The commodities market or futures market is essentially a wholesale market. It is comprised of many common, household items but the difference is that
trading commodity futures is 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 commodity 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 trade commodity futures with the intention of actually
using or consuming the item if they bought, or delivering the item if they sold. There's just too much of it! The great majority of
commodity traders buy and sell only to profit from price movements. They are called speculators and they trade commodity futures
in search of high-yield investing opportunities.
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. Any one of these markets
can provide an opportunity when trading commodity futures.
In addition to the wide selection, there is another great advantage to trading commodity futures: You can sell before you buy.
Most investors are comfortable with the typical investment pattern of buying first and selling later. While useful during a bull market,
you typically just have to sit on the sidelines if prices are falling. In the commodity futures market, though, you can sell first and later buy back.
Selling first is possible with commodity futures because when you sell a contract, 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 trading commodity futures is high leverage. This means that to buy or sell a commodity having a
contract value of say, $100,000, the trader need only hold a small portion of this value in a commodity trading account, maybe
$3,000 or so depending upon the contract. Because of leverage, the trader gets a big bang for every buck. In the example above, a
one percent change in the market value of the commodity contract would be equal to $1,000 or 33% of the margin. Leverage is what makes
trading commodity futures risky and is described in greater detail in Understanding Commodity Futures at right.
COMMODITY OPTIONS
Those who have less tolerance for risk and/or have less risk capital available to invest may want to
consider commodity options or options on futures. Our special options site called,
How to Buy Options, provides
a comprehensive overview of buying calls, puts and spreads and looks at trade examples using actual option prices
across a wide range of popular commodity markets.
You'll even learn how to execute an option transaction and how options are treated in the account statement.
Your next step...
All beginning traders should start with a solid education. Trading commodity futures is not appropriate for everyone so it's important
to first decide if this type of trading is appropriate or not for you. You may want to watch our
free one-hour proprietary video, Commodity
Trading - A Video Introduction. Designed for someone with little prior industry exposure, this topical video will
carefully navigate you through some of the more pertinent aspects of commodity trading.
After that, we recommend 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 trading commodity futures all narrated by the President
of World Link Futures. Tailored for the beginner, you'll learn the commodity trading basics such as how to read a bar chart and common
order types, how to calculate profit and loss on a commodity trade, how margin works and tips on risk management. You'll even see how to
perform a regulatory background check on a commodity broker or other industry participant.
We also designed a special course for the beginning commodity trader called, Commodity Trading as a
Second IncomeTM. This Course explains the basics of the commodity markets in simple and easy-to-understand
language and then teaches a system based on breakout trading, complete with case studies and actual and ongoing trade examples. It is ideal for the beginner or anyone
looking to trade commodity futures as a second income.
Before you trade commodity futures and/or options with hard-earned dollars, we recommend that you start by
paper trading. This commodity futures and options
simulated trading account is free and a useful educational tool especially for the beginning trader.
The professionals at The Futures Training Division of PFGBEST who provide this commodity futures and options paper trading account are not only
willing to spend the time in helping the beginning commodity trader, but they can also help you
set up a real account when you're ready, making the transition to actual commodity futures trading easy and stress-free for you.
What´s in store for 2012? See what some of the industry´s top research analysts and trade strategists have to say about
market factors in 2012. Request this
free, hot-off-the-press 2012 Outlook Report.
Have a question about trading commodity futures? Then speak to a commodities professional. They'll help you decide if trading commodity futures is right for you.
Go ahead and Talk to a Commodities Professional in the box at right.
© World Link Futures, Inc. All rights reserved.