John Caiazzo is a Wall Street professional with over 45
years experience to fill what he perceived as a void in the overall
spectrum of client service and support. Acuvest is a full service futures
and options brokerage firm registered with the National Futures
Association and the Commodity Futures Trading Commission.
We publish a Weekly Commentary which interprets the data generally available to the investing public. We add our own unique insight into the possible future direction of the major markets. We welcome all related commodity questions.
A brief primer for those who have never traded commodity futures and options...The word "commodity" has been maligned for years as the fear of "soybeans being delivered to a backyard" and "pigs shipped to your neighborhood" have been the "war cries" of stock investors.
Of course the only concern, should your broker fail to remind or warn you of delivery dates, would be for physical commodities to be shipped to a warehouse and a hefty storage and insurance bill being shipped to the investor.
Another fear has been the "margin call" which is rendered when the equity in a particular position falls below the maintenance level of that position. When you consider that only a relatively small investment, something around 5% in some cases, controls a large investment, you can readily determine that by using additional "margin" one can allay the fear of being called or liquidated. Of course if you are wrong in the basic premise of direction, the loss will occur one way or another.
Picture this as an example to those who have not yet ventured into commodities; If you were to purchase a home for $100,000 and put down a deposit of $10,000 and the value of the home increased to $110,000, you would not be gaining 10% as most people imagine. You would gain 100% on what you put up. Conversely if the value declines to $90,000 you are out 100% and if the value declined to $80,000 you would owe $10,000. Thats what leverage does in any investment.
However, if you are convinced (I would never be convinced I am right if the price went the wrong way), of a direction, you should consider putting up more than the minimum in order to support your contention. In that way you would be providing "room" for your idea to work.
I would recommend against what I have just described for a simple reason. If I think a market is going up, and it goes down instead, at a certain level I force myself to agree that I am wrong and I get out.
I never recommend meeting a margin call with money, only with liquidation. A margin call is like a "circuit breaker". It signals you are on the wrong side of the market and should "get out".
In entering a transaction whether it be a long position, if you feel the market is going up, or a short position if you feel a market is going down, you should absolutely determine how much the position could possibly gain for you against how much you are willing to risk. No one should ever invest more than they could afford to lose whether it be in stocks, bonds, or commodities.
I am willing to help educate new investors in the nuances of futures and options trading.
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