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Commodities are physical goods such as food stuffs like corn and wheat, precious metals like gold and silver, and raw materials like steel and oil. Commodities are traded on exchanges, like stocks. The difference is that since commodities are physical items, it is difficult to literally trade barrels of oil, bars of gold or bushels of wheat within the actual building. So, commodities traders use futures contracts.
A futures contract is an agreement between buyers and sellers of commodities. For example, say a copper mining company knows it will have mined a certain amount of copper at a future date. The company wants to sell that copper. Another company that creates products made from copper wants to buy a certain amount that it will need at a future date. If these two companies simply wait until that future date, the price of copper has a lot of time to rise or fall.
To hedge against the risk of the price of copper rising or falling, the two companies create a futures contract stating that they will make the transaction at the agreed upon price. The contract prevents the price from moving for only the specified amount of copper. Producers and consumers of commodities use futures contracts to protect themselves from losses due to commodity price fluctuations.
There are two types of participants in the commodities markets: commercials and speculators. Commercials are the actual companies or businessmen who mine, grow, harvest or extract commodities. Commercials use futures contracts to structure their businesses and grow their profits. Speculators are individuals who are not involved in the commodities business per se, but trade futures contracts in the hope of making money.
Like stocks, the aim of commodity speculation is to buy futures contracts at low prices and sell them at high prices. Commodity speculators bet on whether or not the price of certain commodities like gold or oil will rise. Like stock speculation, commodity speculation involves considerable risks. Unlike stocks, futures contracts represent large amounts of individual commodities. This means that, depending on the price movement of the commodity, the speculator stands to lose a much larger amount of money.
What else can I help you with?
Where can one find software for commodities trading?
Software for commodities trading can be found at a stock trading website. eTrade has software available for download. Most of the software found online for commodities trading is not free.
Which of these agencies regulates commodity exchanges and trading in agricultural metal and other commodities?
commodities futures trading commission
Five countries who's economy depend on trading of commodities?
five countries who's economy depends on trading of commodities
What is equity trading and commodities trading?
Equity means shareholder ownership of the company. Equity is simply another partner of the company who can look over all the sectors of the company. He is a decision maker. Commodities mean products that are bought and sold. Commodities trading products are the main things. in Equity trading, you have the percentage of profit.
What is a commodity trading account for?
A commodity trading account is needed to trade commodities. One can use a commodity brokerage also, which would assist in the trading or purchasing of commodities.
Where can one take part in commodity trading?
Trading commodities is done with a commodity broker. Check with the firm to be sure if they can trade commodities. Commodities brokers are required to be licensed by the National Futures Association.
What are the advantages of buying commodities?
Trading commodities is much like trading stock, in that you can sell the contract whenever you feel you will make a profit. Another advantage is the possibility to trade commodities without upfront capital.
Who Regulates commodity exchanges and trading in agricultural metal and other commodities?
CFTC... Commodities Futures Trading Commission
Where could one Trade or exchange commodities?
Commodity exchanges or markets are the most common means of trading commodities such as precious metals, agricultural products, and energy. Stock exchanges tend to have listings for commodities trading.
How does commodity options trading work?
Commodity options trading are virtual transactions of purchasing and sales using raw or primary commodities. Examples of Primary commodities are oil, gold. Examples of raw commodities are cocoa and fruit.
Profit from buy and sale in forex?
That is how forex works. You buy a currency when it is low and sell it when its value is high. The same concept applies for trading commodities or stocks
Where can a person get basic information on trading commodities?
There are a vast number of websites for getting the basics on trading commodities. A few good sites to get some basic information could include commodities, wiki, unitedfutures, reuters, tkfutures, or candlestickforum.
