Can somebody please help me choose a topic in the Commodity Trading sector for a research report?

It needs to be 2500 words so there should be a reasonable amount of information available. I initially thought of a question of 'Is there more regulation required in the commodity trading sector'?. However this is not a very interesting sub heading for me to research. Any suggestions?

The economy of any country depends on several factors, and one of them is "trade". The trading business has a tremendous global impact, and that is why the international community gives it so much of importance. As a matter of fact, trade has been seen to effect the political and social scenario of a particular country as well. This change has come about as a result of globalization, industrialization, great strides in the methods of transportation, World Web, and the coming up of multinational (production and services offered in more than two nations) companies. And now we see the birth of commodities trading brokerage firms too!

A unified organization called the WTO or World Trade Organization has also been set up by the trading community. This international body is in charge of bringing out rules and regulations concerning the international trading system. Additionally, disputes between two trading countries can be brought to them for resolution.

How much international trade has progressed can be understood by reviewing the statistics on exports and imports--

(a) Germany is said to be the leading exporter of world trade merchandise with an overall exports share of 10%. The United States exhibits 8.9% share, followed by China with 6.5% share, Japan with 6.2% share and France with 4.9% share.

(b) Where world trade merchandise import is concerned, the leader is the United States with a 16.1% share on overall imports. Germany is next with 7.6% share, China with 5.9% share, both France and United Kingdom with 4.9% share, and Japan with 4.8% share.

The research figures presented above are enough to prove how high international trade is rated by the international community. Again, changing trends in international trade impact current trends in local markets. This is especially visible where commodities trading is concerned. And that is why commodities trading brokerage firms are on the rise.

The effects visualized on commodities trading when the international market is affected, are--a probable lull in trading activities, changing values on particular commodities, a change in the efficiency of the traders and brokers, plus an impact on the various trading mediums that are in operation. The commodities trading brokerage firms are not unaffected either.

To give a more detailed commentary on commodities trading brokerage firms--

(1) They are major links between those who buy and sell commodities. The transactions are conducted via different exchanges. Since they take up the responsibility of executing all orders, they charge a small fee as commission.

(2) This does not mean to say that they command no standing in the trading community. They do! They are ready to share their expertise with major investors/traders on a professional basis. Their consultations cover the demand and supply scenario, "hot" commodities and current market dynamics.

(3) Commodities trading brokerage firms deal with all kinds of markets, ranging from industrial to agricultural and from options trading to futures trading. Currency trading and stock markets are also part of the package!

(4) There are well-established commodities trading brokerage firms that give value-added services as part of the deal. Those clients who are desperate for success are bound to take up what is offered! Value-added services constitute market intelligence and analysis, ensuring greater chances of profits. Of course, these services do not come free of cost--they are quite expensive!

(5) Thus, for the investor/trader who is passionate about commodities trading, it is advisable to take the help of commodities trading brokerage firms. The commissions to be doled out seem very small in comparison to the huge profits that he/she can get in return for listening to good advice!

Abhishek Agarwal

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Have you ever wondered about the approach used by those who succeed in trading? Why some traders prefer futures over equities and/or Forex? If your answer is yes and you are interested in daytrading this is definitely an article you should take a minute to read. The following 20 points demonstrate the particular advantages of daytrading the E-mini S&P 500 over trading stocks, Forex and ETFs like the SPDRs and QQQs.

Futures trading is the investment style of buying or selling futures contracts. Futures contracts have been used to manage cash market price risk for more than one century in the world. Unlike a stock, which represents equity in a company and can be held for a long time, if not indefinitely, futures contracts have specific time period. Futures trading allows a market participant to lock in prices and margins in advance and reduces the potential for unanticipated loss.

Futures contracts trade in standardized units in a highly visible, extremely competitive, continuous open auction. In this way, futures lend themselves to widely diverse participation and efficient price discovery, giving an accurate picture of the market.

There are two basic categories of futures participants: hedgers and speculators. In general, hedgers use futures for protection against adverse future price movements in the underlying cash commodity. The rationale of hedging is based upon the demonstrated tendency of cash prices and futures values to move in tandem. Speculators are the second major group of futures players. These participants include independent floor traders and investors. Independent floor traders, also called "locals", trade for their own accounts. Floor brokers handle trades for their personal clients or brokerage firms.

For speculators, futures trading has important advantages over other investments:

Futures are highly leveraged investments--The trader puts up a small fraction of the value of the underlying contract (usually 5%-15% and sometimes less) as margin;

Commission charges on futures trades are small compared to other investments--the investor pays them after the position is liquidated;

Most commodity markets are very broad and liquid--Transactions can be completed quickly, lowering the risk of the time delay from the decision to the execution.

Most trading objects are familiar to you--from crude oil to gold, from metal to grain, from treasury bonds to stock index.

The basic requirement for beginners on futures trading is a futures trading plan, created according to his or her financial background, trading style and trading ability and so on. The capital you should have depends solely on your trading budget. If you take futures trading as a part-time job, then investing lower amounts for small profits can be the right plan. But if you want to make futures trading for your living, then you should invest much more.

Keep in mind that futures prices are more volatile than stock prices. Remember it is margin trading and expanded more than 10 times as your normal investment. You need to ask yourself how much you can afford to lose. Be extremely honest with yourself about this, in fact, be more than honest so that you are sure to not overextend your budget.

Here are some simple tips that will help you increase your profit potential and prevent you from losing money.

1. Understanding the basics of fundamental analysis and technical analysis

When you do futures trading, it is very important to understand the difference between fundamental analysis and technical analysis. A quick explanation of the difference among the two types of analysis is: fundamental analysis focuses on the relationship of supply and demand while technical analysis focuses on price action and market behavior, especially on chart and technical indicators.

2. Trading with the trend

No matter which futures you are trading, you have to trade with the trend. As you know, the price will be changed when the supply and the demand have been changed. If no further factors occur, the trend used to be going on. However, trading with the trend is a complex principle as it depends on the trading style. A day trader may follow hourly trends as he trade according to minute changes in prices. On the other hand a long term investor or position trader may follow weekly, monthly or even yearly trends.

3. Minimizing the losses and running the profit

Minimizing the losses means quitting the trade quickly when market is against you. As no one want to quit a trade in loss, it is the toughest decision to make.

No one trading futures will want to quite a trade providing great profits. But remember to quit a trade as soon as you feel a negative trend. Meanwhile, running futures contracts when the trend is the same as whcih you wish.

4. Managing the risk

Managing the risk is most important to beginners. It is an essential practice for you to set up a stop order before you trade to evade big loss and move your stop order to preserve profit. Keeping hands off from highly fluctuating markets and investing in mini contracts, paying attention to surprise reports, diversifying trading fields are some of the practices involved.

Always monitor national and international trends, especially pay more attention to relative contracts trends, you will make a success on futures trading. Visit SoloInvest and TradingSolutions to know more.

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Online commodity trading and futures trading are by-words today. But this was not the scene always. The original marketers belonged to the 1800s. They were just farmers who wanted to sell what they had grown on their agricultural lands. Crops would be harvested, and produce brought to the market for sale.

Not having the educational services available in modern times, they were not able to judge whether the goods that they had brought were sufficient or less in quantity. If the quantity was not sufficient for the buyers, the farmers lost an opportunity to make more money. If there was excess quantity, produce like crop products, meats and dairy products would have to be carted back home. In time, they would rot and spoil. Either way, whether there was a surplus or a deficiency, the farmer suffered losses.

Sometimes, a certain produce would be available off season, but not in as large a quantity as it would be if available during the regular season. Naturally, the products made from this were sold at high prices.

Ultimately, many heads got together to come up with the idea of a common or central marketplace. Farmers would bring their harvests here on certain days and sell them. The buyer could take them as immediate delivery (today, it is called spot cash) or order them as a future delivery (today, known as futures market).

The result of this endeavor was setting of standard prices for different commodities (in season and off season), plus giving an indication to farmers about demand and supply. Thus, spoilage of produce was brought to a halt and farmers no longer incurred huge losses. This can be seen as the stepping stone to the online commodity trading and futures trade that exists today!

Foregoing all that happened between now and then, looking at online commodity trading now as it exists, what are the considerations to be kept in mind if someone wants to go in for it?

(1) The first and foremost point regarding online commodity trading is having an intelligent grasp of how markets function (physical or online) and how contracts are drawn up for futures trade.

(2) Whether involved in online commodity trading or futures trading, there has to be a manufacturer of goods and a consumer of the same goods. One is the seller and the other is the buyer in the contract.

(3) Trade today has gone from agricultural produce and food products to much more, including financial instruments. So the trader has plenty of business options.

(4) Online commodity trading differs from futures trading in that goods may have to be handed over physically. A receipt is issued to the customer, enabling him/her to go to the warehouse and pick up the products.

(5) Another type of contract that has come into being is the futures contract. This has evolved from a forward contract, which is nothing but a buyer signing an agreement to pay for and purchase goods at a specified date some time in the future (generally, the time limit is three months from the date set on the contract). The goods will be delivered on that future date.

(6) According to the agreement, the buyer is getting a commodity not yet available. The price is of course, decided beforehand. Sometimes, the commodities are priced according to future values; stock market indices act as decision-makers for the value set on a particular commodity.

(7) Another aspect of futures trading is that neither the seller is the actual supplier of commodities, nor the buyer the actual user of the goods purchased. Only if the person is personally involved with the actual commodity purchased, will he/she provide and use it.

(8) Futures contracts are useful for both sellers and buyers because risks are minimized, plus the parties get the opportunity to indulge in a little bit of speculation. There is no exchange of physical goods.

(9) Different strategies are available for spot traders as well as future traders, to make use of rising and falling prices to their best advantage. These strategies can be classified as--spread, going short and going long.

(10) For the same commodity, the prices specified in two different contracts may not be the same. The businessman tries to use the price difference to his advantage. This is called a spread.

(11) Going short indicates that the trader is wondering if he/she can gain a profit from falling prices. The contract is therefore sold at a high price now, to be re-purchased at a lower rate in the future.

(12) The last strategy for online commodity trading or futures trading is going long. Here, the investor and the speculator sign an agreement where the buyer is ready to purchase the product at a pre-set price. He/she is anticipating that the price may rise in future, yielding further profits.

Abhishek Agarwal

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