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Using Commodity Hedging Strategies to Manage Price Risk

Item dealers make benefits basically through two distinctive ways; hypothesis and supporting. The last is a danger administration methodology used to ensure a speculation against misfortunes and protecting its benefits. Therefore, the previous is a more forceful system, simply determined by benefit. Despite the fact that the two techniques can be utilized in the meantime, it is basic for brokers to see how supporting functions and why it is essential. In a perfect world, product supporting procedures are one of the fundamental tips to benefit offering wares. Here is a brisk diagram on the best way to utilize this straightforward technique to boost your benefits exponentially.

What is a flexible investments dealer?

A fence stock investments dealer is an individual or organization that includes in a business identified with a particular ware. Ideally, a fence stock investments broker could be a maker of the ware or rather an organization intrigued by obtaining a product in future. Supporting permits every gathering to restrain their dangers in the ware markets.

Why do dealers fence?

It is impractical to foresee the heading item costs are bringing with 100% precision. Aside from the heading of costs, brokers additionally need to know the particular time allotment for such changes. Rather than worrying to get these two components right, dealers can select to make more benefits by utilizing the supporting system.

How does supporting work?

Physical items are purchased or sold by merchants in a money market. In the interim, contracts including the conveyance of these products at a future date are profited inside the prospects market. Despite the fact that the money market and the fates cost are firmly related, they don’t move in a comparable way. This is the motivation behind why the expression “Premise” is utilized amid exchanges. In a perfect world, (Basis = Cash Price – Futures Price).

Go short or long?

Financial specialists and brokers have two decisions to make; go short or long. Going short includes obtaining the agreement from a specialist and offering it away before purchasing it back at a lower cost. Then again, going long includes purchasing an item today with the desire that the offering cost will make a benefit at a later stage.

Choosing to run long with your supporting systems debilitates the Basis. This is occasioned by the way that the trade value diminishes out a comparative way to the prospects contract. Therefore, shorting can be helpful at whatever point the Basis increments. The expanding money cost is constantly with respect to the prospects contract. Keep in mind that the premise can move the other way to the value levels. However, what makes a difference is the total contrast between the two.

Potential supporting dangers

As makers support against physical products, it is considered not dangerous depends on a short – term period. Be that as it may, the fence broker could miss out on all their potential investment funds if the wrong value developments are figure.

Should you add supporting to your exchanging arrangement?

Supporting is one of the best devices to oversee dangers required in ware prospects exchanging. In the event that conceivable, the objective of supporting ought to be accumulated at exchanging value hazard and setting the costs one will pay or get inside a definite reach. Diminishing introduction to shocks permits dealers to certainly arrange their operations.

Silver and The Mechanics of False Reality

“All truth passed through three stages: First it is ridiculed. Second it is violently opposed. Third it is accepted as being self evident”. – Arthur Schopenhauer

Once the truth about silver value becomes evident, it will probably be time to move on.

For now, watching price action can be torture.

How many of you over the past 4, 5, 10 or more years have experienced the following?

Every time you buy – the price gets clobbered.

If you are new, it’s more likely that you are happy.

Happy to be here, at this low level. Happy accumulate at this once in a lifetime moment.

Yet, once you’ve followed these markets for a while, you find yourself experiencing a series of tests. Every long term investor pays dues.

The powers that be would want to protect the markets at all costs.

Thousands of years, and one monetary cycle after the other reveals that those in power on are on a quest to poison the canary.

In the old days, coin clipping was enough. Confiscation might be eventually employed. Or simply removing it from the system all together was an option.

Modern trading and speculation make it much easier. Open cry futures markets gave way to pure electronic systems. Regulators were captured. Now, no one knows the value of anything.

For the new investor, enjoy the temporarily low prices while you can.

World silver prices currently arise from the futures market. Specifically the COMEX, run by the for-profit CME.

The participants are not who you think they are. The days of real producers and users are long gone.

The primary players who are left consist of big commercial banks and hedge funds.

Big is an understatement. These commercial traders are among the largest multinational financial institutions in the world. They are too big to bail, too big to fail.

They broker the trades for the collective group of speculators, or hedge funds they snooker.

There are two levels by which these traders game the price.

The first level can be seen by observing the week to week action detailed in the Commitment of Traders report. We can see the foot prints left behind and the evidence that the managed money traders act as one collective entity – following price momentum blindly – and as directed by the big banks.

The big commercial banks have access to the most sophisticated trading tools available. They can move the market in any direction they want without clearing an order.

They also happen to be the prime broker for the very same managed money traders they control.

In the past, 1 or 2 – and sometimes more – of these big traders has been able to amass a very large selling position – adding even more inertia to it’s ability to influence price.

This is of course, first and foremost, a profitable operation. Illegal, but profitable. Secondarily it serves the needs of government and the currency.

The second level of manipulation occurs on the day to day action. Usually it’s in the early mornings, when the bulk of world traders are away from their desks.

Thanks to forensic trade analysis, by the likes of NANEX, we can see the moment by moment action – the actual volume spikes indicating fake orders – false dawns.

The false assumption is that these false market conditions give rise to price.

And this price drives commentary. It tells the story of fundamentals – instead of the other way round. Yes, it ‘works’ the same way across all markets. Until it ends in disaster.

Our unique advantage is that we can see it all developing in real time.

And we are early. Everyone else will see the same thing we do – just much later.

The belief is that these traders – these managers of others people’s money – with their open futures positions, can see or anticipate some hidden truth.

As if they have clairvoyance by virtue of their status and power.

But fiduciary ‘standard of care’ dictates the opposite.

They have an obligation to conform.

Subjective description or commentary arises from attempts at objectification, via technical analysis – in the name of this fiduciary responsibility.

The heard of speculators trade as one, using cheap leverage to game positions – (naked derivatives) – and follow pure directional momentum with no intention of taking delivery.

The initial move (up or down) is dictated by the largest players. The brokers of the brokers.

Again, the irony is that it is all documented. Out in the open – free for all to see.

Instead commentary will ramble on with rationalizations of a false reality.

What we see in the day to day is an HFT – spoof traded affair.

Specs are induced into selling – yet the trades never clear.

At the end of the week, we get the market structure report. But not before the sentiment is established. And the talking heads have a field day explaining why.

How can we utilize the probability this intervention creates? Can we game these cycles that appear as a result of such predictive behavior?

Unfortunately, once enough of us recognize it, it will be too late.

By the time the normal buying starts – the price could easily be far out of reach for the average investor.

And given the action of one of the biggest commercial banks, JPM – in obtaining an unusually long physical position, as they control price, that time may be closer than we think.

Commodity Markets Trading With Technical Analysis

Commodity trading is best done with the help of technical analysis. Technical analysis shows a trader the direction; he should take while dealing with commodities. Whether one should buy or sell is best determined with the help of Technical Analysis. A good trading system will always incorporate methods used in TA within itself.

Technical Analysis Defined

The process of determining the condition of a commodity (based on the historic price) with the help of charting is called Technical Analysis. It combines probability mathematics and statistical information to determine the future price movement of a commodity with probability on your side. For example, if someone were to walk up to a door, and you were told to guess which direction they would go – left or right, whatever you chose, it would be speculation. On the other hand, if they went left, and you followed them, that would be called trend following. Similarly, if a commodity future moves in a direction and you use TA to guide you, you can buy it after it shows a move into a certain direction, and a trend has been confirmed.

Uses Of Technical Analysis

There are many ways TA helps traders in trading commodities. The primary principle in TA is to have the ability to follow trends. To be able to do this, one has to be able to catch it early enough. So, you can buy into a commodity if you can confirm that it is in an uptrend. The key point to remember is that TA assumes that price discounts everything.

All movements of market participants are reflected in the price of any commodity at any given point in time. The idea is to buy low and sell high, or vice versa. This sounds simple in theory, but is difficult enough in real life. Imagine knowing that the probability of a commodity will breakout on the upside, but also that it is only a probability, and not a surety.

How Do We Use Technical Analysis?

TA has many different theories. These include common theories and indicators such as moving averages, Fibonacci series, oscillators, Gann theory, Elliot wave theory, and the age-old Candlestick theory from Japan. Many users tend to combine one or more of these theories to get greater accuracy in determining the trend more correctly in their favor. One has to remember that probability needs to be on our side.

The risk to reward ratio should always be in our favor. A lot of people use TA to help them establish a trend, get the point of a breakout and look for a point to buy or sell a commodity. They also use it to determine their stop-loss, and possible target price. This is an advantage that TA has over any other form of analysis. Being mathematical in nature, it gives you exact figures as to what levels you need to enter and exit a commodity.

Trading in Stocks

A Safe Bet

Trading in stocks and shares is the best option for those who do not have sufficient funds and experience for doing any other business. You can start small, dream big and finally reach the stars. The initial investment can be ludicrously small. In fact ‘investment’ is too big a word for the amount of money you require to start trading in stocks at the initial, learning and experimental stage.

Minimal Investment

You can start with the cost of a pack of cigarettes or the price of a cup of coffee. All you need is a personal computer and an Internet connection. Surf through the net and you will find that there are hordes of online stock brokers. Read through their sites and decide on the one that suits you best. You can open your account online at free of cost. Besides, you will find the necessary instructions at the website to set the ball rolling. Tread the ground cautiously, have patience and try to learn as much as you can the new lingo of stock trading from the education tab of your stockbroker’s website.

Education in Stock Trading

The education section of your stockbroker’s website provides comprehensive details about various aspects of stock trading. Starting with the definition of a stock, the reasons to buy stocks, investment risks, types of investments and ticker symbols, the instruction material further explains how the stocks trade, the stock market, the primary and secondary markets, the major stock exchanges like the NYSE, NASDAQ, AMEX and OCTBB for Penny stocks. Once you are familiar with the basic functioning of the financial market, you will begin to understand the factors that drive the share prices such as supply and demand of the stocks and shares that you trade in. You need to understand the concepts such as ‘earnings per share’ and P/E ratio. The knowledge of these basic concepts will help you to evaluate the price of the stock of a company and its income potential.

Cautious Beginning

If you are a novice to the art of trading in stocks, your first step should follow the guidance of your stock broker. Become acquainted with the terminology associated with stocks such as bulls and bears and what they signify. You should also be familiar with the research tools and research reports that highlight the financial performance of the company you are interested in investing in.

If the price of your stock goes up, and your broker asks you to sell it and book profit, it is in your interest to do so. Do not be greedy and wait for your stock to touch the skies. The wait may become interminable and you may be stuck up just in one stock and will not be able to move further. Who knows the value of your stock may plummet in future and you are left wringing your hands in despair. It is always advisable to be dynamic, keep moving, changing, experimenting and learning. Since the initial investments are small, the risks can be affordable. Once the fundamentals are clear, you may shoot for the big.

Common Terminology in Futures and Commodities Trading

While at a coffee shop with friends, one turns to you and says, “I just went LONG in Lean Hogs off a confirmed swing bottom.” What did he say? He went “LONG” in a hog off a swing in the bottom?”

For those of us who trade, we instantly know what was just said. By going “LONG”, this person BOUGHT (or is a BUYER) in the Lean Hogs futures market. His decision to do so was based on his determining that Lean Hogs had made a bottom and was now moving higher, thus ‘confirming’ the bottom.

The term LONG is very common in trading circles. It simply means that you took the BUY SIDE of the trade (every trade has two sides, the one who SELLS and the one who BUYS). You believe the market is going to go UP, so you decide to BUY, thus going LONG.

The term SHORT is the opposite of LONG. When you go SHORT, you are a SELLER in the market. In trading Futures and Commodities, you can just as easily SELL first to open the position SHORT, in hopes the market is going to go down. Later, you can then close your position with a BUY.

When you BUY to enter a position, you are LONG. But when you BUY to exit a position, because you SOLD first (went SHORT), you are simply out of your position.

When you SELL to enter a position, you are SHORT. But when you SELL to exit a position, because you BOUGHT first (went LONG), you are simply out of your position.

When you are out of all your positions, you are considered FLAT.

MARGIN is a term used in reference to the amount of money you have available in your trading account that can be used for trading. Brokers require that you have a certain amount of capital available for each contract you trade, in the event that the trade does not go in your favor. A MAINTENANCE MARGIN is the minimum margin you must have in your account for each futures contract you enter into.

BULL MARKET refers to a period when prices are rising. A BEAR MARKET refers to a period when prices are declining.

COMMISSIONS are the fees you pay to the broker for executing your trades.

HEDGING is the practice of offsetting your risk in the actual commodity by taking an equal but opposite position in the futures market. For example, a Farmer who grows Wheat has inherent risks to his crop. By the time he goes to market, prices could have dropped. To protect himself, he can take a SHORT position in the Wheat futures. If the price of Wheat drops by the time he goes to sell his crop, he losses in the actual crop, but he gains in the SHORT futures position, thus offsetting his losses. If the price of Wheat instead moves higher, he gains in the higher prices he is able to sell his Wheat for, but losses in his SHORT futures, again offsetting each other.

DELIVERY refers to the transfer of the actual commodity from the seller of a futures contract to the buyer of the futures contract. Most traders do not take delivery, but will close out their position by FIRST NOTICE DAY.

FIRST NOTICE DAY refers to the first day that a notice of intent to deliver a commodity can be made by a clearinghouse to a buyer of a futures contract.

These are some of the terms you can expect to hear among traders of Futures. There are a few others, less used. And if you trade Options on Futures, you have a whole set of terms such as PUT, CALL, In-the-Money, Out-of-the-Money, etc.

Before engaging in futures trading, take the time to learn the language. This way, there will be no mistakes in communication between you and your broker, and it helps when sitting around with traders at the coffee shop.

Transportation Management System: Choosing a Logistics Resource

For the average shipper, the cost of freight transportation is second only to the cost of payroll. Consequently, when a shipper needs to increase its bottom line, reducing the cost of freight transportation is one of the first considerations. There are two keys to achieving a cost-effective shipping process: the correct selection and correct management of shipping arrangements, both of which require a logistics resource. There are three types of logistics resources for managing a shipping system:

  • In-house logistics department -A shipper that operates its own fleet typically uses this resource. Due to the capital required to maintain the department, implementing a logistics department is often unfeasible for small and midsize shippers.
  • Third Party Logistics (3PL)– Also known as freight brokers, 3PL providers negotiate shipping arrangements between shippers and carriers. 3PL can be less expensive than maintaining a logistics department, but it still involves paying logistics professionals.
  • Freight transportation software– Freight transportation software can supply the logistical solutions that are traditionally supplied by a logistics department or 3PL provider. From a cost perspective, freight transportation software is the most economical logistics resource.

With the emergence of Software as a Service (SaaS) solutions for the shipping industry, the popularity of logistics software has increased. The software can also be implemented on an in-house model, but implementing it on a SaaS model eliminates the costs of installing and maintaining in-house software.

The Goals of Transportation Management

Positioned between the Enterprise Resource Planning (ERP) system and the shipping process of a company, a Transportation Management System (TMS) has three goals:

  • Plan the shipping process, including carrier and transportation mode selection, rate selection, and load and route optimization.
  • Monitor the shipping process, including cost control, quality control, and tracking of vehicles along the shipping route.
  • Measure key performance indicators, including monetary productivity, cost per metric, and percentage of on time deliveries.

These goals can be accomplished by an in-house logistics department, a 3PL provider, or with freight transportation software. As it considers these options, the shipper must consider how much it needs to economize on the logistics resource, and whether it wishes to manage the shipping process, or have it managed by another party.

As mentioned above, freight transportation software is the most economical logistics resource. It is also a resource that puts the shipper in control of the shipping process, something that 3PL does not do. For businesses that wish to outsource the shipping process, 3PL is the ideal choice. For businesses that wish to manage the shipping process without creating a logistics department, freight transportation software is the best choice.

Conclusion

A transportation management system is an integral subset of supply chain management, one that influences the cost and quality of the shipping process. Logistics software provides shippers with a way to manage freight transportation economically, without sacrificing management quality. To learn more about the benefits of freight transportation software, contact a provider of SaaS logistical solutions today.