A Trader's First Book on Commodities: An Introduction to The World's Fastest Growing Market Book

Introduction The Rise and Fall of Commodities 1

A Commodity Rally for the History Books 1

A Day of Reckoning 7

The Speculators’ Role 8

Fortunes Made and Lost 10

Conclusion 13

Chapter 1: A Crash Course in Commodities 15

How It All Began 15

The CME Group 17

Evolution of the Forward Contract into a Futures Contract 18

Cash Market Versus Futures Market 21

Contract Expiration 23

The Mechanics of Futures Contracts 25

Futures Spreads 32

A Brief Introduction to Commodity Options 33

Chapter 2: Hedging Versus Speculating 37

Commodity Hedgers 37

Commodity Speculators 42

Chapter 3: The Organized Chaos of Open Outcry and the Advent of Electronic Trading 45

The Pit 46

Electronically Traded Markets 47

“Side by Side” 48

Costly Commodity Quotes 54

Open Outcry Quote Reporting and Access 54

Electronic Quote Transmission 56

Subscribing to Quotes 57

Charting 58

Free Trading Platforms and Market Access 58

Paid Trading Platforms 59

Auto Approval Versus Manual Approval 60

Order Desk (“The Desk”) 62

Is It Worth Paying Platform Fees or Subscribing to Quotes? 63

Chapter 5: Choosing a Brokerage Firm 65

Introducing Brokers, Futures Commission Merchants, and Broker/Dealers 66

Fill Quality 69

Behind the Scenes of Transaction Costs 70

Discount Brokerage or Full-Service Specialization 71

What You Should Know About Commission Structure: Blanket or Variable Rates? 72

Market Access 75

Beyond Your Broker 77

Conclusion 79

Chapter 6: Finding a Broker That “Fits” and Choosing a Service Level 81

Understand Your Broker’s Business 83

Get to Know Your Futures Broker 84

Full Service Broker or Self Directed Online? 88

Why Using a Broker May Be a Good Idea 90

Conclusion 93

Chapter 7: Order Types and How to Use Them 95

Order Types 95

Placing a Trade with Your Broker 108

Placing a Trade Online 111

Chapter 8: Making Cents of Commodity Quotes 113

Quoting Grain Futures 115

Not All Grains Are Created Equal 119

The Meats 122

Foods and Fiber 125

Precious Metals Futures 130

Gold, Platinum, and Palladium Futures 131

The Other Metal Futures 133

Chapter 9: Figuring in Financial Futures–Stock Indices, Interest Rates, and Currencies 137

The Boring but Necessary Basics 137

Stock Index Futures 138

Dow Jones Industrial Average Futures 141

NASDAQ 100 Futures 143

S&P 500 Futures 146

Russell 2000 Futures 151

Interest Rate Futures 151

Treasury Bond and Note Futures 153

Eurodollar Futures 164

Currency Futures 167

Conclusion 170

Chapter 10: Coping with Margin Calls 171

What Is Margin? 171

Day Trading Margin Versus Overnight Margin 172

How to Handle a Margin Call 173

The Margin Call Countdown 175

Accepting Margin Calls 177

Chapter 11: The Only Magic in Trading–Emotional Stability 179

Three Emotions in Trading: Fear, Greed, Frustration 181

Revengeful Trading Is Counterproductive 187

Capital Preservation aka Risk Management 188

Chapter 12: Trading Is a Business–Have a Plan 189

The Trading Game Plan 190

A Trading System Alone Isn’t a “Business Plan” 191

Constructing a Business Plan in Trading 195

Price Speculation (Ideally Prediction) 196

Choosing a Trading Vehicle 198

Risk Management 199

Chapter 13: Why You Should Speculate in Futures 207

Speculating in Futures Versus Speculating in Equities 208

Risk Capital Only 214

Conclusion 215

Chapter 14: Futures Slang and Terminology 217

Bull Versus Bear 217

Spread 219

Contract Month Slang 220

Red Months 220

Fill 221

Blow Out 222

Blow Up 222

Keypunch Error 222

Busted Trade or Moved Trade 223

Net Liq 224

Equity 224

Beans 225

Commodity Currency 226

Dead Cat Bounce 226

Bottom Fishing 227

Chasing the Market 227

Limit Moves 228

The Tape 228

Trading Solution and Front-End Platform 229

Proprietary Trading 229

Running Stops 229

Short Squeeze 230

Babysitting 230

Scalp 231

Slippage 231

Working Order 232

Unable 232

Handle 232

Overbought/Oversold 233

Debit/Account Debit 233

Round Turns 233

Trading Environment 234

Index 235