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Wednesday, February 3, 2010

Commodities Trading and Futures Speculation (Series): Why Do Traders Trade Commodities? (VIDEO)

"Liquidity: Ease with which a security or derivative can be traded on the market."

This vlog entry is a continuation in a series of videos, the "Commodities Trading and Futures Speculation", and is continued from the previous entries.

Introduction: I discussed some of the myths regarding commodities speculation, and introduce the entire series.

The Reason for the Markets Existence: We discussed that the commodity futures markets exist, to allow companies, farmers, and others involved in production within the economy to hedge themselves against catastrophic losses. This in turn, keeps unemployment lower, and reduces volatility in the economy.

So why are traders within the commodities market? We discuss this topic in the following vlog entry ...

(Video Included. If you're seeing this entry elsewhere and cannot see the Video? Click here to view the entry ...)

If those contract cannot be traded with ease on the market, then the hedging interests may not be able to enter the positions; in order to properly hedge themselves. With traders present it becomes much easier to protect themselves, at the exact price, time and size that they wish to weight their hedge. Without them, they can't do so easily, and the whole purpose of the market breaks down.

We will continue this series in the future by looking further at traders, and the benefit of having them increase the liquidity on future contract months ...

Edit: As a side note, anyone else note the move in McDonalds (MCD) today?

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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have over 13 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.


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