Among the many different types of investment options, you can choose commodity futures trading. In recent years, commodity futures trading has become popular as a profitable investment option. There are many different types of commodities such as oil, gold, corn, wheat, and many other commodities that are traded through futures markets. Before investing in the commodity futures market, it is important to understand the basics, including the terminology used in commodity trading.
Basically, futures trading means entering into a contract. A contract sets out the terms and conditions for selling or buying a specific product at a specific price in the future. The quantity of goods is specified in the contract. All matters relating to the actual delivery of the goods are specified in the forward contract. Some futures contracts also have cash settlement for delivery of the goods.
Commodity trading takes place through the exchange of commodities using futures brokerage. For investors, this investment option is a great way to diversify your portfolio away from the typical bonds or stocks. This also limits the risk that could arise if all your investments were made in one option.
Among the different types of instruments traded in the futures market is oil futures contract trading. Crude oil prices are volatile and depend on supply and demand. To trade this commodity profitably, you need to understand the basics of crude oil production and stay abreast of news about its availability and future supply.
Corn futures trading involves contracts in which buyers and sellers agree to deliver corn in a specific quantity, on a specific date, and at a specific price. There are several commodity exchanges where you can trade corn futures contracts. On the Chicago Board of Trade (CBOT), corn is traded in units of 5,000 bushels, or cents per bushel. The 50-ton units are used to trade on the NYSE Euronext Corn Futures Market.
As with corn, investors can trade wheat futures contracts through commodity exchanges. The buyer enters into a contract with the seller, agreeing to receive wheat in a certain quantity, on a certain date, and at a certain price. Wheat futures can also be traded on the NYSE Euronext or the Chicago Mercantile Exchange. Contract prices are expressed in cents and dollars per bushel.
It was in Chicago, USA, that the Central Dealing Facility was established in 1878, allowing merchants and farmers to conduct commodity futures trading. Over the years, the systems involved in commodity markets have evolved significantly to allow more people to trade. In recent years, technological advancements in telecommunication facilities and real-time data transmission have enabled more people to trade futures markets online and from their homes. Investors can trade different types of instruments and earn good profits by agreeing on futures prices.
Successful trading requires investors to be able to establish a relationship between the expected future price and the current price of the instrument. Moreover, they need good information about the supply of goods, which will affect future prices. Commodity futures trading can be rewarding if you follow the basic principles of investing and stay informed.
