steve Arthur (11 November 2010)

I think *nonsense* is a bit strong.

I did say *relatively* low cost. 

And relatively speaking, for a lot of begginers often the peace of mind of a guaranteed stop is worth the extra price, until their confidence builds.

Everybody is different and have different approaches to trading.

Not everybody trades short term (whatever that means?), where the spread and "the real market" are a more important part of the equation.


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## Trembling Hand (12 November 2010)

Steve Arthur said:


> I did say *relatively* low cost.
> 
> And relatively speaking, for a lot of begginers often the peace of mind of a guaranteed stop is worth the extra price, until their confidence builds.
> 
> ...




I gotta say I don't like your sums. After  say 10 round trips on Gold your beginner will be down $10-$20 X whatever size they are trading.  Where the futs trader will be down $0.50-0.40 in brokerage & spread.I know where I would be looking for peace of mind. 

The problemn with CFDs is they ARE expensive. Its just adds to the many reasons why newbies with small accounts and no experance shouldn't be encouraged to jump in to the retail friendly, small capital, soon to be no capital CFDs.


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## Bat_Ears (21 November 2010)

Trembling Hand said:


> I gotta say I don't like your sums. After  say 10 round trips on Gold your beginner will be down $10-$20 X whatever size they are trading.  Where the futs trader will be down $0.50-0.40 in brokerage & spread.I know where I would be looking for peace of mind.
> 
> The problemn with CFDs is they ARE expensive. Its just adds to the many reasons why newbies with small accounts and no experance shouldn't be encouraged to jump in to the retail friendly, small capital, soon to be no capital CFDs.




Hi Trembling Hand, from your posts (and your journal) I consider you a poster who genuinely knows what he is talking about. So how do you recommend a newbie get involved with commodities with as little capital as possible?


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## wayneL (21 November 2010)

Bat_Ears said:


> Hi Trembling Hand, from your posts (and your journal) I consider you a poster who genuinely knows what he is talking about. So how do you recommend a newbie get involved with commodities with as little capital as possible?




Can I butt in here?

The short answer is - don't. Stick to stocks unless you have at least 100-200k capital... and preferably more.


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## Trembling Hand (22 November 2010)

Bat_Ears said:


> Hi Trembling Hand, from your posts (and your journal) I consider you a poster who genuinely knows what he is talking about. So how do you recommend a newbie get involved with commodities with as little capital as possible?





basically what Wayne said.


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## skc (22 November 2010)

wayneL said:


> Can I butt in here?
> 
> The short answer is - don't. Stick to stocks unless you have at least 100-200k capital... and preferably more.






Trembling Hand said:


> basically what Wayne said.




The more newbies joining in with their $10-20K accounts, the bigger the overall profit pool for those traders who actually has an edge. You should have encourage Bat_Ears to start 

Then again, if he goes down the CFD route his contributions will only be captured by the CFD provider anyway.


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## Bat_Ears (22 November 2010)

skc said:


> The more newbies joining in with their $10-20K accounts, the bigger the overall profit pool for those traders who actually has an edge. You should have encourage Bat_Ears to start




Could you elaborate on why this so?


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## Trembling Hand (22 November 2010)

Bat_Ears said:


> Could you elaborate on why this so?




When someone loses money its not lost into a black hole its goes to another trader. In a _normal _market, shares, futures bonds etc Sum money lost = Sum of money won by others.

In the "Beginner commodity trading" CFDs money lost goes to your broker. Candy from a baby.

Thats why the CFDs are pushed so hard, low margin rates, simple interface, low capital to enter, stacks of ads etc etc etc. Its not a market where you are trading against other traders. Its a market where you trade against your broker!!


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## Bat_Ears (23 November 2010)

Trembling Hand said:


> When someone loses money its not lost into a black hole its goes to another trader. In a _normal _market, shares, futures bonds etc Sum money lost = Sum of money won by others.
> 
> In the "Beginner commodity trading" CFDs money lost goes to your broker. Candy from a baby.
> 
> Thats why the CFDs are pushed so hard, low margin rates, simple interface, low capital to enter, stacks of ads etc etc etc. Its not a market where you are trading against other traders. Its a market where you trade against your broker!!




So its hard to win out because your broker is more experienced and knows the market better? Or do you mean something more by edge? 

How does having more capital help?

How do you get involved in CFDs that aren't "Beginner commodity trading"?


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## Trembling Hand (23 November 2010)

Bat_Ears said:


> So its hard to win out because your broker is more experienced and knows the market better? Or do you mean something more by edge?
> 
> How does having more capital help?
> 
> How do you get involved in CFDs that aren't "Beginner commodity trading"?




Mate! Commodities are very volatile and the contract sizes are large. Like 100oz (which is $130,000 USD) for gold or 33 oz as the mini. So add large positions and large moves you require a very large account be able to hold them for any length of time.

If you go to the cfd contracts looking for smaller position sizes you then have to pay very large cost for the access so you are going to lose out that way too.

But really mate without sounding like too much of an A-hole. If you have to ask what is an edge you shouldn't be trading, especially commods, but rather learning. 
 here is something to get you started,

https://www.aussiestockforums.com/forums/showthread.php?t=19047


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## It's Snake Pliskin (7 December 2010)

Thanks for the info and conversations guys. I have learned some things.


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## the phantom (7 December 2010)

This small page I believe is a good start,

http://abrahamtrading.com/methodology

Also Curtis Faith and Michael Covel.

I use IB, but there can be differences in price using IB  (weird but true, eg. by /100 or other way round) for some prices, from historical day vendors or even delayed / live prices such as futuresource). 

IB seems abit different but only with a "few" contracts on how they price it (I have compensation code in AB), but great for their many types of orders, and cheap brokerage.

Also important to take into consideration is 'your' determined rollover date (software wise it is the next business day).


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## arae (21 December 2010)

If a beginner wished to trade commodities, I'd reccommend using a Commodity ETC on the ASX. Similar to trading normal shares really. 

GOLD = gold
ETPMAG = Silver 
ETPMPT = Platinum 
ETPMPD = Palladium

I'm still searching for a way to invest in Natural Gas. Any ideas?

Cheers


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