A Trader's First Book on Commodities by Carley Garner |
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| By: Richard A Stooker | ||||
Do not expect or plan to start trading after you read it. She doesn't pretend to tell you how to trade to make lots of money. She gives you the basics so you at least know the terminology and how these markets work. I would haggle a little bit. She mentions a few times that when you trade futures you can lose more money than you actually put at risk, but I don't believe she doesn't stress it enough. I suspect that many people, who want to trade to make money because they're desperate, don't understand that one trade can very wrong can wipe them out financially. That is very different from buying stocks, bonds, mutual funds, options and Exchange Traded Funds. With those investments, you can lose (at most) the money you put in, but no more. Futures contracts typically employ a lot of leverage. If buy a contract and the price goes down a lot, the cash equity in your brokerage account can be more than wiped out quickly in short order. I can't say this happens a lot. Before it does, your broker will try to liquidate your account to minimize the damage. But sometimes futures prices move so quickly that nobody can get out as fast as they want or need to, not even your broker. Therefore, it's very important to stay in regular touch with your account balance. And don't trade with scared money. Technically, you should not trade with money you can't afford to lose. I realize there's a great contradiction there, because people who are most comfortable financially have the least motivation to put their money at risk to make even more of it. So the people most attracted to trading as a second or first income are often the most financially unfit for trading. She mentions futures options, but not in great detail. That is fair, because she's also written a book about futures options. However, I think she could have mentioned -- without going into great technical detail -- that you can use options to construct "synthetic" futures contracts. These have the same ability to benefit from positive price moves in the commodity, without the hazard of going bankrupt while your back is turned. She does mention using options to manage risk when a future position is going bad. She does a good job at explaining the current state of futures exchanges, the types of commodities now available, and the characteristics of their contracts, as well as tips on how to calculate your profit and loses. Sometimes her reassurance that you can learn to calculate the numbers seems a little too cheery. I couldn't help but think that people who have trouble understanding a contract's quote system probably doesn't understand the commodity itself and therefore shouldn't be trading it. She did do a pretty good, though probably too brief, job of explaining why trading systems -- especially expensive black box software programs costing $2,000 and up -- aren't reliable. I wish she'd explained the problems of backtesting and data mining more fully, because most of the readers of this book are going to be pitched trading systems, and without knowing exactly why they're a waste of money, they may forget what she said and buy anyway. Ah, but the commodities markets thrive on naive people who can come up with money they can't afford to lose. If you're thinking of trading in futures, this is a good first book. But read a lot more before you put any money at risk. |
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