Commodity Trading Blunders I, PART 2 - My Early Days As A Novice Trader

There is always "year one" for every commodity futures trader. I had mine and made every mistake a trader can make and more. Here's my story of how I stumbled into the lion's den, got gored a few times and even made some money. My hope is that beginners will read this and avoid some of the more obvious stuff. Here's to all new traders!

The final day the Boston Broker From Hell called, I was loaded for bear. I asked him how much he charged for commissions. He balked and tried to sidestep it. After a while I got him to admit they were taking $4,500 off the top to cover commissions. $4,500 chopped from a $15,000 account! That’s over 30%. He said that over a year's trading I would blow that much in futures commissions anyway. I later figured out they would put you into a futures contract position and let it sit until the margin call came or they rolled it into another trade. If the money grew, they would want another cut off the top. Gads. Needless to say, I insulted him and hung up.

A month later he called back and beat me up again. Sugar future contracts was now at 15 cents and I would have been up $16,000! Well, after their commission chop, make that $10,500. The kid was cockier than before and was really sounding smug. Now he wanted me to get into lumber futures.

But by this time I had read a commodity trading book called, “Trident - a trading strategy,” written by Lindsey. A young Larry Williams was one of the promoters for the seminars. It was a $1500 seminar. I didn’t attend - just read the book. I was now enlightened. I told the Kid from Boston, “the swing objective of sugar is 18 cents.” I asked him why I needed to pay his $4,500 commissions when I had all the answers... HA! He realized I was a lost cause and said good bye for good.

As a fitting epitaph, I understand the CFTC shut them down and they were fined for violations years later. I guess I dodged a commission bullet. Despite it all, I might have lucked out and made money in this great sugar bull market. Commodity bull markets can often forgive stupid blunders and mistakes along the way. We can be sloppy as heck and still do well at times, until the bull party ends.

Reading can be a powerful thing, especially with today’s wonderful internet. Be fully informed before you make a decision – especially if you're new to the game. Just because firms and commodity brokers are registered with the NFA and CFTC doesn't mean a few won’t try to take advantage of you.

The modern day version is the so called, “$200 commission commodity houses.” They usually put your entire $5,000 account into five $800 options at a $250 commission each. To demonstrate how heavy these expenses are, if you broke even with entry and exit price on FOUR successive trades, your account would be wiped out from option commissions alone. FOUR trades (five options each trade) equal $5,000 in commissions. Yikes! Then there's the offshore Forex option scams. Please be careful out there.

Part Three of Four - Next!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

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