A Guide by Sean Kemery for Investment and Trading in Commodity Derivat

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Sean Kemery handles commodities trading and indexes as a director and senior trader at Deutsche Bank AG in New York. Since joining the company in 2010, he has been responsible for successfully trading positions, bringing in new clients and maintaining relationships with existing ones, and is known for consistent trading results through varying market conditions.

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A Guide by Sean Kemery for Investment and Trading in Commodity Derivatives Sean Kemery handles commodities trading and indexes as a director and senior trader at Deutsche Bank AG in New York. Since joining the company in 2010 he has been responsible for successfully trading positions bringing in new clients and maintaining relationships with existing ones and is known for consistent trading results through varying market conditions. Here is what his experience is briefing: Hundred years back farmers had to suffer the risk of their crop value going below the cost price of their yield. Commodity derivatives trading had a humble start initially offered on various agricultural products such as pepper wheat coffee rice and cotton. Traditionally developed for the purpose of risk management commodity derivatives are now increasing in popularity as an investment tool. Presently investors having no need for the commodity are trading in the commodity derivatives market. In fact investors just speculate on the price direction of such commodities with the hope of making money in case the price moves in their favor. Commodity derivatives market is a direct form of investing in commodities rather than investing in those companies trading in such commodities. For instance an investor can directly invest in steel derivatives rather than investing in the shares of a steel company. It is quite simpler to predict the price of commodities depending on their supply and demand forecast in comparison to forecasting the price of the shares

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of the firm. This depends on many other factors before considering just the supply and demand of the products manufactured and sold or traded. Advantages of Trading in Derivatives: It is much cheaper to trade in derivatives since investors require only a small amount of money to purchase derivative contract. Before looking into how the investment in the derivative contract works investors need to familiarize themselves with the terms seller and buyer of the derivative contract. Buyers of derivative contract are those people who pay an initial margin to purchase the right of selling or purchasing a commodity at certain date and at certain price in the future. The sellers on the other hand accept the margin and agree to accomplish the decided contract terms by selling or buying the commodity at a fixed price on the contract maturity. The answer to actually how the investment in the derivative contract works is as follows. The individual investor has the option of taking the delivery of one ton of soybean and selling it in the market for a higher cost making a hefty profit. On the contrary in case the price of soybean falls to 8400 the investor makes a hefty loss. Rather than the investors taking the commodity delivery on contract maturity they also have an option of settling the contract in cash. Cash settlement includes exchange of the spot price difference of the exercise price and the commodity depending on the future contracts. Overview: Settlement and clearing of trades is the most critical function in the commodity derivatives exchange. Commodity derivatives also involve the exchange of goods and funds. For handling all settlements the exchanges have a separate body known as clearing house. For instance the seller of future who contracts to purchase soybean can select to take the soybean delivery prior to maturity as compared to closing the position. In such cases the function of the clearing organization is to take care of the possible default problems created by the other party being involved by simplifying and standardizing the transaction process between organization and participants.

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Throughout his career in commodity trading Sean Kemery has served in various capacities for such firms as Merrill Lynch Company AIG Financial Products and UBS AG. Currently he leads the commodity index trading division as a senior director at Deutsche Bank in New York City. Find more please click here

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