Commodity futures are not
traditional asset classes. A futures contract is a binding agreement
to buy or sell a commodity or financial instrument sometime in
the future at a price agreed upon at the time of the trade. While
actual physical delivery seldom takes place, these contracts are
nevertheless standardized and their trading is regulated. Price
is the variable that is of the greatest concern to speculators.
Today, commodity futures markets include agricultural products,
metals, petroleum, financial instruments, foreign currencies and
stock indices. Similarly, options on futures contracts exist and
are traded on open exchanges.
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One of the key benefits of
trading in the futures markets is that it offers the trader financial
leverage. Leverage is the ability of a trader to control large
dollar amounts of a commodity with a comparatively small amount
of capital. As such, leverage magnifies both gains and losses in
the futures market. To trade a futures contract, the amount you
must deposit in your account is called initial margin. Based on
the closing prices on each day that you have that open position,
your account is either debited or credited daily for you to maintain
your position7.
If you would like to learn more about how to trade commodity futures, please
contact us. |
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