Even Al Qaida is No Match For The Chicago Commodity Pits

The Department of Justice said that an Al Qaida operative used $27 million to trade commodities - and lost $20 million in 8 months. The DOJ filed a lawsuit to recover the money.

This was commodities trading - which makes even the riskiest stocks look like savings bonds.

Commodities fluctuate less than stocks, but commodities contracts are insanely leveraged - which means that, even if you have a winning trading strategy, you can get wiped out by random fluctuations.

For example, with as little as a $500 deposit, you can trade one corn contract. At a recent price of $6.50 1/4 per bushel, one contract has a value of $32,512.50 (6.5025*5000). That means, using the minimum margin, a 1.5% drop in price would wipe you out.

Of course, you could deposit the full amount ($32,512.50) or even the 50% margin allowed in stocks ($16,256.25) but, in practice, nobody does this because corn prices fluctuate a lot less than a stock price.

The experienced traders in Chicago know that individual traders look at charts and, due to heavy margins, have little tolerance for fluctuations against their positions. So, market makers will buy and sell large quantities to make trends choppy, causing little traders to exit at a loss.

Accounts get depleted quickly through getting "chopped" - repeatedly buying high and selling low - "Death by a thousand cuts".

I've been a full time trader, and I've been burned enough by commodities to stick with stocks, where you can get an edge. The only ones who succeed at trading commodities are insiders whose fathers and grandfathers traded in the CME and CBOT pits.