For those who have ever wondered what the stock market does, it actually allows people to buy shares in companies and then sell them off again when they gain in value. The trick to making money, of course, is to buy low and sell high otherwise we would lose money instead of making it. However, there is another form of this activity in futures trading which allows people to buy something before it is in existence. Commodity futures trading is used for things like grain or fruit which is yet to grow so they speculate on what the prices will be depending on if there is a scarcity or glut to dictate what the end price will be.

Any crop that is coming in the future will be able to be bought up before it grows. If someone knows when the harvesting season is, and the produce is going to be in high demand of course, they will be able to buy perhaps one million bushels of one grain or another. For this, he will agree a price with the farmer that he is comfortable with and the farmer does not have to worry about whether he can get his harvest to the market.

This may be done anywhere within the previous year, depending on the buyer of course, but the contract will say that this farmer has to produce this amount of grain at the price agreed when the harvest comes in.

Now here is where the clever part comes in. The buyer can now sell his one million bushels of grain, in advance, to whoever gives him a better price than he is paying for it. This is a little risky since the country could have a glut of this particular harvest this year, but if it does not, he can just wait until he gets the price that he wants. The wonderful thing too is that he does not have to pay for storage facilities since it is still in the field!

What these guys really hope for is that either there will be a countrywide shortage of this particular product so that prices will jump higher, or for some natural disaster so that the crop that is left will go at premium rates.

Some speculators will really get their fingers burned so this kind of action and is not for those who do not have nerves of steel. However, there are absolute fortunes to be had in this way so perhaps the risk is worth it.

Those who remember the cold winters in Florida will also remember that many businesses failed in the year that oranges froze on the trees before they could be harvested. We may have had to pay more for the breakfast juice that we had, but many speculators lost everything they had because they had bought a crop that was now useless to everyone. So, for those who are caring to give this a try, remember that great gains can be made, but great losses will surely follow for those who are not careful about where they buy.

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