Commodity Futures Trading

Commodity trading is speculating on the future price movements of the basic raw materials on which global trade is based. The two most traded commodities are oil and coffee; however, all the other basic materials are also included in this market. To be traded in this way, the commodities that are most suitable are those that have price fluctuations that lead to uncertainty about future prices, have a suitably long shelf life to allow for trade, and are raw in the sense that other products are made from them, but they are not made from other products. For example, while grain is a commodity, flour and bread are not.

Commodity trading and futures

The list of goods currently traded around the world on the commodity markets is extensive as can be seen from the list below.

* Silver * Copper * Nickel * Heating oil * Gasoline * Aluminium * Crude oil * Wheat * Soybean * Gold * Corn * Live Cattle * Sugar * Cotton * Cocoa * Lean hogs * Coffee

The way in which traders deal with these commodities is to trade in futures. That means, to speculate on the future price of each commodity. If there's one thing for certain, any given commodity price, at any future date, will either be higher than today, the same, or lower. This is the basis of all commodity future trading.

Commodity futures prices

Futures traders do not simply bet on the future prices of each commodity, but also perform an important function for producers of the commodities in that they take on the risk of future price fluctuations for the producers. For this they take a premium, and also stand to gain if the future prices move in certain directions.

If you are interested in trading in commodity futures, then it is a good idea to limit yourself to one, or just a few commodities. These markets require constant attention and complex analysis and it is difficult to keep up to date on more markets. It is also important to understand how and where the commodity is produced, how it is used, and who buys it. In this way, you will be able to analyse global events and interpret how they are going to effect future prices.

Once you know your commodity, you can get online, sign up with a broker and open an account that will allow you to begin trading.

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