Suggested strategy for metal trading

[BREND]

Speaking from my experience as a metal dealer, there are 3 points to look out for in metal trading. If the 3 points are matched, the trade will be a good one. However it is not common for all the 3 points to match. But when they are matched, it will be a great money making opportunity.

1. Know what is the motive of hedge funds now.
Hedge funds nowadays are very powerful. They can buy up 50% of the world inventory of a particular metal, freeze the supply and let the natural demand in the physical market push up the price. The real victims are the real consumers of the metals. The funds are doing that on tin, lead and zinc now.
I do notice that movement of funds are rarely mentioned when discussing on the directions of metals. Funds play an important role on base metals these days.

2. Technical analysis.
If there is a bullish indicator, all the metal traders in the world are looking at the same chart. And most will react to the same bullish indicator.

3. Fundamental supply and demand.
Find out if the metal is in suplus or deficit? Is the inventory level rising or falling? Does China has a growing appetite for this metal now?
Fundamental is still important, but it is not the most important factor in today's world.

Hope my suggestion is useful.

http://basemetal-trading.blogspot.com/

 

[Pager]

Thanks for the info Brend, to you or anyone else with experience or actively trading Metals.

I trade Index Futures actively but im interested to branch out and find out more about Metals trading, what advice would be given?

Some questions I have are, what Metals futures and on what exchanges are the most active? Any drawbacks with some markets (Contract size, liquidity etc)? Do these markets have a high proportion of Day traders active like the indexes? Which contract months are the most active, always the forward? Or like some indexes Jun/Sept/Dec/Mar?

Are bid/ask spreads pretty tight in general, slippage a major factor, contracts fungible on different exchanges, i could go on and on .

But any info or things to be aware off would be appreciated.

Cheers

Pager

 

[BREND]

Thanks for the info Brend, to you or anyone else with experience or actively trading Metals.

I trade Index Futures actively but im interested to branch out and find out more about Metals trading, what advice would be given?

Some questions I have are, what Metals futures and on what exchanges are the most active? Any drawbacks with some markets (Contract size, liquidity etc)? Do these markets have a high proportion of Day traders active like the indexes? Which contract months are the most active, always the forward? Or like some indexes Jun/Sept/Dec/Mar?

Are bid/ask spreads pretty tight in general, slippage a major factor, contracts fungible on different exchanges, i could go on and on .

But any info or things to be aware off would be appreciated.

Cheers

Pager

what Metals futures and on what exchanges are the most active?
The active market for metal trading is London Metal Exchange.

Any drawbacks with some markets (Contract size, liquidity etc)?
Liquidity is good for most metal for full contracts, but mini-contracts liquidity is very bad, and bid / offer spread is too wide.

Which contract months are the most active, always the forward? Or like some indexes Jun/Sept/Dec/Mar?
Metal contract is always 3 months forward. I think you should understand what is contango and backwardation already? That is very important!

But any info or things to be aware off would be appreciated.
You have to understand what is investment community is thinking of now. For eg nickel is a fundamentally good metal. Demand for Nickel is still strong in China. But Nickel price has risen more than 200% in 2006, and many commodity funds are thinking of selling nickel as part of their re-structuring strategy in 2007. You do not want to go against the funds.

Pagar, go on and ask, I will answer you when I have time.
Risk comes from not knowing what you are trading.

I always tell my prospects who are interested in metal trading that they have to know the risk, and comfortable with this trading instrument, before they start trading. Research on those industrial metals: copper, aluminum, tin, zinc, lead and nickel.

For a start, you might want to start reading my blogs. I believe it is informative.
http://basemetal-trading.blogspot.com/