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Making Online Commodity And Future Trading Work For You
from: Maxx Trading GuidesBefore online commodities and future trading became the high-rolling, high-stake investment ground that it is today, its early proprietors were farmers of the 1800’s.
These farmers would grow their crops and bring these to the market come harvest time in the hope of selling them. However, the main concern then was that without an indicator, they couldn't efficiently gauge how much of their goods were needed resulting either in shortages or excesses, both causing losses for the farmer.
With shortages caused loss of the opportunity to earn more, and excesses caused meats and crops to rot and dairy products to spoil. Also, when a certain produce was out of season ,any product made from them would be priced high due to its scarcity.
A central marketplace was subsequently created for farmers to take their harvests and sell them either for immediate or forward delivery. Immediate delivery is what's known now as the spot or cash market and forward delivery is now called futures market.
This concept helped stabilize prices for commodities that were out of season as well as serve as an effective indicator of supply and demand, therefore saving farmers thousands of dollars that would otherwise go to spoilage.
From forward contracts evolved commodities and futures contracts. Forward contracts are effectively agreements to buy now for payment and delivery at a specified date in the future, which is usually three months from the date of the contract.
These were originally only for food and agricultural products but now they've expanded to include financial instruments. Forward contracts have evolved and have been standardized into what we know today as futures contracts.
Basically, when dealing in online commodities or futures trading, a contract must have a seller (the producer) and a buyer (the consumer). If you purchase a futures contract, you're agreeing to buy a commodity that's not there yet for a specific price.
Although most futures contracts are based on an actual commodity, some futures contracts also are sold based on its future value based on stock market indices.
Unless you are a businessman who's into the trade of the actual commodity you purchased, you won't actually use the goods (if you’re the buyer) or actually provide the commodity (if you’re the seller) for which you're trading a futures contract.
Remember, buyers and sellers in the futures market primarily enter into futures contracts to minimize risk or speculate rather than to exchange physical goods.
On the other hand, online commodities differ from futures trading in that commodities trading may involve the physical delivery of the goods. In which case a receipt is issued in the favor of the buyer. This receipt enables the buyer to take the commodity from the warehouse.
Traders in online commodities and futures market can use different strategies to take advantage of rising and declining prices. The most common are known as going long, going short and spreads.
When an investor enters a contract by agreeing to buy and receive delivery of the commodity at a set price -- it means that he or she is trying to earn from an anticipated future price increase, he or she is going long.
When he or she is looking to make a profit from declining price levels, this is going short. The speculator sells high now so he or she can repurchase the contract in the future at a lower price.
When one makes a spread, however, he or she is trying to benefit from the price difference between two separate contracts of the same commodity.
As an online commodities or futures trader, therefore, you should be armed with a firm grasp of how the market and contracts function.
Forex online. Without it, you are wasting your time (and money).
Forex trading involves substantial risk of loss, and may not be suitable for everyone.
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