By leveraging the asset trading, profit and loss potential of a large

Trade of raw materials, the concept of leverage effect is the effect of broadly similar to that achieved by the trading of stocks and shares.

The original borders of assets are generally much lower as a percentage of the value of the futures contract, an agreement in the form of shares.

It is not unusual to see margins as low as possible to 3% range up to 15%, and this is what creates significant leverage when trading goods.

Get the free INO trading alerts when you subscribe to the free newsletter of the asset in this Universe. Fill out the simple form below. Is as easy as 1-2-3!

So it is not surprising that many of the potential of the raw materials have the ability to manage large traders on futures position for a small deposit, or excited.

For example, let s say, the original dumping margin for non-customer is $ trade in the light, the Light sweet Crude, NYMEX 12,500.

About $ 100 to the crude oil, and because one marks 1000 barrels, a trader should have control over the 100,000 dollars of crude oil in the margin. In other words, the leverage here is 12,5%, or about 8: 1.

Let s say that the trader decides to go for a long time, Dec. 08, when crude oil is $ 100, then he can be expected from this price.

Weeks later, for example, let s is assumed to be the last $700-bn Paulson bailout plan affects the reduction of anxiety in financial markets and to promote confidence and some recovery of economic activity.

The markets are more bullish day on crude oil, since they consider that this increase in demand will pick up again.

Also, the approach of winter and the OPEC States that it will remain unchanged at the level of its production.

All of these factors, in this example would result in the West Texas intermediate crude oil futures price on NYMEX to rise to $ 115.

At this stage we are sitting on the Dec 08 supplier of crude oil futures contract value is:

$ 115 x 1,000 = $ 115,000 barrels.

If he now decides on the market, the week after stops in this position he anticipated $ 15 000 (115 000 to 100 000) (excluding all costs).

So just by putting up to $ 12,500, he has used the leverage effect of the active trading of the asset is put at the disposal of the said agreement, the decision of the $ 15,000 profit within one week. This is a 120% return on capital (ROC) during the seven days.

This is a commodity trading leverage, 120% profit, even if the operator, the power of the crude oil price fell by only 15%.

What if the market goes in any other way?

However, if the olive oil market do not oppose the Paulson plan, favourable futures could be dived, crude oil, let s say $ 92.50 the same 7 days.

Now our asset trader who went long on crude oil is not so happy. Of course, the others on the market, which is expected to fall short of crude oil can go and be happy at this stage.

Why? Because the account is at a loss and he is likely to be the margin call returns the maintenance margin. If he decided to cut his losses and stop his place, the result would be:

Buy 1,000 barrels (1) @ 50 to 100 000 = dem; Sell 1000 barrels @ $ 92.50 = $ 92,500 loss = $ 7,500

This supplier has made a loss of $ 7,500, and this represents a decrease of 60% of the original capital (the original dumping margin, expressed as a percentage) of crude oil price fell by only 7.5%.

This is again under the jurisdiction of leveraging commodity trading, only this time, it is created by the loss of the capital.

Derivatives and leveraged the combination to make a great profit, but clearly one of the major losses if the market goes in the reverse position trader-s.

Leveraging can make the ride more than the price movements, it exaggerates the small operation, when the value of futures contracts.

Related articles:
Raw materials Futures margin
Commodity Futures orders
Security funds, trading in commodities
Technical analysis for trading commodities
Relative strength index of trading assets
Fibonacci trading of raw materials
Support and Resistance trading commodities
Japanese candle trading an asset of the feet
Simple variable commodities
Commodity trading system
Currency and commodity trading on proxy servers
W D Gann and commodities
Gann time factor
Learning to trade in commodities

In the future to return to the commodity trading, commodity trading leverage effect

Return to the commodity trading today

View the original article here