The list is done in a format that also includes some futures and option trading mistakes; keep in mind that goals for hedgers and speculators can be quiet different so some of the mistakes listed below might not fit both the average hedger and average speculator.
Common Grain Marketing Trading Mistakes -
- Fear - This is for basically anything that to do with trading, buying, or selling. This emotion seems to overrule logic at time. It helps lead to markets being over done at time. Over my years as a grain merchandiser I have become amazed that ability that fear can play in buying and selling. Many producers simply end up marketing out of fear or don't do anything because of fear. The last several years the big fear factors that have lead to marketing at what ends up being the exact wrong time include
- Selling at or near the lows because of fear that the market will go much lower
- Not selling at profitable levels because of fear that the market will go higher
- Buyers not buying at levels that make sense to own because of fear that the market may get weaker and thus they could be uncompetitive on the product they are looking to sell.
- Fear trading - options - includes producers paying for puts at levels that maybe they shouldn't worry about protecting and producers pulls off of sold calls that where originally placed as covered calls.
- Fear trading - futures - Lifting short hedges because of fear of more margin calls or even worse yet lifting and replacing hedges; (then lifting hedges again and so on; in a manner that done takes away from the bottom line) lifting from fear of margin calls; even though most that hedge hope they get some sort of margin call if they are truly hedging doing it in a small % manner. As if one hedges a small percentage of one's crop and we go down; ones hedge account looks better but then one's overall net worth is less.
- Greed - Same emotion that keeps producer, hedgers from buying or selling at levels that are profitable
- Failure to to plan for the known have to's and then selling at numbers that don't work
- Harvest - bin room logistics
- Cash Flow
- Obligation Payments
- Keep employee's and busy
- Leverage - Coverage
- Failing to understand how futures and options work and the amount of leverage that they have
- Failing to understand how pricing of options work.
- i.e. if you buy 10 puts that are 1.00 out of the market that expire in a week have you hedged or covered yourself on 50,000 bushels. Depending on underlying value you may hedged a big percentage but more likely you haven't hedged much if anything.
- How the Greeks and pricing of options and option strategies tie into a grain marketing plan
- Failure to to tie timing together - From option expiration to the have to market for X reason where X has been and is a long term known factor
- Risk Diversification - Selling too much or too less - typically from one of the two emotions above
- Failure to follow plan and failing to develop a plan that ties in with goals
- Assumptions that Risks won't happen; be it sold options that seem unrealistic to basis and spread risks
- Inverted Markets
- Proper way to trade and analyze risk/reward profile
- Carrying inventory
- Placing hedges in a risk manner
- Carry Markets - Proper way to trade and analyze risk/reward profile
- Creating an implied spread position without knowing it
- Forgetting orginal trade or marketing plan goals objectives
- Excution of marketing or trading plan
- Lack of understanding the risk associated with not using the basic business profit equation where Profit = Revenue (Grain Sales) Minus Cost of Goods Sold (Inputs/Production Cost) Minus Expenses and how that relationship gets tied together for reasons like index funds and ethanol
- Failure to be Pro Active
Please note that the info found in here is opinion and content found on this page and in this blog represents no recommendation for any futures, options, or cash trading strategies. All information is The purpose is simply to ask questions and share thoughts and ideas to better help those in this industry.
The information contained on this site is taken from sources, which we believe to be reliable, but is not guaranteed by us as to accuracy or completeness and is provided to you for information purposes only. There is a risk of loss when trading commodity futures and options.