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Start with Paper Trades

January 9, 2013
By: Sara Schafer, Farm Journal Media Business and Crops Editor
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Learn basic marketing skills by first trading on paper

No doubt, marketing is a complex component of your farming business. If you’re a young producer, you likely lack a lot of trading experience. Before you put your hard-earned money on the line for a futures or options position, pencil it out on paper.

When Naomi Blohm, Stewart- Peterson senior market analyst, takes on new clients, she has them learn marketing fundamentals by trading at home, on paper. She asks them to pretend to buy a futures contract and then track the closing price for that contract for about two weeks.

"Then, they reflect to see if they have a profit or loss on that position," Blohm says. "After about two weeks, they can see if they would have made money. It is really eye-opening."

Brian Grete, Pro Farmer senior market analyst, says that by being disciplined and following a specific market chart each day, you can greatly increase your knowledge of market movements. As you track a contract’s moves, he says, you can do some basic trendline analysis, which includes seeing if a market chart is trending up, down or sideways. "You can start to gauge how the markets react to different technical indicators and see if you can predict price movement," he says.

In addition to tracking the price, Blohm has her clients document the cost associated with each trade, such as margin calls and commission to the trader. "We talk about whether they are ready to send in a margin check and if they could explain their trades to farming partners," she says.

Commit the Time. Blohm says that to fully maximize the paper trading experience, you must work it into your daily routine. "We’re all busy, but doing this takes only three minutes a day. Look at the prices, write them down and then calculate profit or loss," she says. Even though you spend only a few minutes looking at the chart, you will think about it throughout the day.

To actually track the market’s movements, you have several options. Blohm says some of her clients use a notebook and pen, while others use an electronic spreadsheet. Grete says there are also several different marketing software programs that could be useful.

The other advantage of paper trading is that it helps you determine if you are confident when it comes to marketing. "If you aren’t comfortable with what you are doing on paper, you probably aren’t going to be successful marketing," Grete says.

Blohm agrees. After a few sessions of paper trading, she says, her clients get a feel for their risk tolerance and the discipline it takes to do marketing well. "Sometimes people find they really like marketing and want to do more, while others appreciate how it works but realize they don’t have the time needed to execute their marketing plans," she says.

If you can trade without an adviser, Blohm says, you’ll save a lot of money on commissions. "But  if you don’t have the time, you’ll know you’re getting your money’s worth and have peace of mind about hiring a market adviser," she adds.

Learn more about the basics of marketing. During the Tomorrow’s Top Producer event in Chicago, Ill., Jan. 29, Brian Grete will talk about the marketing tools you have in your toolbox. Register at
www.TopProducerSeminar.com.

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FEATURED IN: Top Producer - January 2013

 
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