Commodity futures trading are one of those terms that make people wonder what it is all about. It is merely another way to describe stocks and shares, although ‘futures trading’ is just slightly different in that it is buying and selling things which may not exist as yet. This could be crops or other similar things and the person buying and selling is taking a risk on whether the goods will be available or not. The money is made when someone already has these goods ordered and there is a shortfall in supply. In this way, he can sell his goods at a higher price bringing him a much higher profit of course. If there is a surplus to supply, he could lose money on the deal and this is why this is a high-risk gamble.

Speculators, as these buyers and sellers are called, come in three different forms. One is the commercial speculator who is either the grower of such crops or the company which will always need the crop. Those companies which sell breakfast cereals for example are considered to be speculators. Another form of speculator is a large speculator which normally consists of a group of investors who pool their resources so that they can reduce the risk while maximizing the gains. Very much like a mutual fund, these speculators will employ money managers to make general decisions for the investors as a group instead of as individuals. Small speculators are individuals who work on their own or through brokers to get what they want. These latter groups are known to shake the market from time to time with their combined efforts which usually unsettle the commercial speculators with their buying power.

For those who want to learn this kind of business, first they have to understand what all the jargon is about. These goods will be bought and sold just like any other investments. That is, they are bought low and sold high in the perfect world. Any change in this kind of strategy will mean a loss for sure. However, those who buy goods like this will not have to come in contact with them physically as some would think.

Before people were organized in this way, it was usual for the farmer to bring his goods to the market physically. Putting them in storage facilities often ended up in losses since if there was a glut, the goods would literally be left to rot. He still had to pay for the storage facilities though and he ended up losing money all round. For those who could bring the product to the market at the right time though, when there was a shortage of goods, then they could command a much higher price and this is where the huge profits were made.

This is obviously a job not for the faint hearted since there could be huge amounts of money at stake. A risky business for sure but with the kind of profit levels that makes people want to give it a try. Being educated is the key for sure.

Author Bio: Ellie Lewis recently researched futures trading for an article on the stock market. She learned that commodity futures trading can be a lucrative profession.

Category: Finances
Keywords: futures trading,commodity futures trading