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  • Trading Lingo

  • Commodities Trading Lingo

    The following is an explanation of several different terms, and I’ll explain a little about each one of them.

    The Contract Month: As you can see, the daily chart reads, SI, 1999U, September - Silver . The last part is pretty obvious: March 2016 Silver. This means that this contract, or delivery month, is for the month of March 2016. The “code” SI 2016H means the same thing and I have included a list in the reference section that shows you what these codes stand for. (SI=Silver & “H” is for March).

  • There are a few terms that you will need to become familiar with. Most of these will be shown in the legend of the chart. Gecko Charts has this listed and is available at a click of a mouse.

    While I’m thinking about it, every chart in this course was prepared using Gecko Charts 5.0 software. I’m in “love” with this software and could not imagine anyone trading without it.

  • Trading Hours: (Not shown on most charts.) The trading hours simply tell you when the market is open for that particular commodity. You can buy or sell only during these hours. Some charts also show you the exchange that it trades on. In the case of Silver, it’s the COMEX where all the metals are traded. You don’t need to worry about this, as your broker who places your trades knows which exchange trades which specific contracts. Many markets today are traded almost 24 hours a day. Not all of them but many of them are. Some close at 5:00 PM EST and then start trading again an hour later.

    Margin: This is the “deposit” amount that you need to put up in order to buy, or sell, each contract. If you wanted to trade two contracts, you would put up twice as much, three times as much for three, etc. Currently, the margin on Silver is $6,600 per contract. Remember, your margin is just a deposit to offset any loses you might incur. You don’t actually spend that money. If you make a profit on the trade, 100% of your margin money is credited back to your account. On the other hand, any loses will come out of your “deposit.” (Also see Margin Call in the Glossary section.)

    Contract Size: This tells you how much of the commodity that you actually control for each contract purchased. In this case, its 5,000 Troy Ounces of Silver. This is where the leverage comes into play. You are controlling 5,000 ounces of Silver for just $6,600. If Silver was currently selling for $15.00 an ounce, that means you are controlling $75,000 in Silver for a deposit of $6,600.

    Point Value - 1¢ = $50: This means that each 1¢ change in the price of Silver either makes or loses you $50. As an example, if the price moved up 10¢ and you were “long”, then you made $500, and you lost $500 if the price went down 10¢. Pretty simple!

    Daily Limit: This is the maximum amount that the price can go up or down in one day. In the case of Silver, there is NO daily limit. It could go from $15.00 to $20.00, or more, in a day. Be careful trading contracts that don’t have a daily limit. The reason is that without a daily limit, your losses can’t be controlled as well, even when using a stop loss that you will learn about shortly.

    Min. Move: 1/10¢ = $5: This means that the minimum the price can go up or down is 1/10 of a cent. It’s not possible for it to move 1/20 of a cent, in other words. People refer to this as “one tick”.

    Quoted in CTS/OZ (1¢=$50): As stated earlier, 1¢ move in price reflects a profit or loss of $50.

    FND: 4/30/99: This is First Notice Day which means that you will get a notice of intent to accept delivery (and pay for the full contract amount) of the specific commodity. In the case of Silver, that means you would take delivery of 5,000 ounces of Silver. To avoid taking delivery, you must liquidate any long position.

    There are a few terms that you will need to become familiar with. Most of these will be shown in the legend of the chart.

    While I’m thinking about it, every chart in this course was prepared using Gecko Charts 5.0 software. I’m in “love” with this software and could not imagine anyone trading without it.

    As you can see, there are four different prices reflected here. The first is the “Open.” This is the price that it opened for trading that day. The next is the “Low.” This is the lowest price it traded for that day. Next is the “High” or the highest price it traded for that day, and last we have the “Close,” or the last price paid that day. Many people feel the closing price is the most important price of the day. On this bar, the price closed higher than it opened.

    The reason is that every day, there is a battle going on with the bullish and the bearish traders. The bulls want to see the price go up and the bears want to see the price go down. The closing price shows you who won that day.

  • Taking a Position - The Long and Short of It

    When you place a trade, you are either long or short the market. When you are long, you expect the price to go up; and if it does, you make money. When you are short the market, you expect the price to go down; and if it does, you make money.

    When you buy a contract, you are long, and expect the price to go up. When you sell a contract, you are short, and expect the price to go down.

    So, going long is buying, and going short is selling. Of course, if you are long and the market goes down, you lose money. Just the opposite if you are short.

    The key is to be in the right trade: long when the market is rising, and short when the market is dropping. You are going to learn techniques that will help you understand which way the market may go. Remember, these techniques are not foolproof, but they can be pretty darn accurate.

    You’re going to learn to find your profit targets, which is where you feel the price should go. Before we do that, let’s learn a little about some of the risk you will incur when trading. If you can learn good risk management, you can be successful at trading. It’s the most important area of trading.

    Keep in mind too, that without people like you, we would not have a commodities market as we know it today. The reason is, we provide liquidity for everyone.