The New Way to Trade Commodities
By Matthew Corica
nvestors have never had a better time to take advantage of the excellent trading opportunities now developingin commodity markets by using CFD MINI Forward contracts. Existing share market investors or people newto the financial markets can benefit from trading these versatile instruments in this current economic climate.Trading commodity CFDs is easy, and can be accessed via most Australian retail on-line brokerage firms.We will only be focusing on commodity CFDs in this article and leaving financial CFDs for a later date. ACFD commodity contract is an exchangeable instrument, traded as an Over-the-Counter financial product, andprovides leverage exposure to an underlying commodity based instrument. A MINI CFD contract is a reducedversion of the main contract that can be traded by small account holders or by individuals wishing to reduce risk instead of using an ineffective stop-loss level. The MINI CFD commodity contract is usually 20% to 50% of the main contract size and margin value. The CFD price tracks the individual commodity, and is an effectiveway to trade instead of using the main contract when there are no MINI futures contracts offer by theexchanges.We have seen recent downward trends in a number of commodity markets that can be potentially takenadvantage of by trading the downside expectation, which is simply known as short-selling. Short-selling is theability to sell commodity CFDs creating an open position in the expectation to buy-back at a later time to profitfrom a fall in the market. The short-selling of commodities is legal and necessary for the markets to functioncorrectly, as it creates liquidity and a fair market environment. Short-selling can be utilised by private investorsand is not the sole domain of institutions or professionals.If you do not have experience trading commodity CFDs, then the best way is to trade via a full service brokerthat can look after your specific needs. The most effective and robust method of trading commodity marketsthat I have painstakingly found, through years of research and experience, is by using mechanical based trendfollowing strategies. For investors who are interested in potentially profiting from trend following, and do notlike the idea of paying full service brokerage then do not worry because trend following will put your fullservice broker to work with minimum execution turnover. The potential profits from trading a strong trendfollowing strategy will be more than enough to cover any additional fees by using the services of a professionaldealer. There is no reason to be sitting at home or at your office watching an on-line data service when you canpay a fully licensed and qualified expert to keep an eye on your trades while you are doing other activities. Agood established trend following strategy should only take five to ten minutes per day to determine and placeyour trades.If you have been exclusively trading shares or equity CFDs, then you should now be considering expandingyour field of expertise and trading lucrative markets such as Crude Light (OIL), High-Grade Copper and othercommodity markets. There have been major trends on the downside that could have been traded on the short-side for strong profits over the last eight to twelve months. You do not have to worry about expiry dates, whentrading commodity CFDs, as the platform provider or your full service advisor should be looking after yourneeds to make sure everything runs smoothly in the back-ground.The advantage of trading commodities by using a mechanical based strategy is what I like to call “throwing outthe balance sheet,” because you do not have to individually research a particular company, and you do not haveto rely on the performance of company directors. For example, there is no real need to trade gold or oil stockswhen you can easily trade the commodity by using MINI CFD contracts. If you trade individual stocks, thenyou run the possible risk of investing in a company that is not managed correctly. If you trade commodity CFDcontracts, then you only have exposure to the directions of the actual CFD commodity contract instead of assuming the individual risk of a commodity based company that may not be performing as well as the CFD orfutures contract due to unforeseen factors.