All About Futures
Commodity Futures Trading for the Beginner
The commodity futures market is, in essence, a wholesale market. It is comprised of many common, household items but the difference is that
transactions are done in large bulk. For example, when you go to the grocery store to buy sugar, it is usually in five-pound bags. In the
commodity futures market, you can buy sugar too, except that it is for 112,000 pounds! Here's another example. When you gas up your car
or truck, you pay for gasoline by the gallon and maybe purchase 10 or 20 gallons. In the futures market, you can also buy unleaded
gasoline but the standard transaction size is much larger; 42,000 gallons! That's a lot of gasoline!
Because of the large size of these "wholesale" transactions, very few people ever buy commodity futures with the intention of actually
using or consuming the item. There's just too much of it! The great majority of people who buy and sell commodity futures do so only
to profit from price movements. They are called speculators. And they are drawn to the futures market in search of high-yield
investing opportunities. All that you have to do is buy low and sell high.
So what are some of these commodity futures? Well, the oldest and perhaps best known are the grains like corn and soybeans. Then
there are the meats such as live cattle and yes, pork bellies. There are contracts on the energies such as crude oil and
unleaded gasoline, and on precious metals such as gold and silver. The softs include cocoa, coffee, sugar, cotton and orange juice.
Finally, there are financial products such as bond futures, equity index futures and currency futures. When some markets are
rising, others may be falling. When some are moving sideways, others may be trending.
In addition to the wide selection, the commodity futures market has another great advantage: You can sell before you buy.
Most investors are comfortable with the typical investment pattern of buying first and selling later. With this strategy, you
can't make money when prices are falling. In the commodity futures market, though, you can sell first and later buy back.
Selling first is possible with futures because when you sell a commodity futures, you're not required to deliver anything.
Delivery is required only when the contract reaches expiration which may be weeks or months down the road. As long as you
buy back the contract before its expiration, then you will cancel this obligation to deliver. And if prices have fallen in
the interim so that you buy back at a lower price, then you have made money!
Perhaps the greatest appeal of commodity futures trading is the high leverage. This means that to buy or sell a commodity futures having a
contract value of say, $100,000, the trader need only deposit a small portion of this value in a commodity trading account, maybe
$3,000 or so depending upon the commodity. Because of leverage, the trader gets a big back for every buck. Leverage is what makes
commodity futures trading risky
and is described in greater detail in Understanding Commodity Futures at right.
Futures, especially futures on equity indices, are very popular among day traders. In this case, positions are established
and closed within the same trading day and executed electronically via an online trading platform. If interested in this, you may
want to visit our specialty web site on day trading where you'll find, among other topics, detailed information on:
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Your next step...
Commodity Futures Trading for the Beginner
Your next step should be The Learning Curve. There you will find more advanced articles
including: Calculating Commodity Futures Profit & Loss - Examples, Monitoring Commodity Futures Positions, Managing Margin Funds,
and more. It's all free. You may also want to watch our Futures 101 Streaming Videos.
In the comfort of your own home, you'll have over one hour of lectures covering 8 introductory topics on commodity futures all narrated by the President
of World Link Futures who is a former monetary economist and experienced futures trader. The cost is only $25. You pay only once
and can watch them again and again.
Before you consider trading commodities, you must have a plan. Our Course called, Commodity Trading as a
Second IncomeTM will explain the basics of the commodity markets and teach you a
trading plan, complete with case studies and actual trade examples, that is ideal for the beginner or anyone looking to trade
commodities as a second income.
Have a question on futures trading? Then speak to a commodities professional. They'll help you decide if trading futures is right for you.
Go ahead and Talk to a Commodities Professional in the box above.
Finally, before you trade commodity futures with hard-earned dollars, we recommend that you start by
paper trading. It's free.
The professionals at The Futures Training Division of PFGBEST who provide this commodity futures paper trading account can also help you
set up a real commodity futures trading account when you're ready - making the transition to actual trading easy and stress-free for you.
Recommended Reading...
Commodity Futures Trading for the Beginner
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© 2010. World Link Futures, Inc. All rights reserved.
COMMODITY TRADING AS A SECOND INCOME is a trademark of World Link Futures, Inc.
Futures, options and forex trading involves substantial risk and is not for everyone. Only risk capital should be used.
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Abstract: Information on commodity futures trading for the beginner.
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