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  • FUTURES

     

    Futures Trading is a form of investment which involves speculating on the price of a commodity going up or down in the future.

     

    What is a commodity?

    Most commodities you see and use every day of your life like corn, lumber, gold, cotton, steel, wheat, and beef and dozens more.

    All these commodities are traded between hundreds-of-thousands of investors, every day, all over the world. They are all trying to make a profit by buying a commodity at a low price and selling at a higher price.

    Futures trading is mainly speculative 'electronic' investing, i.e. it is rare for the investors to actually hold the physical commodity, just a piece of paper or electronic record known as a futures contract.

     

    What is a Futures contract?

    The term contract can be a little off-putting but it is mainly used because, like a contract, a futures investment has an expiration date. You don't have to hold the contract until it expires. You can cancel it anytime you like. In fact, many short-term traders only hold their contracts for a few hours - or even minutes! The expiration dates vary between commodities, and you have to choose which contract fits your market objective. All futures contracts are standardized in that they all hold a specified amount and quality of a commodity.

     

    Who trades Futures?

    It didn't take long for businessmen to realize the lucrative investment opportunities available in these markets. They didn't have to buy or sell the ACTUAL commodity (wheat or corn, etc.), just the paper-contract that held the commodity. As long as they exited the contract before the delivery date, the investment would be purely a paper one. There are two main types of Futures trader: 'hedgers' and 'speculators'.

     

    ·         Hedgers: A hedger is a producer of the commodity (e.g. a farmer, an oil company, a mining company) who trades a futures contract to protect himself from future price changes in his product.

     

    ·         Speculators: Speculators include independent floor traders and private investors. Usually, they don’t have any connection with the cash commodity and simply try to either make a profit buying a futures contract they expect to rise in price or sell a futures contract they expect to fall in price.