Tips for Commodity Futures Trading
Commodity futures trading refers to future delivery contracts. These agreements are deals made to trade the primary commodities at fixed rates in the future. The rates are usually based on the existing or prevailing day rate. Similar to stock trading, commodity futures are traded in particular centralized trading markets like Globex and S&P.
Today, there is a massive increase in the number of commodity traders trading futures agreements because of many reasons. Among these reasons include the following:
- simplicity of trading that enables anyone to do trading online or virtually
- the present of high liquidity in the market due to huge trade volumes made daily
- the stability of the market
- easiness to own an underlying commodity wherein one can buy a high-priced product at a lower price during the time of the contract
- the ability to do trading at home with decreased in working capital
- lower initial investment required
- low rates of commission in comparison to trading underlying futures stocks
- the availability of small futures with small spreads and less account minimums
- the presence of various underlying products in the market
Any trader can be successful in getting regular trader profits gained from profitable commodities futures trading. At the futures markets, the speculators and the hedgers meet to predict whether the price of a commodity will rise or fall in the future based on a particular market or currency index. Just like any financial market, commodity futures trading can be risky, however the potential to see both long and short term gains can be considerable.
There are different futures markets as well as strategies that a person can use to gain trader profits from commodity futures trading. Primarily, a commodity refers to the physical product whose value is decided by the forces of demand and supply. These forces include precious metals, energy and grain markets such as wheat and corn.
Commodities futures are traded at a futures exchange at pre-determined times whether its price will rise or fall. In trading commodities, it would be strategic to use straddles. A spread is created holding the same number of puts and calls with same expiration dates and strike price. The “calls” is where the trader expects that the price will rise while the “puts” is where the trader speculates that the prices will fall.
Another commonly used strategy in gaining traders profits from commodity futures trading is scalping. Just like commodities, the prices of trade currencies in scalping are speculated to rise or fall. In the value of currency, the scalpers try to take short-term profits off the incremental modifications. As this is done repetitively, the profits will continue to grow in time resulting to significant total profits as all small profits are combined. In able to continue gaining trader profits, one must require strict discipline in order to continue making short-term and small profits while avoiding large trading losses.
In the commodity futures markets, there are two main types of futures trading agreements available. The first type is called as commodity futures and requires physical delivery. The futures in this type include agricultural commodities. The second type is called as financial futures, which often require cash settlement. This type involves mutual funds, bonds, treasury notes, and the like.