March 29, 2011

Commodity Futures

By Planet Wealth

pWhile tales of fortunes made or lost overnight on the a href=http://www.definecommodity.info target=_blankcommodity futures markets/a are mostly fake, the futures trader, if employing a sound trading methodology can sometimes earn more money on the commodity market and make it quicker. Nonetheless if that trading method isnt sound the trader can have larger losses. This is as futures contracts are highly leveraged. br /br /Margins ( the deposit required ) on futures contracts are far less than for stocks, as low as three p.c. On some futures contracts compared to up to 50 % for stocks. Also futures speculators are not charged interest on the difference between the margin and the full contract worth. br /br /The margins for futures contracts act more as a performance bond or excellent religion deposit while the margin for stocks is more of a loan. br /br /Though the margin on futures contracts is honestly small, it rides the full price of the base contract as that contract falls or rises, thus providing the leverage debated earlier. Commissions charged by futures brokerages are sometimes far less than brokerage commissions for other investments. br /br /Futures markets use the open outcry ( auction type ) methodology of trading making certain extremely public, honest, and efficient markets. And, it is much tougher to trade on insider information as so many variables affect the markets. Transactions can be finished quick which lowers the risk of perilous market moves if you are the owner of stocks you are an owner of the company. This enables you to share in the organizations profits, and losses, thru dividends, and increases or dips in the stocks value. It also gives you certain voting rights with the company. br /br /But a company can go broke, leaving you holding purposeless stock. When you buy and sell futures you are only entering into a contract and do not essentially own anything. What you have is a pact to get a commodity or economic instrument ( wheat or Treasury Bonds as an example ) at a cited price at a certain date in times to come. The individual on the opposite side of the exchange has agreed to sell you that commodity or financial instrument at that mentioned price by the stated date. If you sell a futures contract before that date you have offset your position and have either a reasonable profit or loss on the trade. br /br /The stock you bought three years ago is the same stock you can buy today. Futures contracts, from the other standpoint, have truly limited lives. br /br /Theyre traded in a regular series of contract months called delivery months. Futures contracts have expiry dates after which no further trading for that month can happen. The September corn contract you traded last year isnt the September corn contract you are trading this year. br /br /Many futures contract months of the same commodity trade at the same time on the market, occasionally even years into the future. The prevailing contract is commonly known as the front month and the other contracts are called the back months. Theyre called back months although theyre for future months. As an example, corn trades for the months of January, March, May, July, September, November and December. The prevailing contract month for corn would be September 2k and so is named the front month. The months of November and December 2k, Jan 2001, March 2001, May 2001 and July 2001 are back months even though theyre in the future and even flow into the successive year. ( this will sound confusing but its not especially ) all of these months can be traded at the exact same time though virtually all the trading activity happens in the front month. When this month expires the subsequent contract month becomes the front month and such like. His books on learning the best way to trade futures markets are distributed thru Sumas World Sales Limited View them at./p

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