Learning Commodities Futures Trading Can Be Interesting, Exciting And Profitable

There are numerous markets to trade, the most familiar involving the buying and selling of stocks and bonds

. For many traders, however, a more fast-moving, more volatile market is preferred. Such is the nature of the market where commodities futures trading takes place.

Trading in any of the available markets is a little bit like gambling in a casino. You step up to the table, place your bet and then await the throw of the dice, the spin of the wheel or the turn of the cards. For some this is a fascinating experience and, indeed, gambling has become a very popular pastime all over the world. As with gambling, trading involves a certain amount of 'luck' but there are also 'systems' that can significantly increase your odds of winning.

Stock trading involves buying shares of equity in a listed company. As the company does well and grows its value increases and so should the value of its shares. This is how shareholders make money. They buy at a lower price than they later sell and the difference is their profit. If, however, share value goes down instead of up the investor will lose money (take a loss).

Trading commodities is different in that traders in this market are dealing with an actual physical substance. Some of the commodities traded, for example, include orange juice and coffee, corn, wheat and soybeans, precious metals, fuels and currencies. These items all have an up-to-the-minute spot price, which is the cost for buying a unit of the commodity at this exact moment. These prices fluctuate constantly (when the market is open and trading).

You can also buy commodities by utilizing a 'futures contract' for a specific item, whether it be gold or grain. With a futures contract, you're agreeing to a future buying or selling price, to be transacted on or before a specific date. Most people trading the commodities markets are speculators who have no intention of actually taking delivery of, say for example, 5,000 bushels of corn or wheat. They are simply agreeing to buy at today's price for a specific monthly contract in hopes that the price will increase and they'll be able to sell back at a profit. Another option is to SELL now (if the price seems to be going DOWN) and by back later after the price drops.

When you BUY a futures contract you are said to be LONG in that commodity. Your hope is that the value of your contract, whether it be for pork bellies or live cattle, will increase between the purchase date and the delivery date. If the market goes up and you sell your contract back you will profit the difference between the purchase price and the selling price. You can also do the reverse, if you feel the market will be going down. You can SELL now, wait for the price to drop, and then buy back and pocket the difference. This is called going SHORT.

Commodities futures trading can be profitable but carries certain risks. It can be a fast moving market and is not for the faint of heart. Huge leverage is available from brokers and just a small investment can allow you to control a large contract. Trade wisely!

by: Jerry Diamond

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