Few Basic Facts about Trading In Commodities Futures
Various trading commodities like corn, wheat and soybeans are among the most complex forms of investing. Therefore, experts warn strongly against novices entering the venue. Such types of trades can offer the most rewards as well as the most risks due to wild price fluctuations.
Traders almost never buy or sell commodities completely. They buy a contract to either buy or sell the commodity at a future date and set price instead. And it is known as a futures contract.
Few basic facts about trading in commodities futures:
- Some of the most commonly traded agricultural commodities are corn, soybeans, wheat, oats, rice and cotton.
- One can do trading either through a broker or through online trading systems.
- Investors usually are required to put down a portion of the contract’s value to buy a contract. These minimums that are known as margin buying may vary greatly. For instance, holding a corn contract, costs $1,000, while holding a Standard & Poor’s 500 commodities contract costs $10,000.
- You may be required to put up more money to hold onto the contract, if commodities prices change enough to make the value of your contract worth less.
- Depending on which way the contract moves contract holders either reap profits or pay losses.
- You can minimize your exposure by ordering an offset, which would limit losses in case the commodity hits a particular price point. It is significant to monitor the rapid fluctuations in prices to minimize losses that are not covered by offset trades.
There is no necessity to purchase futures to trade commodities. Exchange-traded funds have issues that imitate the movements of various commodities, without the risks and rewards of futures trading