Contract Specs:Ticker Symbol: CLExchange: NYMEXTrading Hours: 9:00 AM – 2:30 PM EST.Contract Size: 1,000 U.S. barrels (42,000 gallons).Contract Months: all months(Jan. – Dec.) Price Quote: price per barrel. Ex $65.50 per barrelTick Size: $0.01 (1¢) per barrel ($10.00 per contract).Last Trading Day: Third business day prior to the 25th calendar day of the month preceding the delivery month. Fundamentals:

Light Sweet is traded on the New York Mercantile Exchange(NYMEX). “Light Sweet” is the most popular grade of that is traded. Another grade of oil is Brent Crude, which is primarily traded in London.

is the raw material that is refined to produce gasoline, heating oil, diesel, jetfuel and many other petrochemicals.

Russia, Saudi Arabia, and the United States are the world’s three largest oil producers.

When is refined, or processed, it takes about 3 barrels of oil to produce 2 barrels of unleaded gas and 1 barrel of heating oil. Reports:

The main reports for are the EIA Weekly Energy Stocks report. This report is released every Wednesday around 10:30 PM EST.Tips on Trading Futures:The prices of unleaded gas and heating oil can influence the price of .

Demand is generally highest during the summer and winter months. A very hot summer or very active driving season (for summer vacations)can increase the demand for and cause prices to move higher.

An extremely cold winter causes higher demand for heating oil, which is made from . This usually cause prices to move higher.Watch the weather in the Northeast, since it is the part of the country that predominately uses heating oil.

Watch for oil production cuts or increases from OPEC.

Interactive Brokers, commonly called IB, was one of the first brokerage firms to spearhead electronic trading and they did it in a big way. The result is a brokerage firm that trades virtually every major market in the world on a very technically advanced trading platform. And you, the trader, benefit with very low commissions and a solid electronic trading platform. ProsExtremely low commissions.Able to trade more than 60 global markets.Interactive Brokers provides an abundance of education and research.ConsAs you might expect with the lowest commission rates, their customer service is not the best.Their trading platform is not the most advanced and charting capabilities could use an upgrade.DescriptionInteractive Brokers may have the lowest commissions among online futures brokers.Excellent research to learn about the commodity markets and trading and they offer many regular webinars. Many futures brokers specialize in the U.S. markets. IB is very appealing for those who want to trade international markets.Guide Review – and ProfileTrading Platform / SoftwareInteractive Brokers’ trading platform is the Trader Workstation. You have the option of using the browser-based version or you can download their software and run from your PC. You are able to place virtually every type of order through their software and their system is excellent at tracking trades in your portfolio. The main feature of the Trader Workstation is speed. The whole platform was designed for quick placement of trades with programmable “hot keys” and one-click order entries. You are also able to trade stocks, futures and options from the same platform. CommissionsCommission rates are always a hot button with commodity traders. You can look all you want, but I am afraid you will have a hard time beating their commission rates. For example, they charge less than $5.00 per round-turn on most of the electronic markets like the e-mini, which includes the exchange and regulatory fees. Pit-traded order average about $8, which includes fees. Those fees are so low, they are below the cost of what many brokerage firms pay to have their trades executed. Do not expect a lot of hand holding here. Online support is encouraged, since they obviously need to keep their costs down. IB specializes in low rates and quick trade executions. More active futures traders who are comfortable trading on their own may be better suited for this online futures broker than a new trader. You can fill-out their online application to open an account, which is a very thorough application. The initial deposit to trade futures and futures options is $5,000. It is highly recommended that you read the online manual to learn how to work their trading platform before you begin trading.

The Series 3 exam for commodity futures brokers is divided into two parts – futures trading theory and market regulations. Each part must be passed with a score of at least 70 percent. You will have 2 hours and 30 minutes to complete the exam. There are 120 multiple choice and true/false questions. Most people use at least 2 hours to take the exam and some do not finish in time, so make sure you monitor the time when taking the .Areas Covered in the Part 1: The first part of the covers the basics of the futures markets. You’ll need to understand futures contracts, hedging, speculating, futures terminology, futures options, margin requirements, types of orders, basic fundamental analysis, basic technical analysis and spread trading.

The Basics of Futures Options

Most people have a hard time with hedging and options. Futures options are a problem to people who never traded them before. Stock options are very similar to futures options, so if you understand them you should be in good shape.

Part 2: The second part of the consists of market regulations. Oh, the NFA likes to get tricky here. The basis of the section deals with doing the right thing for your clients. If you remember that tidbit, it should help a lot with this section. Many of these questions seem like are open for interpretation and could go either way, so make sure you understand the material beforehand and thoroughly read the questions before answering.

There are some rules, regulations and numbers that you will need to memorize for this part of the exam. Don’t take them lightly, because they don’t make this section of the exam easy for you. Studying for the It doesn’t take a genius to pass the , but you do have to study for it. The test can be very difficult for someone with limited trading knowledge or experience in the futures markets. Those who do have experience trading commodity futures also need to be well prepared, as they will likely see information that is new, especially the market regulations.

I feel that it is absolutely necessary to have a Series 3 course manual with practice exams for you to prepare properly for the exam. You can also think about prep classes before you take the exam. I never took prep classes for any of my securities exams, but some people swear by them. I feel if you are scoring at least 80 – 85 percent on your practice tests, you should be able to pass the final .

Natrural Gas Futures Contracts:Ticker Symbol: NGExchange: NYMEXTrading Hours: 9:00 AM until 2:30 PM EST.Contract Size: 10,000 million British thermal units (mmBtu).Contract Months: all months(Jan. – Dec.) Price Quote: $/MMBtu. Ex $6.50 per MMBtuTick Size: $0.001 (0.1¢) per mmBtu ($10.00 per contract).Last Trading Day: Three business days prior to the first calendar day of the delivery month.Natural Gas Fundamentals:

Natural gas produces almost a quarter of the United States energy consumption. Natural gas is used to provide energy for homes, commercial buildings and utility plants.

The contract on the New York Mercantile Exchange consists of 10,000 million British thermal units (mmBtu). A Btu refers to the amount of natural gas required to heat one pound of water by one degree at normal pressure. There are about 1,027 Btu in one cubic foot of natural gas.

Natural gas is transported by pipelines throughout the country. Natural Gas – Supply:

The largest producers are of natural gas in the United States are Texas, Federal offshore Gulf of Mexico, Oklahoma, New Mexico, Wyoming and Louisiana; respectively.

Russia and the United States account for about 42 percent of the world production of natural gas. Russia produces about 22 trillion cubic feet(tcf) and the U.S. produces about 19 tcf.Natural Gas – Demand:

The United States consumes about 25% of worldwide consumption.

The U.S. consumes all of the natural gas it produces and imports the remainder mostly from Canada.

The heaviest demand for natural gas is during the winter months. Colder than normal winters can increase demand for natural gas. Summers are usually the lowest demand periods for natural gas. Extremely hot periods during the summer can spike demand for natural gas.

About 25% of natural gas consumption goes to residences, 16% to commercial, 24% to commercial utility plants and 35% to industrial establishments. Tips on Trading :Natural gas is one of the more volatile commodities markets. This is evident in the high volatility premiums that natural gas options have. will react quickly to any tropical storms that move into the Gulf of Mexico. Most of the natural gas operations are in and along the Gulf and they are suseptible to damage and production losses. Hurricane Katrina is a prime example where natural gas prices rose to all-time highs due to the destruction. are very dependant on the weather – mainly in the winter. Prices can spike quickly when extreme cold weather hits.

The lure of trading commodities and futures online has been a godsend to many and a nightmare to others. You can expect much quicker execution of your trades through an online broker as well as lower commissions and a sense of independence. However, there are some hidden dangers that many novice traders overlook before they open an account to trade commodities online. Benefits of Online TradingTrading commodities online is almost a one-stop shop. You virtually have everything you need when you log in to your trading account. Most online brokers will have real time quotes, charts, futures news, technical analysis programs and research available for their clients. This has opened the door for online traders to make more of their own trading decisions and implement trading strategies that once were not available to the average retail trader.

If you are going to day trade commodities and futures, you definitely want to trade online, unless you have someone else managing your account. Executions are almost instantaneous, which is a far cry from having to pick up the phone and call your broker to place orders and wait for your fill prices.

Low Commissions. The commissions are also much lower. Today, you can trade many of the futures contracts for under $10 per round-turn with most online brokers. Low commissions make several strategies more feasible to trade; including spreads, day trading and short-term trading. For example, if you wanted to do a more sophisticated trading strategy where you have to combine futures and options, the commissions might cost you $150 per trade with a full-service broker. However, with an online futures broker, it might cost you less than $30. That gives you a much wider range where you can be profitable on trades.Dangers of Online TradingNo Mentor. There are two main issues facing online futures traders. The first is that you don’t have someone watching over your shoulder and to help you with your trades. Many new traders will make several foolish mistakes that will likely cost them money. Having an experienced broker with whom you can discuss trading strategies will likely keep you out of trouble and more than make up for the commission savings of online trading.

As with any new venture, having a mentor can prove invaluable. Just being able to ask a trading question and receive a good answer in a few minutes can save you many hours or days of researching on your own. Many traders take for granted how much they actually learn from their brokers and how much time and effort they have saved.

Over Trading. The second issue relates to the ever-increasing problem of over trading. This has been a problem with commodity traders for decades, but the advent of online futures trading has really accelerated the problem.

The commodities markets have the same lure to traders that Las Vegas has to gamblers. Typically, a new trader will come to the commodities markets with a trading strategy of holding trades for a period of weeks or months. As they watch the markets move up and down every day, they believe they can catch many of these smaller moves by getting in and out every couple of days. Commissions are cheap, so it seems like an easy proposition. Then, of course, the trader starts to get bored holding positions for a couple of days and starts day trading.

At this point, the trader is probably in way over his head. His account has probably suffered huge losses and a sizeable part of that is from commissions. His well-researched strategy for long-term trading does not apply to day trading, so he is trading without a good plan. In the end, he realizes he would have done very well if he just stuck to his original plan and his life would likely have been much less stressful.

The above scenario is a daily occurrence among those who trade commodities online. It is a lot for a new trader to handle. You have flashing quotes, scrolling charts with technical indicators and all it takes is a click of a button to place a trade. You don’t have to talk with a human to place a trade, so nobody will know what you’re up to.

Online trading can be a dangerous thing if you are not disciplined or have a gambling mentality. For those who are well disciplined and have a sound trading plan, trading commodities through an online broker is the best way to go.

Investing in a is one of the easiest ways to participate in the commodity markets and also diversify your investment portfolio. An ETF is an Exchange Traded Fund that is very similar to a mutual fund, but it has very little management. A has a set plan for investment in a group of commodities that may be readjusted periodically by the fund manager.

A can come in several forms, but most were created to mirror the returns of commodities by investing in the commodity futures markets. They are all buy futures contracts based on the amount of funds they receive from investors. An excellent feature is that they trade just like a stock and you can buy or sell at any time during market hours. More importantly, you cannot lose more than your initial investment with an ETF, as many have this fear when they consider the futures markets.

Some s focus on commodity sectors and only buy futures contracts in that area – oil, agriculture or gold. As an overall investment to diversify your portfolio, you probably want to focus on a that invests in a more diversified basket of commodities. The following are three of the more popular s:

1. iShares S&P GSCI Commodity-Indexed Trust
Ticker Symbol: GSG

This was setup to track the Goldman Sachs Commodity Index. GSG tracks 24 different commodities. It is weighted with approximately 67% invested in energy, 16% in agriculture, 7% in industrial metals, 7% in livestock and 3% in precious metals. The index is production weighted to reflect the relative significance of those commodities to the world economy.

2. iPath Dow Jones-AIG Commodity Index
Ticker Symbol: DJP

This was setup to track the Dow Jones AIG Commodity Index. The commodities represented in DJP are rebalanced annually. Each commodity subgroup exposure is capped around 33%, however the weightings fluctuate between rebalancings due to changes in market prices.

3. PowerShares DB Commodity Index Tracking Fund
Ticker Symbol: DBC

This seeks to reflect the performance of the Deutsche Bank Liquid Commodity index. The index commodities are comprised of light sweet crude oil, heating oil, aluminum, gold, corn and wheat. DBC has a smaller number of commodities in this ETF than the other two, so take a close look at the six commodities before you invest.

Most traders buy put options because they believe a commodity market is going to move lower and they want to profit from that move. You can also exit the option before it expires – during market hours, of course.

All options have a limited life. They are defined by a specific expiration date by the futures exchange where it trades. You can visit each futures exchange’s website for specific expiration dates of each commodities market.Finding the Proper Put Options to BuyYou must first decide on your objective and then find the best option to buy. Things to consider when buying put options include:Duration of time you plan on being in the trade.Amount you can allocate to .Length of a move you expect from the market.

Most commodities and futures have a wide range of options in different expiration months and different strike prices that allow you pick an option that meets your objectives.

Duration of Time You Plan on Being in the TradeThis will help you determine how much time you need on a put option. If you are expecting a commodity to complete its move lower within two weeks, you will want to buy a commodity with at least two weeks of time remaining on it. Typically, you don’t want to buy an option with 6-9 months remaining if you only plan on being in the trade for a couple weeks, since the options will be more expensive and you will lose some leverage.

One thing to be aware of is that the time premium of options decay more rapidly in the last 30 days. Therefore, you could be right on a trade, but the option loses too much time value and you end up with a loss. I suggest that you always buy an option with 30 more days than you expect to be in the trade.

Amount You Can Allocate to Depending on your account size and risk tolerances, some options may be too expensive for you to buy or they might not be the right options all together. In the money put options will be more expensive than out of the money options. Also, the more time remaining on the put options there is, the more they will cost.

Unlike futures contracts, there is no margin when you buy futures options. You have to pay the whole option premium upfront. Therefore, options on volatile markets like crude oil can cost several thousand dollars. That may not be suitable for all option traders. And you don’t want to make the mistake of buying deep out of the money options just because they are in your price range. Most deep out of the money options will expire worthless and they are considered long shots.

Length of a Move You Expect From the MarketTo maximize your leverage and control your risk, you should have an idea of what type of move you expect from the commodity or futures market. The more conservative approach is usually to buy in the money options. A more aggressive approach is to buy multiple contracts of out of the money options. Your returns will increase with multiple contracts of out of the money options if the market makes a large move lower. It is also more risky as you have a greater chance of losing the entire option premium if the market doesn’t move.

Put Options vs. a Futures ContractLimited RiskLess Volatility

Your losses on are limited to the premium you paid for the option plus commissions and any fees. With a futures contract, you have virtually unlimited loss potential.

Put options also do not move as quickly as futures contracts unless they are deep in the money. This allows a commodity trader to ride out many of the ups and downs in the markets that might force a trader to close a futures contract in order to limit risk.

One of the major drawbacks to buying options is the fact that options lose time value everyday. Options are a wasting asset – theoretically, they are worth less each day that passes. You not only have to be correct on the direction of the market, but also on the timing of the move.

Most traders buy call options because they believe a commodity market is going to move higher and they want to profit from that move. You can also exit the option before it expires – during market hours, of course.

All options have a limited life. They are defined by a specific expiration date by the futures exchange where it trades. You can visit each futures exchange’s website for specific expiration dates of each commodities market.

Finding the Proper Call Options to BuyYou must first decide on your objectives and then find the best option to buy. Things to consider when buying call options include:Duration of time you plan on being in the trade.Amount you can allocate to .Length of a move you expect from the market.

Most commodities and futures have a wide range of options in different expiration months and different strike prices that allow you pick an option that meets your objectives.

Duration of Time You Plan on Being in the Call Option Trade

This will help you determine how much time you need on a call option. If you are expecting a commodity to complete its move higher within two weeks, you will want to buy a commodity with at least two weeks of time remaining on it. Typically, you don’t want to buy an option with 6-9 months remaining if you only plan on being in the trade for a couple weeks, since the options will be more expensive and you will lose some leverage.

One thing to be aware of is that the time premium of options decay more rapidly in the last 30 days. Therefore, you could be right on a trade, but the option loses too much time value and you end up with a loss. I suggest that you always buy an option with 30 more days than you expect to be in the trade.

Amount You Can Allocate to

Depending on your account size and risk tolerances, some options may be too expensive for you to buy or they might not be the right options all together. In the money call options will be more expensive than out of the money options. Also, the more time remaining on the call options there is, the more they will cost.

Unlike futures contracts, there is no margin when you buy futures options. You have to pay the whole option premium upfront. Therefore, options on volatile markets like crude oil can cost several thousand dollars. That may not be suitable for all option traders. And you don’t want to make the mistake of buying deep out of the money options just because they are in your price range. Most deep out of the money options will expire worthless and they are considered long shots.

Length of a Move You Expect From the Market

To maximize your leverage and control your risk, you should have an idea of what type of move you expect from the commodity or futures market. The more conservative approach is usually to buy in the money options. A more aggressive approach is to buy multiple contracts of out of the money options. Your returns will increase with multiple contracts of out of the money options if the market makes a large move higher. It is also more risky as you have a greater chance of losing the entire option premium if the market doesn’t move.

Call Options vs. a Futures ContractLimited RiskLess Volatility

Your losses on are limited to the premium you paid for the option plus commissions and any fees. With a futures contract, you have virtually unlimited loss potential.

Call options also do not move as quickly as futures contracts unless they are deep in the money. This allows a commodity trader to ride out many of the ups and downs in the markets that might force a trader to close a futures contract in order to limit risk.

One of the major drawbacks to buying options is the fact that options lose time value everyday. Options are a wasting asset. You not only have to be correct on the direction of the market, but also on the timing of the move.
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You will hear about quite often when trading futures and commodities. In a nutshell, is the amount of money you have to put up to control a futures contract.

rates are set by the futures exchanges and some brokerages will add an extra premium to the exchange minimum rate in order to lower their risk exposure. Margin is set based on risk. The larger dollar value moves that a futures market makes, you can expect higher margin rates.

If you are familiar with trading stocks on margin, this might be easier to pick up. You can trade stocks on up to 50% margin. So, you can buy up to $100,000 worth of stock for $50,000.

With futures contracts, it works in a similar fashion but the margin rate is much lower. Normally, you only put up about 5 – 15% of the contract value in margin. For example, if you want to buy a contract of wheat futures, the margin is about $1,700. The total contract is worth about $32,500 ($6.50 x 5,000 bushels). Thus, the is about 5% of the contract value.

Initial is the amount of money that is required to open a buy or sell position on a futures contract.

Margin Maintenance is the amount of money where a loss on your futures position requires you to allocate more funds to bring the margin back to the initial margin level. For example, suppose the margin on a corn futures contract is $1,000 and the maintenance margin is $700. If you buy a corn futures contract you will need to have $1,000 set aside for the initial margin. If the price of corn drops 7 cents, or $350, you have violated the maintenance level and need to add an additional $350 in margin to bring it back to the initial maintenance level.

Margin Calls – a margin call on futures contracts is triggered when the value of your account drops below the maintenance level. For example, you hold five futures contracts that have an initial margin of $10,000 and a maintenance margin of $7,000. The value of your account falls to $6,500. You will get a margin call requiring you to add $3,500 to your account to bring it back to the initial margin. You also have the option of closing your positions to eliminate the margin call.How to Calculate rates are typically calculated using a program called SPAN. This program measures many variables to come up with a final figure for initial and maintenance margin in each futures market. The main variable is based on the volatility of each futures market. The exchanges do adjust their margin requirements occasionally based on market conditions.

Oil options are contracts where the root asset is actually a crude oil futures contract. The actual holder of the  oil option owns the privilege (however is not  obligated) to take on an extended position (when it comes to a call option) or short position (regarding any put options) inside any underlying oil futures concerning the strike price. That opportunity shall discontinue once the option expires following market close up on expiration day.

Oil Options Trades

Oil  contracts can be obtained intended for buying and selling on New York Mercantile Exchange.

Crude Oil options are available in trading lots of 1000 barrels, which equals 42000 gallons of crude oil.

Put and Call Options

There are two types of options. Put options and call options.  Crude Oil call options are more desirable in a bullish market.  Put options are better for a down trending market.  Purchasing calls as well as puts is far from the only way for you to trade options. Option selling is actually a well known tactic employed by several qualified option investors. More complicated option trading techniques, generally known as spreads, may also be produced by means of concurrently buying and selling options.

Oil Futures versus Oil Options

In contrast with the overall investment with the underlying crude oil futures,  oil options present benefits for instance extra leveraging along with the capability to reduce probable losses. Nevertheless, they’re also wasting investments which have the possibility to reach its expiration date worthless.

Extra Leveraging

When compared to having a position relating to the underlying oil futures downright, you on the  oil option acquires extra leveraging because the premium payable is normally less than the actual margin obligation necessary to start a position within the underlying futures contract.

Reduce Possible Loss

While  oil options simply offer the opportunity and not the requirement to take on the underlying crude oil futures position, possible deficits are generally confined to merely the premium paid to acquire the option.

Versatility

Utilizing options solely, or perhaps in conjunction with futures, many tactics might be executed in order to serve a distinct risk profile, investment decision time period horizon, fee concern along with perspective with underlying volatility.

Duration

Options have a very finite life expectancy and therefore are suffering from the consequences connected with time decay. Any worth associated with a crude oil option, especially the actual time value, becomes decayed  after a while. Even so, because trading is usually a zero sum activity, time period decay may be converted into a great ally if an individual decides on becoming a seller of options as opposed to buying.