A Welcome to Commodities Investing

May 1st, 2009 by admin

A transaction wherein an agreement is made to buy or sell a specific quantity of a specific product at a predetermined price in a set future date is called futures trading. The obligation to make or take the delivery on the settlement date as specified in the contract is imposed on a holder of a futures contract. Instead of delivering the physical product, some futures contracts may also take cash settlement in its place. This often happens to contracts that end before the delivery date. The option to buy or sell an opposing contract before the date of settlement may also be included in a futures contract. If you really want to make money you should be checking out successful FX online trading.

futures trading were historically done with traditional commodities as the initial products. These refer to agricultural commodities such grains, meat, and livestock. Later on, dairy products and seafood were also added. Markets that are beyond physical commodities such as energy commodities like oil, gasoline and natural gas have now been added as futures trading have expanded. Financial instruments are also being traded such as currency, equities, private interest rates, and government interest rates. You can also learn a lot by reading personal finance newsletter.

In the US, futures trading is organized according to these commodities. Corn, soybeans, wheat, and oats are traded on the Chicago Board of Trade. Gold, silver, and copper is being handled by the Commodity Exchange in New York. Other futures trading venues in New York are the New York Cotton Exchange, the New York Futures Exchange and the New York Mercantile Exchange. Other exchanges in the country include the Coffee, Sugar and Cocoa Exchange, the Minneapolis Grain Exchange, the Chicago Mercantile Exchange, and the International Monetary Market. Another way of making money is you can check out gold bullion coins.

Participants of futures trading are traditionally divided among the hedgers and the speculators. The producers or consumers of the commodities being traded are called the hedgers. Participation in futures trading is primarily a measure to reduce the risk of loss in their products due to price fluctuations. For example, a preset price will offer the farmers protection in case of a bad harvest or a surplus of their crops. Planning their costs will be easier with this protection. The other group of participants is called the speculators. Futures contracts are used so they can create profit from the price changes of the commodities. What they paid to buy a futures contract versus what they will pay later on to offset it will determine the profit to be gained by them.

Futures trading is done in regulated environment and under strict rules. In the US, firms and individuals participating in futures trading should be registered with the Commodity Futures trading Commission (CFTC). The agency reviews the terms and conditions of proposed futures contracts to ensure the integrity of the futures market in the United States.The contracts terms should reflect standard trading practices and should not be prone to manipulation. The CFTC also conducts monitoring of the market, systems, internal controls, and compliance programs of the different exchanges. It also has the power to order an exchange to take action in case of a futures trading emergency.