Understanding commodity futures trading

Understanding commodity futures trading

Posted: gambling On: 28.05.2017

A futures contract is an obligation to buy or sell a commodity at or before a given date in the future, at a price agreed upon today.

understanding commodity futures trading

One of the benefits to the futures industry is that contracts are traded on an organized and regulated exchange to provide the facilities to buyers and sellers. Exchange-traded futures provide several important economic benefits, but one of the most important is the ability to transfer or manage the price risk of commodities and financial instruments.

A simple example would be a baker who is concerned with a price increase in wheat, could hedge his risk by buying a futures contract in wheat.

Understanding Volume & Open Interest in Commodities

Not all futures contracts provide for physical delivery, some call for an eventual cash settlement. In most cases, the obligation to buy or sell is offset by liquidating the position. The profit or loss from the trade is the difference between the buy understanding commodity futures trading sell price, less transaction costs.

Futures Market Basics - CFTC

Understanding commodity futures trading and losses on futures contracts are calculated on a daily basis and reflected on the brokerage statement each night. This process is known as daily cash settlement. US futures trading is regulated by the Commodity Futures Trading Commission CFTC and the National Futures Association NFA.

Understanding the Basics of Commodities

The CFTC is an independent federal agency based in Washington, DC that adopts and enforces regulations under futures contract call option Commodity Exchange Act and monitors industry self-regulatory organizations.

The NFA, whose principal office is in Chicago, is an industry-wide self-regulatory organization whose programs include registration of industry professionals, auditing of certain registrants, and arbitration.

understanding commodity futures trading

Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment.

Risk capital is money that can be lost without jeopardizing ones financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading.

understanding commodity futures trading

Past performance is not necessarily indicative of future results. View Full Risk Disclosure.

Understanding the Basics of Commodities

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