Investing in futures and or commodities

Futures/Commodities… How do you invest in these?

Commodity and futures trading is a rather specialized way of trading and you will need to know how the futures market works.

A futures market was started in the United States in the early 1800s in an attempt to insulate traders of agricultural commodities, for example wheat or rice, against the huge swings in price caused by gluts and shortages of those commodities which were being traded.

In 1972 the International Monetary Market was created to enable futures trading in foreign currencies such as the British pound, Canadian dollar and Japanese Yen amongst others.

The futures markets today, are very different from the original commodities and futures markets, and play a considerable part in the global financial system. In 2006 the first transcontinental Futures and Options Exchange was formed between the United States and Europe. It is expected that eventually all futures and commodities trading will be done electronically.

The futures market is a place where negotiation of futures contracts for commodities or currency takes place. Investment in the futures markets is possibly one of the most risky of investments.

A futures contract is made between a buyer and seller of a commodity, currency or stock where an agreement is negotiated for delivery of the goods at a fixed date in the future for a set price. Futures contracts are binding and all details bar the price are standardized. The details of the contract are what the commodity is, the quality of the commodity, quantity and the date of delivery. The contract will also detail how the contract can be settled, whether in goods or money.

As for all trading you would be advised to learn as much as you can about commodity and futures trading. Then look for an experienced broker who has a proven track record. Obviously the more experienced full-service broker will charge more commissions but when you are just starting out the guidance an experienced broker can give is very useful, especially in commodity and futures trading. The advice of a good broker can help you avoid making some costly errors. On-line brokers do not normally give out much advice. The commissions’ on-line brokers charge is less than that of full-service brokers and because of this they like to keep their costs down. All trading is done through a broker. Some brokers specialize in futures trading. You can find lists of brokers: full-service, on-line and managed futures & options brokers on the Internet.

Once you have opened your trading account with your chosen broker and financially met your broker’s requirements you will then be in a position to start commodities and futures trading.

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