• Skip to primary navigation
  • Skip to main content
  • Skip to footer

Daniels Trading

Independent. Objective. Reliable.

Top Navigation

  • Open a Futures Account
  • Sign Up
  • Log in
  • 1.800.800.3840

Primary Navigation Menu

  • About
    • Who We Are
    • Services
    • Careers
    • Risk Disclosure
    • COVID-19
  • Trade
    • Broker-Assisted
    • Self-Directed / Online
    • Request Pricing
  • Hedge
    • DanielsAg Mobile App
    • Ag Marketing Plan
    • WASDE Analysis
    • Grain Resources
    • Livestock / Dairy Resources
    • Hedging Videos
    • Request Pricing
  • Invest
    • Automated Strategies
    • Managed Futures
    • Request Pricing
  • Advisories
    • GENERAL / FUNDAMENTAL
      • DT Newsletter
      • Insider Market Advisory
      • Turner’s Take Newsletter & Podcast
    • TECHNICAL ANALYSIS
      • The Cullen Outlook
      • Data Feed Trade
      • Jarboe Trading Journal
      • Trade Spotlight
    • AG MARKETING
      • Cattleman’s Advisory
      • The Swine Times
      • Technical Ag Knowledge
      • This Week in Grain
      • Turner’s Take Ag Marketing
    • THIRD-PARTY RESOURCES
      • CFRN
      • Moore Research Center, Inc. (MRCI)
      • OptionWorks®
      • TASMarketProfile.com
  • Education
    • CME Group Resource Center
    • Small Exchange Resources
    • Guides
    • Frequently Asked Questions
    • Order Entry Handbook
    • Webinars
  • Blog
    • Futures 101
    • Ag Marketing
    • Tips & Strategies
    • Trading Advisories
  • Resources
    • Trading Software
    • Quotes and Charts
    • Futures Calendars
    • Contract Specifications
    • Margin Requirements
    • Futures Calculator
  • Accounts
    • GAIN Capital Futures
    • StoneX
  • Contact
 

How to Transition from the Stock Market to the Commodity Market

May 12, 2020 by Daniels Trading| Futures 101

The rise of zero-commission online equities brokerage outlets has attracted thousands of active traders to the marketplace. These services promote the benefits of trading stocks in short, medium, and long time frames. For people who experience success, becoming a commodity market trader appears to be the logical next step.

Sound familiar? Well, if you’re an active equities trader, it’s important to realize that commodity futures offer a collection of unique benefits and opportunities. However, there are three key differences to be aware of before jumping in with both feet.

1. Trading the Commodity Market

By definition, a commodity is an earth-borne raw material that may be bought or sold. Commodities are used in the manufacture of finished goods, as foodstuffs, or as a store of wealth. These products are traded directly on spot or futures markets and can be engaged indirectly via stocks and exchange-traded funds (ETFs)

Commodity market futures provide participants with a means to trade raw materials directly. Accordingly, there are several important ways in which these products differ from equities:

  • Pricing: In practice, there’s a big difference between trading commodities and trading related stocks. The pricing of commodity futures is based on the value of the underlying asset in question, not companies or ETFs facing the sector. For instance, when you trade West Texas Intermediate (WTI) crude oil futures, the contract’s value reflects the market dynamic of light sweet crude. Conversely, investing in companies that specialize in drilling, exploration, or refinement may or may not generate like returns.
  • Extended market hours: Commodity futures feature an extended electronic session. Although every product is subject to specific business hours, many are open for trade 23 hours a day, five days a week. As a result, the futures trading day is much longer than that of stocks.
  • Expiration: Commodity futures contracts are perishable items. If you buy a share of stock, you theoretically own it as long as the company remains solvent. However, a futures contract has a finite expiration date, after which it ceases to be tradable.

These three considerations are important to remember if you’re an aspiring commodity market participant. Pricing, expiration, and the extended trading session are three elements to account for when making the transition from stocks to commodity futures.

We can customize your trading relationship with us based on your service preferences. Contact us today for pricing.

2. Leverage

Compared to the trade of equities, commodity futures are highly leveraged financial instruments. From a pragmatic standpoint, this means several things to the active trader:

  • Reduced margins: Futures margins typically run between 3-12 percent. These amounts are a fraction of the 50 percent margin requirements assigned to most equities products
  • Extraordinary returns: Commodity futures are renowned for exhibiting consistently robust volatility. The pricing of metals, energies, and agricultural contracts are all prone to trend as market underpinnings evolve. 
  • Enhanced risk: High degrees of leverage and pricing volatility enhance the risk profile of commodity contracts. Without an aggressive risk management approach in place, sustaining large losses is possible. 

>Although trading commodity market futures can be riskier than trading traditional stocks, generating extraordinary returns is feasible. Also, given the vastly reduced margins, it is possible to improve your capital efficiency multifold over traditional equities products.

3. No Counterparty Risk

If you have any experience at all in the business world, then you’re familiar with counterparty risk. In practical terms, counterparty risk is the probability that one or more participants in a transaction will default on their contractual obligations.

One of the greatest benefits enjoyed by commodity market participants is the lack of counterparty risk. All transactions are centrally cleared through a formalized exchange. This framework effectively eliminates the risk of default from those on the other side of your trade. Gone are losses from untimely corporate bankruptcies or ETF liquidations―the only financial risks are those posed by pricing volatility and the possibility of selecting an incompetent brokerage service

Are You Ready to Make the Switch from Stocks to Commodity Futures?

If commodity trading has attracted your interest, check out the brokerage service suite at Daniels Trading. Featuring comprehensive self-directed and broker-assisted options, Daniels Trading is a great place to begin your venture into the world of commodity futures.

 

Talk to us about our pricing

Filed Under: Futures 101

About Daniels Trading

Daniels Trading is an independent futures brokerage firm located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading is built on a culture of trust committed to the firm’s mission of Independence, Objectivity and Reliability.

Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

Subscribe To The Blog

Footer

Site Navigation

  • Frequently Asked Questions
  • About Us
  • Customer Reviews
  • Contact Us
  • Futures Blog
  • Open a Futures Trading Account
  • Media Resources
  • Fund Your Account
  • Legal Notices

Contact Us

Daniels Trading
100 South Wacker Drive, Suite 1225
Chicago, IL 60606
+1.312.706.7600 Local / Int'l
+1.800.800.3840 Toll-Free
+1.312.706.7605 Fax

Connect with Us

Trustpilot

Copyright © 2021 · Daniels Trading. All rights reserved.

Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

  • Risk Disclosure
  • Privacy Policy
  • California Residents Privacy Notice
  • Terms of Use
  • Back to top