Investing in commodities is a form of trading that not many people engaged in, in the past. But now there are a range of options for doing so, and more people are dipping their toes in. A popular method of investing in commodities is through the futures market. Although it is a risky way of investing, due to volatile price changes, it can have significant payoffs if done correctly. However, you could also very quickly lose money and your investment if you choose to speculate on the wrong thing. If you are interested in commodity futures contracts, this short guide will help you get started.
A Word of Caution
Before you get involved with futures trading, you need to be aware that it’s a risky and volatile venture, which can take a long time to get to grips with. If you aren’t careful, you can lose all a lot of money getting involved with commodity trading companies on the futures market. Although you can very quickly make a profit, you can lose everything just as easily. You must consider this type of investment thoroughly before you take the dive and start trading.
The Basics
When you invest in a commodity futures contract, you agree to buy or sell a commodity in the future. The price and amount of the commodity are fixed when you make the agreement, and most contracts suggest that the contract will be filled when the commodity is delivered. However, some contracts allow for a cash settlement in place of the delivery. But most contracts will be liquidated before the delivery date arrives. In addition, a commodity futures option lets the purchaser buy or sell a futures contract at a later date. Investors must trade both futures and options through an exchange by people or firms registered with the CFTC.
Getting Started
If you have decided that you want to start trading in commodity futures contracts, there are a few things you need to get started. The first of these is plenty of money. You don’t need to have huge amounts of cash to get started, but you do need a sum to play with. You can both lose and make money when you’re trading futures, so it’s important you don’t immediately sink everything you have into a contract. If the value of your account decreases, you will need to put more money in it. Each contract also has a minimum deposit, which will vary each time. You also need a broker who can trade in futures contracts, as well as a lot of knowledge and the ability to research.
Do Your Research
Before you get involved with futures trading, you need to do plenty of research. And once you have taken the leap, you need to continue researching before every decision you make. It’s important that you choose a broker that provides all the services you’re looking for. You need to be sure to tread carefully, as speculating on futures is a craft and not a guessing game.