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Understanding Investing

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What Do Hedgers and Speculators Do in Futures Trading?

The two major categories of traders are hedgers and speculators. Although these two groups trade in the futures market, they are trying to accomplish very different objectives. [more…]

Comparing American- and European-Style Options

There are two major categories of options: American-style and European-style. Which type you choose depends on the way you want to exercise them, and each has advantages you should know about to make wise [more…]

Options for Trading Investment Assets: Calls and Puts

Two types of options are traded. One kind, a call option, lets you speculate on prices of the underlying asset rising, and the other, a put option, lets you bet on their fall. [more…]

How to Read Option Quotes

When you trade options, you have to look at quote boards on your computer, even if you’re using a broker. The following figure shows you a good generic example of a quote board provided by the Chicago [more…]

How Volatility Affects Option Prices

Volatility, a measure of how fast and how much prices of the underlying asset move, is key to understanding why option prices fluctuate and act the way they do. In fact, volatility is the most important [more…]

Watching Volatility When You Trade Options

When trading options, you want to be able to predict when changes in volatility — and thus changes in prices — are coming. One way to do that is to keep tabs on historical volatility [more…]

How the Fiat System Works

The global monetary system is what’s called a Fiat system in which money is a storage medium for purchasing power and a substitute for barter. Each dollar bill, euro, yen, gold ingot, or whatever currency [more…]

Where Does Money Come From?

Central banks create money either by printing it or by buying bonds in the treasury market. When central banks buy bonds, they usually buy their own country’s treasury bonds, and their purchases are made [more…]

What's the Purpose of Central Banks?

Central banks, like the Federal Reserve in the United States, are designed to make sure that their respective domestic economies run as smoothly as possible. In most countries, central banks are expected [more…]

Monetary Exchange Equation Relates Money Supply to Inflation

You can use the monetary exchange equation to explain the relationship between the supply of money and inflation, as follows:

Velocity x Money Supply = Gross Domestic Product [more…]

How Money Supply Affects Commodity Tendencies

As a general rule, futures prices respond to inflation. Some, such as gold, tend to rise; others, such as the U.S. dollar, tend to fall. Here are the basics of money supply/commodity tendencies: [more…]

How Money Flows Affect the Financial Markets

When central banks buy bonds from banks and dealers, they’re putting money into circulation, making it easy for people and businesses to borrow. At the juncture where money becomes easier to borrow, the [more…]

Economic Reports Provide Financial Insights

Economic reports — which include the Consumer Price Index, the Producer Price Index, employment updates, and releases on consumer confidence — are useful resources for making informed investing or trading [more…]

What's in the Producer Price Index Report?

The Producer Price Index, or PPI, is an important report, but it doesn’t usually move the markets to the same degree as the Consumer Price Index (CPI) and the employment report. [more…]

Consumer Price Index Report Details Inflation

The Consumer Price Index, or CPI, is the main inflation report for the futures and financial markets. Unexpected rises in this indicator usually lead to falling bond prices, rising interest rates, and [more…]

ISM Report on Business Shows Manufacturing Economic Status

The Institute for Supply Management’s (ISM) Report on Businessusually moves the markets — or, in other words, is a market mover. The ISM measures the health of the manufacturing sector in the U.S. This [more…]

What Consumer Confidence Reports Reveal

The report that measures consumer confidence is a big report that comes from two sources that publish separate updates, the Conference Board, a private research group, and the University of Michigan. [more…]

Beige Book Report Summarizes District Economic Activity

The Federal Reserve produces the Summary of Commentary on Current Economic Conditions, otherwise known as the Beige Book. The Fed collects anecdotal reports from Fed bank presidents, key businesses, economists [more…]

How Oil Supply Data Informs Traders

Oil supply data became a central report outside of the oil markets in 2004 and 2005 as the price of crude oil soared to record highs after the war in Iraq. [more…]

What’s the Difference between Stocks and Options?

Just like stocks and futures contracts, options are securities that are subject to binding agreements. The key is that options give you the right to buy or sell an underlying security or asset, without [more…]

What Is Call Buying in Stock Trading?

Call buying is different from call writing, because it isn’t usually used by traders as a hedge against risk. Instead, call buying is used to make money on stocks that are likely to go up in price. [more…]

What Are Commodities?

Put simply, commodities are the raw materials humans use to create a livable world. Humans use energy to sustain themselves, metals to build weapons and tools, and agricultural products to feed themselves [more…]

The Major U.S. and Worldwide Commodity Exchanges

Many commodity exchanges operate worldwide, and each exchange specializes in certain commodities. The following tables introduce you to some of the key players in the United States and abroad. [more…]

Placing Orders at the Commodities Exchange

Your trading account is your link to the commodity exchange. The broker’s trading platform gives you access to the exchange’s main products, such as futures contracts, options on futures, and other derivative [more…]

Place Commodity Orders by Indicating What Type You Prefer

When you place a commodity order, one key piece of information you need to indicate is the order type. The type defines how you want your order to be placed and executed. [more…]

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