Liquid Markets

"Professional traders favor
the heavily traded markets."

The heavily traded markets (also known as liquid markets) are preferred by experienced traders because they behave more predictably.

These markets do not tend to make erratic movements when buying and selling surges occur. Being more heavily traded, it takes more to make an impression on them, because they are 'bigger'.

Professional traders like stability and prefer to trade these heavily traded markets. That doesn't mean they avoid markets that move. Moving markets are profitable ones whereas markets that don't move are not much good to traders.

The movements can be in either direction because commodity traders can make money in any moving market, whatever direction it is going in.

For any commodity, for example corn, there will be several current contracts available for trading, each with different commencing and expiry dates.

Generally, newer contracts take time to attract trading volume and later, as they draw closer to expiry, trading activity tails off as traders switch to the current 'highest volume' contract.

Many traders prefer to always trade the contract which is showing highest volumes. Therefore, they may close open positions in contracts that are moving towards their expiry date and open the same positions in whatever newer contract is doing most business. This is called 'rollover'.

One of the most important tasks a trader undertakes is deciding what commodities he will trade. This has a major bearing on his ability to control the level of risk he is prepared to undertake.

Professional traders are fairly risk averse and prefer to trade the more stable markets. Newcomers to commodity trading are advised to copy them.

 

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Copyright David Bromley 2006
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