Trading Commodities and Futures

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  2. April 28, 2013 10:23 pm

Trading Commodities and Futures

How do I Trade Commodities and Futures?

Have you ever wondered how people can trade orange juice futures? They can go on a commodities exchange and buy a futures contract. Due to its central location, the Chicago Mercantile Exchange has become a leader in trading commodities and futures.

What are Commodities?
Financial sectors have their own definitions for items that people use every day. Commodities are the raw materials or inputs used to create finished goods. These include orange juice, wheat, corn, cotton, rubber, oil, natural gas, lumber, copper, gold and silver to name a few. These physical items are bought and sold on commodities exchanges.

Commodities Exchanges

Chicago is in the heart of the Midwest with access to farms and many other areas producing basic commodities. The Comex offers futures trading for many commodities. A future is an option to buy (call) or sell (put) a financial asset on some date.

The futures markets creates stability in the markets by matching buyers and sellers. It helps create equilibrium allowing individuals, farms and businesses to hedge prices. They can reduce the damage to their financial bottom line due to dramatic price changes.

How Do I Get Involved?
You can look up the actual minute-by-minute price for a commodity – this is called the spot price. The traditional method for trading commodities and futures is to buy an option. These are based on margins and require a minimum purchase amount. There are a wide range of risk versus reward parameters based on the difference between the actual price and your target price.

A more affordable way to “bet” on the change in a commodity price is with binary options
trading. This establishes a more “fixed” profit or loss. The amount required for trading binary options is less.

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