One aspect of investing in markets that people do not seem to know very much about is commodity futures trading. Most of the trading that people are familiar involves an immediate transfer of whatever it is that was bought and sold. However, futures trading are not like that. When you trade futures, you are basically gambling about the value that something will have at a certain point in the future.
In this market, you buy and sell a predetermined quantity and quality of assets. A price for those assets is determined and the official sale date is set. The official transfer of the asset occurs on the specified date and the financial details are handled based upon the current value of the assets. If the value is more than anticipated, you make money. If the value is less than anticipated, you owe money. One way that the futures market is much different than the traditional stock market is the amount you have to pay when you purchase the contract. When you invest in the stock market, you have to invest the entire sum of money. Typically when you buy a futures contract, you only have to provide 5 to 10 percent of the actual value of the contract. This gives you many more options since you only have to have 10% of the cost.
The most common type of commodities that are sold in the futures market is related to agriculture. This is because agriculture was the beginning of this type of trading. These can be livestock, wheat, vegetables and fruit. However, you can also buy and sell stock indexes, metals, oil, bonds, interest rates and many other things as well. Agriculture is a big area for the futures market because it allows farmers to sell their crops while it is still being grown. They agree to sell their harvested crop for a fixed price. It allows the farmer to know that his crops are sold instead of having to wait until the harvest has been completed.
Trading in this market gives you a very unique opportunity that you cannot find in very many other places. In most types of trading, it takes several years before you actually see a profit off of your investment. However, because your initial investment is only 10%, you have the possibility of generating substantial income with your first contract. Of course, that will only happen if you do your homework and make the right investment. If you do not do your homework or if you are unlucky, you can also lose a great deal of money. As with any type of investing, it is important that you do not invest any money that you need to live on.
The people who keep track of this market are called hedgers and speculators. The hedgers are the ones who buy the assets “hedging their bets” and hope to make money on the trade. The speculators are the ones who follow the market and predict the future price of the commodity in question.