Among the many different types of investment options, one can choose commodity futures trading. In recent years, commodity futures trading has gained popularity as a profitable investment option. There are different types of commodities such as oil, gold, corn, wheat and many other commodities that are traded through the futures markets. Before making any investment in the commodity futures markets, it is essential to understand the basics, including the terminology used in commodity trading.
Basically, futures trading means entering into a contract. An agreement sets out the terms and conditions for the sale or purchase of a particular commodity at a specified price in the future. The quantity of the commodity is specified in the agreement. Everything related to the actual delivery of the commodity is specified in the forward contract. There are even cash settlements for some futures contracts against delivery of the commodities.
Trading in commodities is done through a commodity exchange using a futures brokerage. For investors, this investment option is a good way to diversify their portfolio away from the usual bonds and stocks. This also limits the risks that would be present if all investments were made in one option.
Among the different types of commodities traded in the futures markets, there is trading in oil futures contracts. Crude oil prices are volatile and dependent on supply and demand. To trade profitably in this commodity, one needs to understand the basics of crude oil production and keep abreast of news regarding its availability and future supplies.
Trading in corn futures involves contracts in which the buyer and seller agree to deliver corn in a specific quantity, on a specific date and at a specific price. There are several commodity exchanges where corn futures contracts can be traded. At the CBOT (Chicago Board of Trade) corn is traded in lot sizes of five thousand bushels or cents per bushel. 50-tonne units are used to trade in the NYSE Euronext corn futures market.
Similar to corn, investors can trade in wheat futures contracts through a commodity exchange. The buyer contracts with the seller and agrees to receive wheat in a specific quantity, on a specific date, and at a specified price. Wheat futures can also be traded on NYSE Euronext or on the Chicago Mercantile Exchange. Contract prices are quoted in cents per bushel and dollars.
It was in Chicago, USA when the Central Dealing Facility was established in 1878 that allowed traders and farmers to conduct commodity futures trading. Over the years, the systems associated with the commodity market have evolved greatly allowing more people to trade. In recent years with the technological advances in communication facilities and real-time data transmission, more people are able to trade in the futures market online and from home. By agreeing to futures prices, an investor can deal with different types of commodities and make a good profit.
In order to trade successfully, investors must be able to establish the relationship between the expected future price and the current price of the commodity. Besides, they need good information regarding the supply of the commodity which will affect its future price. Trading in commodity futures can be rewarding if one follows the basics of investing and stays up to date.