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Avoiding limit moves in commodities
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Avoiding limit moves in commodities

  #1 (permalink)
Market Wizard
Linz Austria
 
Futures Experience: Advanced
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Avoiding limit moves in commodities

I continue a discussion started in the short options section.

The move of the EUR-CHF was a different story. There was no formal annual or monthly or weekly report, but a dicesion on the Swiss National Bank, which was simply executed. This can easily happen in the currencies, as here a limited group of people decide large moves of a currency.

Grains are different in this regard. There are a large number of buyers and sellers who make the price. Exceptions are regular reports, where one office compiling these reports are deciding large price moves.

I will start with corn, as in my opinion it is better suited for beginners than meats or softs. Energies would be another option.

The reports with potential to initiate a limit move are USDA and WASDE reports on supply and demand. Not the absolute numbers are important, but their relation to the expectations of the large traders. Regarding limit moves, you have to watch out if there is a tight situation or not. Currently I would not expect severe limit moves for several days, as there is a lot of corn around the world from the old crop. If new crop gets a bit smaller that would not change too much.

A second source for limit moves is a change in weather forecasts for the critical growing phase in July.

You can either buy options during these short periods, but it costs money. Or you simply get out of the trade before the report, and back in afterwards.

It helps a lot to understand the fundamentals of a commodity, if you want to trade it. Large brokers supply information on fundamentals in general and for the moment, other information is available from indepentend companies. Regarding corn I read the Hightower Report and information from one of my brokers (RJO) every day.

No matter how careful you are: There might be situations where you are caught in a limit move. The best method to survive in my opinion is to keep lot sizes small. And - in the long run - to trade many different commodities so that not all of them are influenced by the same weather forecast.

Good luck, Myrrdin

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  #3 (permalink)
Elite Member
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Hi myrrdin,

how about using spreads to hedge the systematic risk, both currency risk and limit the possibility of a limit move against you? You don't have to used spreads as spreads per se, but rather as a less risky outright position.

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Energy futures Superfreak
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its good to understand the nature of your market in a limit move. like with cattle, a limit move means price stops, but trade continues, so you can get filled at the 'limit'. other markets, when it hits limit, trade shuts down, and the only way to manage a position is in the option market. they will usually screw you on pricing, since they know you 'have to pay up', but at least you can stop the bleeding/lay off some gains.

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  #5 (permalink)
Market Wizard
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Ignawin View Post
Hi myrrdin,

how about using spreads to hedge the systematic risk, both currency risk and limit the possibility of a limit move against you? You don't have to used spreads as spreads per se, but rather as a less risky outright position.

Yes, if your account size is too small to trade one outright future you can trade spreads. But be careful - if the margin for severals spreads is the same than for one outright future the risk is approximately the same. And: If your account is too small to trade one outright future, you should think about trading futures at all.

Best regards, Myrrdin

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Market Wizard
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hobart View Post
its good to understand the nature of your market in a limit move. like with cattle, a limit move means price stops, but trade continues, so you can get filled at the 'limit'. other markets, when it hits limit, trade shuts down, and the only way to manage a position is in the option market. they will usually screw you on pricing, since they know you 'have to pay up', but at least you can stop the bleeding/lay off some gains.

As far as I know trade always continues formally in a limit situation. But not always there are bids / asks at a price level inside of the limit. In the cattle market, prices quite often turn around, so that after a while of no trading, there are again bids / asks within the limit, and the merket trades again.

Best regards, Myrrdin

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