Traders who are involved in trading commodity futures work on buying as
well as selling of contracts. However, the delivery of the physical goods
that are involved in the transactions will have to take place in the
future. Some of the common commodities that can be traded in commodity
futures are metals like gold and copper. Traders may also transact with
other types of raw products like soybeans or live cattle as well as pigs.
Commodity futures trading provides buyers and sellers a way of managing
the risks that are involved in this type of business.
The contracts in this type of market are sold or bought through
authorized exchanges which either provides a trading floor or an
electronic trading venue where the transactions will take place. Trading
commodity futures may be somehow similar to the way trading in stocks are
conducted. However, the main difference is that futures are traded on
specified margins. This means that the traders only pay for a fraction of
the real face value of the contracts. Traders also have more advantages
when they engage in commodity futures trading rather than trading in
stock, bonds, real estate and other types of assets.
Lots of traders would like trading commodity futures more than they do
with other kinds of markets because they may have the opportunity to earn
bigger profits within a relatively short duration of time. Traders have
this advantage because of their option to use the leverage that this type
of market offers. However, traders have to know what they are doing
because a wrong move may cost them huge losses especially if they cannot
maintain consistency in their decisions on what to buy or to sell or when
they are supposed to sell or to buy.
Commodity futures trading has its own advantages over other types of
liquid assets such as real estate. Traders may be able to have something
to trade most of the time because they can use their profit to transact
even without closing a particular position that they are holding. They
would not be able to possibly do this if they are trading with bonds or
stocks. Trading commodity futures may not actually be too complicated
because the number of commodities that can be bought and sold through
futures contracts is manageable. Traders though have the option to
diversify to other segments in the market. They may also have the
opportunity to earn profit even if the prices move up or move down.
Whatever the market situation is, traders can earn from their diversified
Commodity futures options involves buying and selling futures option
contracts. You do not have to just trade one futures options contract.
You can combine different options and trade them together in what is
called trading commodity options. Spread trading is a way to limit your
risk because when you lose in one contract, you profit in another.