 Basics Behind Trading Commodity FuturesPublished Date: 2005-06-24 17:51:19 WorkOnInternet.com
1. Futures are an agreement stated in a contract and approved by a trade commission such as the Chicago Trade Commission. These contracts permit you to buy a commodity at a specified time in the future, for a price agreed upon today. The contract pretty much states the date that you agree to purchase that commodity. Some commodities that are often listed for futures are agriculture, interest rates, currency, stock indexes, and gold. Many futures are traded through several owners many times before the actual closing date. Once the closing date hits, the future is no longer good. Many future traders are hoping for a profit whereby the real commodity is sold at a higher price in the real market for more than you bought the future. 2. The terminology used regarding futures is extensive and a bit confusing. Exchanges like Chicago Board of Trade, CBOT, are where futures are traded. Speculators and hedgers buy and sell futures. Where speculators buy at a price that they anticipate will rise in the future, hedgers like businesses buy futures at a set price to stabilize the commodity's selling price. Puts and calls are way that futures are purchased. While puts mean the buyer anticipates the price to go down in time, the call means the buyer anticipates the price of the future to go up over time. Either way, the buyer anticipates a profit. 3. Trading and selecting futures require math and analytical skills. Futures are selected very strategically based on how the buyer or seller anticipates the direction of the market. Some traders look at supply and demand called fundamental analysis. Other traders prefer to use market trends and price chart patterns called technical analysis. From these analysis, the trader seeks an equilibrium price. Many traders insist you can't truly appreciate trading until you give it a try. The market is complex and your personality plays a part in it. You can't expect to come out smelling like roses on the first try. So, if you can't afford to lose, you shouldn't take this kind of risk. Markets can be volatile, so you should start out with low risk futures such as options market or Eurodollar before moving into more risky futures that quickly trade. You can lesser your risk by buying at a premium (where the price is fixed no lower than what you paid). Futures trading is a complicated matter that is often glossed over by many a layperson. However, with some guidance and after trying a few exchanges either with a trading group or online, you may discover its benefits and thrill. Copyright 2005 Ainsley Columbo. All rights reserved. ------------------------------------------------------------ Ainsley Columbo is the proprietor of FS Future, one of the leading sources for on-line futures information on the web. For more details, visit his article archive at: http://www.fsfuture.com
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