Commodity Trading (mini) Course
Part 1 (sample)

This Begins Your Basic Training

Page one is provided free of charge, with the balance available to all trial Gold Members.Thank you for respecting this fantastic business enough to fully investigate all the data you can in order to become a successful trader. Oasis Publishing's main goal is to fully educate and train during live market action, those individual novices desiring the perfect home based "commodity trading" business. We are not brokers, and so you are receiving pure non-commission motivated direction. This we believe is important!

The balance of this on-line mini course awaits you. Simply sign on for the 30 day free trial! This mini primer course provided in addition to our full service course is designed to inform you of the facts, myths, and truths about commodity trading. While our three month real-time home study course will teach you technique and strategy in the simplest of terms, plus much, much more. This primer mini course however is free for all who wish to gain a full and complete understanding of commodity trading, though you must be a member in some way. This can be done as a free 30 day trial Gold member which includes this mini primer course in full, access to our news letter archive for all past issues this year, an explicate daily market action report, and 30 days of free custom on line price and indicator charts. If you prefer, you may enroll in our extensive 3 month hard hitting home study course which includes all the above in the 30 day trial as well as access to Gordon White (the author) for questions, a twice weekly tutorial market update, monthly news letter, and many industry related discounts. Course materials cover everything needed from the very basic to the very complex and even goes into trading as a business, goal setting and psychology. It truly is a one package course. No add on purchases are necessary in order to see success. The 3 month course DOES NOT lead to more purchases! Click here for more details

Futures Markets

History

Compliments of Oasis Publishing & TFC Commodity Charts

In the 1840s, Chicago had become a commercial center with railroad and telegraph lines connecting it with the East. Around this same time, the McCormick reaper was invented which eventually lead to higher wheat production. Midwest farmers came to Chicago to sell their wheat to dealers who, in turn, shipped it all over the country.

He brought his wheat to Chicago hoping to sell it at a good price. The city had few storage facilities and no established procedures either for weighing the grain or for grading it. In short, the farmer was often at the mercy of the dealer.

1848 saw the opening of a central place where farmers and dealers could meet to deal in "spot" grain - that is, to exchange cash for immediate delivery of wheat.

Futures contracts, as we know it today, evolved as farmers (sellers) and dealers (buyers) began to commit to future exchanges of grain for cash. For instance, the farmer would agree with the dealer on a price to deliver to him 5,000 bushels of wheat at the end of June. The bargain suited both parties. The farmer knew how much he would be paid for his wheat, and the dealer knew his costs in advance. The two parties may have exchanged a written contract to this effect and even a small amount of money representing a "guarantee."

Such contracts became common and were even used as collateral for bank loans. They also began to change hands before the delivery date. If the dealer decided he didn't want the wheat, he would sell the contract to someone who did. Or, the farmer who didn't want to deliver his wheat might pass his obligation on to another farmer The price would go up and down depending on what was happening in the wheat market. If bad weather had come, the people who had contracted to sell wheat would hold more valuable contracts because the supply would be lower; if the harvest were bigger than expected, the seller's contract would become less valuable. It wasn't long before people who had no intention of ever buying or selling wheat began trading the contracts. They were speculators, hoping to buy low and sell high or sell high and buy low.

What can be traded?

An In Depth Introduction To Trading For The Novice

If one enters the commodity investment major league arena with the plan to become wealthy overnight, chances are high that the beginning capital will be lost. Remember this and don't ever forget it: "There are 3 positions in the market not 2. Long, Short, and Out. Most don't take the third often enough!"

Commodity trading is a business like any other, and should be treated as such. If it is not, then success will not usually be realized. If diligent business principles are applied and a plan followed, the success of the persistent and consistent trader will undoubtedly be sweet and possibly far beyond beginning expectations. It does not happen over night and does require some effort.

Becoming very rich in the commodity markets is not abnormal however. This has happened to many individuals. With limited capital the doors are wide open for extraordinary profits in a relatively short period of time. One such example is Richard Dennis who borrowed $1,600 and turned it into a $200 million fortune in about ten years. However, don't think for a minute he just jumped into the market and instantly made millions. He didn't. He learned, studied, applied himself and calculatingly planned his course of action and followed it with diligence, patience and consistency.

Even though, because many individuals entering this arena do so without ample training and with the idea they will "strike it rich", thousands upon thousands of dollars have been lost, as people turned this lucrative business into a huge gambling casino. This has given commodities a distasteful report. The truth is that if the gambling would be kept in the Las Vegas Casino's more people would trade productively. This however is not human nature. We all seem to want to get rich quick. This needs to be overcome. The fact of the matter is that commodity trading is only as risky as the trader in question makes it.

Commodities trading is otherwise known as futures trading. When one buys stocks you are actually purchasing and owning that stock. When dealing with futures though, you are speculating on the future direction of the price without ever really owning anything but simply taking on the obligation to own the commodity at a future delivery date if you choose to at that time. As a speculator, this right to own is sold back to the market before delivery obligations are triggered. If you say "buy" then you are considered "long" and speculating prices to rise, and with "sell" you would be "short" and expecting values to decline when referring to futures contracts.

Suppose you thought Crude Oil was going to rise in price. You would then "buy" a futures contract for what is called a "long" position. If you thought the price would drop over the coming months, then you would "sell" a contract for a short position. Notice though, that you are not buying or selling the actual commodity but only the contract that controls a certain quality and quantity of the commodity you are speculating on. For every futures contract, there is always a buyer and a seller or a "long" and "short" position. Neither person has to own the commodity to participate. What is required is a deposit of sufficient capital called "margin" with a brokerage firm as a performance bond that he will be able to pay the losses if his trades lose money.

In addition to speculators, commercial producers and consumers of each commodity take part in this process as well. These players in the market are often referred to as "hedgers." Their main purpose is to offset cash prices on the commodities that they produce and or market globally and domestically.

On one side of your futures contract trades you may find a farmer with the short position, though you will never know this. He may have Sugar cane fields that at this time during favorable prices, is not ready for harvesting. He wants that price for his crop locked in so he "sells" a futures contract equal to the quantity of sugar he is producing in order to guarantee a book price for his crop. Should prices drop sharply, he cares not, as his price was achieved when he sold a futures contract thereby taking on the short position of that trade. You may be the "Long" side of the transaction.

The reverse of this would be a commercial buy such as a meat packing plant. They know they need 120,000 pounds of beef in three months and wish to guarantee a purchase price "at that time" so they buy a futures contract now. Do you see it? They buy the futures contract now, but don't own the final product until the delivery date. If prices sky rocket, they still are provided the 120,000 pounds of cattle at the price they bought the futures contract at.

Each market has producers and consumers needing to hedge their risk from future price changes. We speculators have no need for the physical commodity like they do, making our role the provision of liquidity to the market. We make it all possible. This maintains an orderly market where price changes from one trade to the next are smaller and proper pricing is achieved by means of an open market system.

As a speculator, deliver is neither made nor taken. Any position is offset prior to the delivery date. If prices rose while the speculator was long (a buyer) then he profits, if short while prices advanced higher during that trade, then he loses.

Professor Richard Teweles explains in his book The Futures Game, the functions of the futures markets: "In addition to reducing the costs of production, marketing and processing, futures markets provide continuous, accurate, well-publicized price information and continuous liquid markets. Futures trading is [thus] beneficial to the public which ultimately consumes the goods traded in the futures markets. Without the speculator futures markets could not function."

Because the speculators role in the valuable function of providing liquidity and assuming the risk of price fluctuation, the possibility of substantial rewards are also prevalent. Large gains are distinctly possible for each of us due to the equally large risk we are willing to take. Those risks however can easily be planned and reduced with proper risk management techniques.

Copyright 1997 Oasis Commodity Training Corp. All Rights Reserved

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