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The “Globalization of Commodities Trading " article examines and elaborates upon on how to m inimize losses and the factors to always keep in mind while trading the commodities and futures markets which are now global in nature.
Commodities and futures trading have become worldwide phenomena. Futures and commodities markets now exist in all of the world's major cities, not only New York and Chicago, but London, Paris, Moscow, New Delhi, Shanghai, Seoul, and Tokyo. Asian markets account for one third of all foreign exchange activity and over 40% of equity derivative trading. This allows for round-the-clock, 24-hour trading of almost every type of commodity and financial futures. The market never sleeps. Any potential investor in the commodities and futures markets must realize that his risks and rewards are continuing every second of every day.
Balancing global commodities
Because the futures and commodities markets are open around the clock, this allows traders to enter in and offset positions at anytime of the day. Pit trading in the American markets now actually accounts for only a small percentage of total worldwide commodities and futures trading activity. With the introduction of electronic futures trading in 1992 by the Chicago Mercantile exchange, it is now possible to trade futures and commodities contracts almost continuously.
Your counterpart in an individual trade could just as likely be in New Delhi, India as in Des Moines, Iowa. In today's markets, it's you against the rest of the world. The large historical growth of commodities and futures trading can be tied to new participants entering from the worldwide market. Since 1980, 36 new commodities and futures exchanges have opened in 18 different countries from Europe to the Pacific Rim and South America. In a world of instantaneous communications, the individual investor should be prepared for round-the-clock risk protection.
Understanding the dynamics of electronics trading
Pit traded commodities only operate for limited periods of time during the day. These trading hours rarely extend beyond six hours each day. Electronic exchanges operate almost continuously, except for a short stoppage of usually less than an hour. Consequently, for the individual investor, electronic exchanges offer the best protection and prospects of not suffering unexpected losses. As trades are done electronically and not manually as they are in the pits, execution is more transparent and efficient. If trading only on the pit exchanges, one risks a sharp overseas movement in the opposite direction of a position, which could result in an adverse opening price in a pit traded market. It is highly advisable that when taking any position in the commodities and futures markets, exit strategies for loss limitations are placed on electronic markets so that they are implemented properly. Otherwise, even the best thought-out strategies could be rendered useless.
The implications of globalization for the commodities and futures trader mean that traders must be properly prepared for a nonstop market.
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