Hedging In Futures Means Safer Trading

Whether you’re trading at home in Phoenix, AZ, or on the floor on the Tokyo Stock Exchange, there’s one thing that doesn’t change; there are no guarantees in trading. Trading in stocks, commodities or other assets can be exhilarating, fast-paced, and one day can mean the difference between a huge fortune and a devastating loss.

It’s one of the reasons why trader here in Phoenix, AZ and other parts of the world are always on the lookout for tips and better techniques in trading. As long as you’re making more profit than losses, you’re making progress. One of the ways that traders can add a measure of safety to their activities is through the act of “hedging.” But what is this, and how does it help?

A Safety Buffer

“Hedging” refers to a general technique of making investments that can offset possible losses in the future, helping to mitigate just how harmful they can be. It’s not a way to increase your chances of making a profit, so much as a way to insulate yourself from losses so that they don’t do as much damage as they could potentially inflict on your trading. In that sense, hedging is more a way to increase your financial safety, rather than boost your chances of a big success.

Selling To Protect Yourself

One of the easiest ways to hedge in trading is to be prepared to make sales on trading that you already have an interest in, rather than “bet the farm,” or “go all in” with a single financial activity. For example, if you invest in a company that mines gold, you should also think about investing in gold futures. This way, if you experience any negative movement on the gold mine investment, you’re making a profit on the sale of gold futures to help minimize the losses.

Diversification In Futures

Futures started as a trading concept in the commodities market to help provide some predictability and stability to commodities trading by “locking in” the price of commodities like wheat or aluminum for a future date. This was much more efficient than having to send someone to a farmer to evaluate the quality of the wheat, then settle on a price for the crop, then have to do this again for another farmer.

So today’s traders can now benefit from futures trading in a variety of different markets, not just commodities. And this how people can hedge to protect themselves and added a little buffer for trading. Buying futures in your areas of interest, especially when prices are lower, helps you to control and lock in those prices so that you can buy even more at a future date, and, when the time comes, sell to make a profit. And it means that even if your actual investment goes sour, and goes down in price, you still reap some benefits

Trading in Phoenix, AZ involves a lot of learning, timing, and a little luck. But the more you understand what your trading options are, and what the consequences may be, the more successfully you can trade and gain consistently.

How Does Seasonality Impact Energy Markets?

Seasonality refers to supply and demand fluctuations that occur thanks to the time of year. Seasonality often impacts the commodities market. For instance, sweet corn is “in season” from early July until late September. During these months, there will be a spike in supply, which should drive down demand. However, outside of these months, supply will lag which will drive demand.

Although seasonality is not an exact science, it is more predictable than outlier events like a global crisis. Because it is a bit predictable, traders should take the time to understand the concept and work it into their investing strategy. One of the assets that seasonality seems to impact most is energy. No matter if you’re trading crude oil commodities or are looking to hedge risk with weather-trading strategies, understanding seasonality should serve you well.

How Seasonality Affects The Futures Market 

Energy assets are often traded on the futures market, where traders have a significant impact on the future market price. Traders on the futures market have an anticipatory mindset, where they purchase contracts based on what they think is going to happen. The futures market is exciting because it doesn’t so much have to do with what investors think energy is worth today, but rather than they feel the value will be at some point down the road, whether it’s:

  • Tomorrow
  • One year from now
  • Five years from now

Accordingly, seasonality has a significant impact on the futures market as investors look to find an accurate price that reflects the actual value of the commodity. Because there are four different seasons in North America, seasonality becomes even more critical.

How Seasonality Effects The Energy Market 

Let’s take a look at two of the more common futures energy contracts in North America to see just how critical seasonality can be. West Texas Intermediate Crude Oil and Henry Hub Natural Gas are two of the leading unrefined energy future contracts. West Texas routinely appreciates during spring and supper and then depreciates in the second half of the year. A spike in demand typically occurs between Memorial Day and Labor Day.

Henry Hub, on the other hand, is a bit opposite. This futures contract peaks as winter approaches since investors expect an increase in demand as consumers’ heat consumption increases. Consider some of the futures trades that investors placed in Fall 2018, where they drove the anticipated January 2019 price by more than 60 percent.

What About Weather Trading? 

Most investors think about weather trading alongside seasonality, and rightfully so. Experts have long examined the correlation between weather patterns and the futures market. Learning more about weather trading could make you a better futures investor, as it would provide you with more anticipatory insight.

However, both weather trading and the futures markets are difficult topics to understand. New investors in Manhattan should take the time to learn about both before entering into the market. Extensive knowledge will help mitigate losses and will put investors in the best position for success.


US LAW requires trading and trading education accompanied to post legal disclaimers as to market and personal performance, as well as investment risk. Please carefully read and study the Legal section of this website and any agreement you sign. Any agreement to doing business with SP500Trader.com website or Delta Trading Group, Inc is verification that you have read, understand, and agree to the terms of risk associated with futures trading and financial investing as described.

Important Futures Trading Disclaimer

Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. You must review customer account agreement prior to establishing an account.

Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial. Carefully consider the inherent risks of such an investment in light of your financial condition. Though proper education, tools, and practice are necessary, they do not guarantee profitable results. 

Education Oriented

SP500Trader.com and the Delta Trading Group, Inc. are educational entities; be sure to consult with your financial advisers, brokers, and other professional services about the risk of trading. Though we offer a common language to learn about trading and risk, we are not a signal service. You must use your own discretion when doing any kind of trading in any financial market. SP500Trader.com and the Delta Trading Group, Inc. are not responsible for interpretation, opinions, or losses by its members, liaisons, instructors, mentors, vendors, contractors, or administration, as none of these entities can guarantee your success. 

Internet Trading Risks

There are risks associated with utilizing an Internet-based deal execution trading system including, but not limited to, the failure of hardware, software, internet connection, or services provided by third parties. Since SP500Trader.com and the Delta Trading Group, Inc do not control vendor signal power, its reception, or routing via Internet, configuration of your equipment or reliability of its connection. We are not be responsible for communication failures, distortions, or delays when trading via the Internet. 

Accuracy of Information

The content on this website is subject to change at any time without notice, and is provided for the sole purpose of assisting traders to make independent investment decisions. SP500Trader.com and the Delta Trading Group, Inc have taken reasonable measures to ensure the accuracy of the information on the website. The company does not guarantee its accuracy, and disclaims liability for any loss or damage which may arise directly or indirectly from the content or your inability to access the website, for any delay in, failure of the transmission, or the receipt of any instruction or notifications sent through this website.

Distribution

This site is not intended for distribution, or use by, any person in any country where such distribution or use would be contrary to local law or regulation. None of the services or investments referred to in this website are available to persons residing in any country where the provision of such services or investments would be contrary to local law or regulation. It is the responsibility of visitors to this website to ascertain the terms of and comply with any local law or regulation to which they are subject.

Slippage

Your broker may have a contractual agreement not to seek redress for slippage, it’s obligation to execute stop loss orders at the stop loss price or better, will not apply to limit and stop loss orders during hours when it is closed. This also does not include bad price spikes. Bad price spikes are removed from the price charts quickly to alleviate confusion.

Making The Right Moves In Commodities Trading

Commodities trading involves more than casually dipping a toe in the waters of the stock market. Commodity traders take the plunge and spend time learning about the commodity itself, as well as how it moves within the market. If you’re a beginner in the commodities market start with an area you already know, and then evaluate your inclination for risk.

Select The Right Commodities

Refrain from choosing multiple commodities to trade that you know nothing about, and concentrate your efforts on only one or two commodities that you can study. Oil and gold are popular trades, but corn and soybeans are worthy alternatives. Day traders like to deal in oil and mini S&P. Oil is a popular trade on Friday’s when the CFTC Crude Oil speculative net positions are revealed, and when Baker Hughes reports its U.S. oil rig count.

You’ll find multiple trading opportunities in liquid markets, as certain setups occur frequently, but be aware that you’ll also find multiple crowds. With the constant change in trading conditions and markets, what offers a good trade one year might not offer as much the next. And since global supply can change within minutes, commodity traders must monitor the market daily.

Expand Your Industry Knowledge

Commodities are basically raw materials that make up the goods that people manufacture, transport, and consume. The most common commodities and their trading symbols are:

  • Gold (GC)
  • Crude Oil (WTI)
  • Rough Rice (ZR)
  • Corn (EMA)
  • Wool (ASX)

It’s likely that you already have some good knowledge about at least one commodity in your daily life. If you’re an Uber or Lyft driver, you likely watch gas prices daily. A bakery owner keeps a close eye on the price of wheat or sugar. Construction companies watch the price of lumber. If you have any commodity experience through your work, you’re already one step closer to profitable trading.

Keep An Eye On Small Moves And Large Swings

Some commodities can make small moves each day, while others can make large swings. This is part of the volatility of commodities. Be sure that the commodities you trade fall into your risk parameters. Not all commodities have equal risk, and you should always make sure that the amount of risk is appropriate when you pick your tradable commodity.

Check the futures margin to judge the validity of each commodity. This margin is based on several factors, but it mainly deals with the daily price swings of futures contracts. Pay close attention to the exchange, as the values change with market conditions. Many traders stay away from commodities like pork belly, rice, oats, and feeder cattle for liquidity reasons. They aren’t very active, which makes them difficult to trade. There are other commodities you might not be able to trade simply because you don’t have enough in your account. Refrain from risky trades in futures options unless you have gotten to a professional commodities trading level of control and trading insight.

TRADING DISCLAIMERS

US LAW requires trading and trading education accompanied to post legal disclaimers as to market and personal performance, as well as investment risk. Please carefully read and study the Legal section of this website and any agreement you sign. Any agreement to doing business with SP500Trader.com website is verification that you have read, understand, and agree to the terms of risk associated with futures trading and financial investing as described.

Important Futures Trading Disclaimer

Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options.  Investors could lose more than their initial investment. You must review customer account agreement prior to establishing an account.

Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial. Carefully consider the inherent risks of such an investment in light of your financial condition. Though proper education, tools, and practice are necessary, they do not guarantee profitable results. 

Education Oriented

SP500Trader.com and the Delta Trading Group, Inc. are educational entities; be sure to consult with your financial advisers, brokers, and other professional services about the risk of trading. Though we offer a common language to learn about trading and risk, we are not a signal service. You must use your own discretion when doing any kind of trading in the any financial market. SP500Trader.com and the Delta Trading Group, Inc. are not responsible for interpretation, opinions, or losses by its members, liaisons, instructors, mentors, vendors, contractors, or administration, as none of these entities can guarantee your success. 

Internet Trading Risks

There are risks associated with utilizing an Internet-based deal execution trading system including, but not limited to, the failure of hardware, software, internet connection, or services provided by third parties. Since SP500Trader.com and the Delta Trading Group, Inc do not control vendor signal power, its reception, or routing via Internet, configuration of your equipment or reliability of its connection. We are not be responsible for communication failures, distortions, or delays when trading via the Internet. 

Accuracy of Information

The content on this website is subject to change at any time without notice, and is provided for the sole purpose of assisting traders to make independent investment decisions. SP500Trader.com and the Delta Trading Group, Inc have taken reasonable measures to ensure the accuracy of the information on the website. The company does not guarantee its accuracy, and disclaims liability for any loss or damage which may arise directly or indirectly from the content or your inability to access the website, for any delay in, failure of the transmission, or the receipt of any instruction or notifications sent through this website.

Distribution

This site is not intended for distribution, or use by, any person in any country where such distribution or use would be contrary to local law or regulation. None of the services or investments referred to in this website are available to persons residing in any country where the provision of such services or investments would be contrary to local law or regulation. It is the responsibility of visitors to this website to ascertain the terms of and comply with any local law or regulation to which they are subject.

Slippage

Your broker may have a contractual agreement not to seek redress for slippage, it’s obligation to execute stop loss orders at the stop loss price or better, will not apply to limit and stop loss orders during hours when it is closed. This also does not include bad price spikes. Bad price spikes are removed from the price charts quickly to alleviate confusion.