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Commodity Futures Trading Learning Center
The commodity futures market is essentially a wholesale market. It is comprised of many common, household items but the difference is that transactions are done in large bulk. For example, when you go to the grocery store to buy sugar, it is usually in five-pound bags. In the commodity futures market, you can buy sugar too, except that it is for 112,000 pounds! Here's another example. When you gas up your car or truck, you pay for gasoline by the gallon and maybe purchase 10 or 20 gallons. In the futures market, you can also buy unleaded gasoline but the standard transaction size is much larger; 42,000 gallons! That's a lot of gasoline!
Because of the large size of these "wholesale" transactions, very few people ever buy commodity futures with the intention of actually using or consuming the item. There's just too much of it! The great majority of people who buy and sell commodity futures do so only to profit from price movements. They are called speculators. And they are drawn to the futures market in search of high-yield investing opportunities. All that you have to do is buy low and sell high.
So what are some of these commodity futures? Well, the oldest and perhaps best known are the grains like corn and soybeans. Then there are the meats such as live cattle and yes, pork bellies. There are contracts on the energies such as crude oil and unleaded gasoline, and on precious metals such as gold and silver. The softs include cocoa, coffee, sugar, cotton and orange juice. Finally, there are financial products such as bond futures, equity index futures and currency futures. When some markets are rising, others may be falling. When some are moving sideways, others may be trending.
In addition to the wide selection, the commodity futures market has another great advantage: You can sell before you buy. Most investors are comfortable with the typical investment pattern of buying first and selling later. With this strategy, you can't make money when prices are falling. In the commodity futures market, though, you can sell first and later buy back. Selling first is possible with futures because when you sell a commodity futures, you're not required to deliver anything. Delivery is required only when the contract reaches expiration which may be weeks or months down the road. As long as you buy back the contract before its expiration, then you will cancel this obligation to deliver. And if prices have fallen in the interim so that you buy back at a lower price, then you have made money!
Perhaps the greatest appeal of commodity futures trading is the high leverage. This means that to buy or sell a commodity futures having a
contract value of say, $100,000, the trader need only deposit a small portion of this value in a commodity trading account, maybe
$3,000 or so depending upon the commodity. Because of leverage, the trader gets a big back for every buck. Leverage is what makes commodity futures trading risky
and is described in greater detail in Understanding Commodity Futures at right.
As with any investment, the first step to success is education. This Commodity Futures Trading for Beginners Learning Center will get you started on the right foot, and then
provide suggestions for your next steps.
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Your next step...
After reading the information in this Commodity Futures Trading for Beginners Learning Center, your next step should be the Learning Curve.
There you will find more advanced articles including: Calculating Commodity Futures Profit & Loss - Examples,
Monitoring Commodity Futures Positions, Managing Margin Funds, and more. It's all free.
If you are new to this, we recommend that you
start by watching our Futures 101 streaming videos. In the comfort of your own home, you'll have over one hour of lectures covering 8 introductory topics on commodity futures all narrated by the President of World Link Futures who is also a commodity futures trader.
Only $25. You pay only once and can watch them again and again. For more information, please click here.
You may then want to consider enrolling in our commodity futures trading course for the beginner called,
Surviving in Today's Economy:
A Practical Approach to High-Yield Investing
Written by the President of World Link Futures, this Commodity Futures Trading Course will give you a basic, credible and honest introduction into the world of commodity futures trading and will teach you a trading program suited especially for the beginner... and all for just $45/month. For more information, please click here.
The trading program of this Course relies on levels of support and resistance that, in turn, are part of the larger discipline known as technical analysis. Basically, technical analysis is the study of historical prices for patterns that, hopefully, repeat themselves and in so doing, provide an indication of possible future price movements. The great majority of commodity traders rely to some degree on technical analysis. Have you ever heard of Trend Lines? Double Top? Inverted Heads and Shoulders? These are all terms of technical analysis. For a complete introduction to this important methodology, please view our free on-line Technical Analysis Tutorial.
Finally, before you trade commodity futures with hard-earned dollars, we recommend that you start by paper trading. It's free.
The professionals at FuturesTraining.com who service this commodity futures paper trading acount can also help you
set up a real commodity futures trading account when you're ready - making the transition to actual trading easy and stress-free for you.
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