Trading Commodities

In the meantime, since the Ninja Trader program I downloaded shows Commodity prices I decided to put two simulated trades on.

The first trade is in Crude oil, which is seeing nice lows. Contracts of crude oil trade in 1,000 barrels each and the minimum increment of movement is one cent. That means that each cent crude raises or lowers in price equals a $10.00 gain or loss per contract traded. Now, I don't have the capital to trade even one futures contract, but I love the idea of trading futures because they are real goods and will never go to zero. They will always have real lasting value.

 Here are some charts of Crude oil. I decided to buy a contract at $66.81 simply because prices have not been this low since about January of 2009. The value of just one contract at this price is a staggering $66,810 dollars, but even if prices go back to $80 a barrel that would be a profit of $13,190. As you can see be the monthly chart, it would not have to go very far to reach that price point and I am fully confident that it will...

The other trade that I can't resist is Orange juice.

 OJ has a minimum movement of 5/100 of a cent and a contract size of 15,000 lbs of "orange juice solids". So for every tick up or down, the position will gain or lose $7.50 per contract traded. Every one cent movement in the price of Orange Juice equals $150.  So at the time of this post, with OJ at a cost of $1.46/lb the value of an entire contract would be $21,900. Far cheaper than the Crude oil.

Now if you look at this monthly chart OJ is basically in the middle of the highs and lows. As a trader of anything else I would not want to buy at these levels, but since I am trading something that will always be worth something, I am far less afraid of price drops. You see, in the stock market when the price of a stock falls some people look to add to their losing position and "Average in". But that stock can always go to zero. In commodities, the lower the price goes, the less likely it is to continue going down because it is a real physical and valuable asset.

Back in May 25th of 2012, I took a simulated trade of one contract @ 109.25. I took that trade because I knew that was relatively cheap and even if it moved against me it would only present better buying opportunities. I literally waited until he price hit 158.00 to get out. I felt it was high enough and I had waited long enough. It was about two years to make $7,312.50. That was a 44.6% return on the initial value of the position. THAT, was an investment. If that is not something that makes you start wondering about doing this, your head is not on straight. I have wanted to do that for a long time now, but I do not have the capital.

Here is one point to think about though. Even if the value of one contract right now is worth $21,900 Orange Juice is not going to go to zero. The lowest its been in almost 10 years is just above 60 cents. If OJ went to .60 from todays price, that would be a drawdown of only $12,900. You could open an account with $15k and still be alright. Not only that, but by the time OJ actually reached that price odds are you would have had plenty of time to add more capital to your account. I just love that we have the opportunity to grow wealth from a real asset.