How to Participate

Choosing a method of participation in commodities largely a matter of deciding how directly and extensively you want to be involved in making trading decisions and managing your account. Many futures traders prefer to do their own research and analysis and make their own decisions about what and when to buy and sell. That is, they manage their own futures trades in much the same way they would manage their own stock portfolios. Others choose to rely on or at least consider the recommendations of a brokerage firm. Others would rather have someone else be responsible for trading their account and therefore give trading authority, discretion, to their broker.

There's no formula for deciding how to trade commodities. The decision should take into consideration your knowledge of the markets, how much time and attention to trading you can give and if you have any previous experience in commodity trading. Also consider the amount of capital you can afford to commit to trading and your risk tolerance. The latter is important. Some individuals thrive on being directly involved in the fast pace of futures trading, others are unable, reluctant, or lack the time to make the immediate decisions that are frequently required. Some recognize and accept the fact that futures trading involves having some losing trades. Others lack the necessary disposition or discipline to acknowledge that they were wrong on this particular occasion and liquidate the position.

Many experienced traders thus suggest that, of all the things you need to know before trading in futures contracts, one of the most important is to know yourself. This can help you make the right decision about whether to participate at all and, if so, in what way. In no event, it bears repeating, should you participate in futures trading unless the capital you would commit its risk capital. That is, capital which, in pursuit of larger profits, you can afford to lose. It should be capital over and above that needed for necessities, emergencies, savings and achieving your long-term investment objectives. You should also understand that, because of the leverage involved in futures, the profit and loss fluctuations may be wider than in most types of investment activity and you may be required to cover deficiencies due to losses over and above what you had expected to commit to futures.

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Information is believed to be reliable and is provided 'as is' without warranty.