Using paper

[mbdog]

Was reading agtalk and read an interesting thread about risk reward/reward of trading paper. Whether hedging use or spec, was interesting to read peoples experiences, thoughts and questions.
Opened a trading account about 20 years ago. Hedging intentions inevitably lead to spec investing. Net-net through the years....its been good, but not without many, many sick feeling days when you have to feed the animal. Regardless, the good includes playing in the game and understanding how the game is played, who's playing, and what I learned having skin in the game. The account surplus/deficit was important, but in reflection, not as important as applying what I learned about the game in my business.
Was going to bail after year one, but glad I didn't. Luckily survived the cocky invincible trading stage that everyone goes though...got smarter about what and why I used paper for.
Anyway,raining here again....thot I'd start a thread...share experiences that may help others considering using the paper markets.

[SASKFARMER3]

Good thread I have one about 20 years ago play very little got bit when I got cocky! Ha ha! Kind of only use once In A while! Need help!

[farmaholic]

I'm all ears....

What I don't understand is why people take huge risks actually trying to produce a crop or product then take somemore trading paper, spending money on options that some say expire worthless a large percent of the time. More gambling? A way of selling physical(for cashflow reasons) and staying in the market?


If you're looking for a survey, I don't trade in the futures market. I assume you've done ok over the 20 years to still be doing it.

[farmaholic]

mbdog.

If you had the actual physical and didn't need the cash flow and weren't worried about storage risk, would you sell anyway and play the market. Depending which direction you "felt" things were going to move?

[TOM4CWB]

MBdog,

There is the****utic value to having an account. When in the market with options on futures position... I tend to make myself more aware of market factors.... not a bad thing at all. This tends to flow over into other grain marketing positions... and has been good overall... looking at when prices are in the top 70 percent of prices over the past 5 years... etc. Cheers!

[mbdog]

Never started in it to speculate/invest...just turned out that way. Everyone's attitude to risk is different. Farmaholic...for me the futures market is like everyone elses stock account or investment portfolio. That's what I learned, so that what I watch and am comfortable investing in. So the answer is yes, but I consider it personal/non-farm related investing. For hedging, there lots of tools available, not just paper. Although I can, and will consider paper strategies at all times when marketing...I'm not trading lots...just when it seems to fit/make sense to me...and yes, when something looks good. No different than a hot stock tip! Have I texas hedged canola...you bet...what farmer who's into paper market hasn't. Can't remember it ever being a good bet tho.
Tom says its the****utic and I agree.
Got bit enough times to respect it, but in the end it has been worth it.
Just curious on how others view being in the paper market is all.

[mbdog]

Farmaholic...more specific to your question. Would I sell and play market in the context you framed. I wouldn't simply do it just to own paper instead of physical if that's what you're asking. Not an easy question to answer....other than to say it depends. IMO, paper "replacement" strategies are tools ... and if you own the physical unpriced that's playing the market to.

[farmaholic]

Thanks mbdog, as I said I'm all ears. I know basically nothing about the trade. I guess the only activity I see in the futures is locking in a futures month and basis for delivery of a physical. I think calls let you participate in price hikes and puts establish a floor, am I right? But how to effectively use them eludes me.

As I've said in the past....Ive been production oriented all my life. And not having to market our own cereals have in effect made me lazy in that department, add to that we havent been growing specialty crops that required marketing ourselves
my whole farming career.

I look forward to others opinions.

[malleefarmer]

I guess I trade paper via bank swaps and options only when its a no brainer to do so such as this year back in feb march
Im a hedger not a speculator
along with physical sales I try to cover up to 40% of my expected production never anymore but if opportunity doesn't arise I do nothing which could be the case in 15

But lets say for intstance Ukraine situation get out of control as does Syria and gaza and other conflicts wheat rockets up 700 cents plus would do so again for next season production

[malleefarmer]

agricultural arms of the banks here actually encourage it when its a good sell and they will not allow to go long ie buying wheat now and hoping for a rise and taking profit always always shorting the market

without going into details sold a 272 tonne contract and a 136 back in feb and 136 tonne in march and bought back last week as mentioned now I add that profit to my wheat sales