Summary of Carley Garner's A Trader's First Book On Commodities

Everest Media

Description

Please note: This is a companion version & not the original book.
Sample Book Insights:
#1 The Chicago Board of Trade, or CBOT, was created in the mid-1800s by a few grain traders to help farmers and consumers access efficient price discovery. It was the first formalized location for buyers and sellers to conduct business.
#2 The Chicago Board of Trade, or CBOT, is the home of the trading of agricultural products such as corn, soybeans, and wheat. However, it has also traded Treasury bonds and notes and the Dow Jones Industrial Index.
#3 The Chicago Mercantile Exchange, now a division of the CME Group, is responsible for trading in a vast array of contracts, including cattle, hogs, stock index futures, currency futures, and short-term interest rates.
#4 The New York Mercantile Exchange was the first futures and options exchange, and was created in 1882. It was later modified to the Butter, Cheese, and Egg Exchange, and then the New York Mercantile Exchange.

Sujets

• Futures

Informations

• Publié par: Everest Media LLC
• Date de parution: 08 mars 2022
• Nombre de lectures: 0
• EAN13: 9781669351757
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

Insights on Carley Garner's A Traders First Book on Commodities
Contents Insights from Chapter 1 Insights from Chapter 2 Insights from Chapter 3 Insights from Chapter 4 Insights from Chapter 5 Insights from Chapter 6 Insights from Chapter 7 Insights from Chapter 8
Insights from Chapter 1

#1

The Chicago Board of Trade, or CBOT, was created in the mid-1800s by a few grain traders to help farmers and consumers access efficient price discovery. It was the first formalized location for buyers and sellers to conduct business.

#2

The Chicago Board of Trade, or CBOT, is the home of the trading of agricultural products such as corn, soybeans, and wheat. However, it has also traded Treasury bonds and notes and the Dow Jones Industrial Index.

#3

The Chicago Mercantile Exchange, now a division of the CME Group, is responsible for trading in a vast array of contracts, including cattle, hogs, stock index futures, currency futures, and short-term interest rates.

#4

The New York Mercantile Exchange was the first futures and options exchange, and was created in 1882. It was later modified to the Butter, Cheese, and Egg Exchange, and then the New York Mercantile Exchange.

#5

The CME Group is the world’s largest derivatives exchange. It consists of the CBOT, CME, and NYMEX, which were previously independent exchanges. The CME Group currently serves the speculative and risk management needs of customers worldwide.

#6

The New York Board of Trade, which was acquired by Intercontinental Exchange in 2007, was the first exchange to facilitate trading in the softs complex. The term soft generally describes a commodity that is grown rather than mined, and ICE facilitates over-the-counter energy and commodity futures contracts.

#7

The futures market and the instruments traded there, as we know them today, have evolved from what began as private negotiations between producers and users. The agreements that resulted from these negotiations are known as forward contracts.

#8

The ingenuity of agricultural trade didn’t end with the creation of organized and centralized grain trade in the 1800s. Farmers and merchants began dealing in forward contracts, which allowed them to lock in the price for both the buyer and the seller of a commodity.

#9

Exchange-traded forward contracts were extremely helpful in reducing the price risk that farmers and merchants normally were exposed to. With the advent of exchange-traded forward contracts and good-faith deposits, much of the default risk was eliminated.

#10

The evolution of the futures contract from the forward contract was due to exchanges eliminating default risk associated with buying or selling futures contracts. Participation was no longer limited to those who owned or would like to own the underlying commodity.

#11

The disparity in the timing of delivery of the underlying product is what causes prices to differ in the cash and futures market. In a normal carrying charge market, the cash price is cheaper than the near-month futures price, and the distantly expiring futures contract is generally cheaper than the near-month contract.

#12

When there is a supply shortage, prices in the cash market will increase to reflect market supply-and-demand fundamentals. The contango shouldn’t exceed the actual cost to carry the commodity.

#13

Arbitrage is the process of taking advantage of the price differences between two markets. It is the glue that holds the commodity markets together. Without arbitrage, there would be no incentive for prices in the futures market to correlate with prices in the cash market.

#14

An example of an arbitrage opportunity unrelated to cash market pricing is the E-mini SP, which is trading at 2380. 50 and the full-size version of the contract is trading at 2380. 70. If you can spot this discrepancy and trade five mini contracts for one big contract, you can request that the positions be offset to lock in a profit of 20 cents, or $50 before transaction costs.

#15

The first notice day is the day on which the buyer of a futures contract can be called upon by the exchange to take delivery of the underlying commodity. After a delivery notice is distributed, a trader isn't forced to accept it, so panicking is unnecessary.

#16

The expiration of a futures contract is the time and day that trading ceases on it and the final settlement price is determined. If you have a position into expiration, you are agreeing to allow the exchange to determine a final valuation for the futures contract and adjust the value of your trading account accordingly.

#17

The terms long and short are used to describe the purchase and sale of futures and options contracts. When a trader buys a futures or options contract, he is going long. When a trader sells a futures or options contract, he is going short.

#18

Trading futures and options is as simple as buying low and selling high, but it is not easy. Unlike stocks, futures contracts are not assets; they are liabilities. The purchase of a futures contract does not represent ownership of the underlying commodity, but it does represent an obligation to take delivery of the underlying commodity at a specified date.

#19

Most investors who participate in the futures markets are simply trying to make a profit from variations in price movement and are not interested in taking or making delivery of the underlying commodity. To avoid the delivery process, it is necessary to offset positions prior to expiration.

#20

The concept of offsetting can be best explained by an example. In mid-2017, soybean futures were trading at multi-year lows but had shown signs of holding long-term support. A trader who believed that prices would increase might purchase a futures contract in hopes of a rally.

#21

Rolling is the practice of offsetting a trade in a contract that is about to expire with a similar position in a contract with a distant expiration date. Rolling over is simply offsetting one position and entering another.

#22

The difference between the bid and the ask is known as the spread. It is a component of the transaction cost associated with executing a trade in this market.

#23

The bid-ask spread, which is the price at which a market maker will buy and sell a stock, is also a significant factor that affects the profitability of a trade. The wider the spread, the more difficult it is to turn a profit.

#24

Commissions are typically charged on a round-turn basis, although some firms quote rates as all-inclusive which already include incremental fees.

#25