|
For more than 150 years, futures contracts for agricultural commodities have been traded in the U.S. Historically, the trading of commodity futures for food, metal, or other fixed physical substance items has provided farmers a method to manage the risks brought on by Mother Nature. Futures contracts have also provided investors an opportunity to place a bet on the direction of prices for these products. A commodity futures contract is typically used to assume or shift price risk. It is a commitment an investor makes to purchase or sell a commodity for delivery in the future: (1) at a price that is determined at initiation of the contract; (2) that obligates each party to the contract to fulfill the contract at the specified price; and (3) that may be satisfied by delivery or offset (making the opposite-offsetting--sale or purchase of the same number of contracts bought or sold prior to the expiration date of the contract). In other words, you may agree as an investor, to purchase or sell a commodity such as lumber, at some specific time designated in the future. Commodity futures offer a convenient tool for hedging or speculation that require little or no initial cash outlay and no need for you to immediately pay for, hold or warehouse the underlying asset. So you don't have to own lumber or even buy lumber to enter in this transaction. In recent years, trading in commodity futures contracts has expanded rapidly beyond just price protection against traditional physical and agricultural commodities and has become a major financial market. The development of the Internet and the ability for investors to quickly access information and cheaply and rapidly execute transactions online has added to this dramatic growth. As with all financial markets, accurate and current information is critical to the commodity futures markets. There are several online resources to find historical price information and commodity charts free of charge. A commodity futures contract may be written for a number of underliers such as :
Investing in commodity futures is not typically for the greenhorn investor but it can be instrumental in diversifying a portfolio. Usually only the most seasoned investors trade in commodity futures. Futures can be purchased through stock brokers or through a commodities brokerage. My suggestion is to go with an expert in the field--a commodities brokerage. Larger commodity brokerages with bigger orders will likely attract the bigger (and better) floor brokers. That means better and faster price fills for you. The volume of futures and options for commodities far exceeds the value of the actual physical products purchased. Commodities are most often bought and sold through commodity exchanges using options and futures contracts. Commodity futures contracts have been under Federal regulation since the 1920s. Congress created in the Commodity Futures Trading Commission ( CFTC ) in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States . The mission of the CFTC is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets. Additional commodity futures information can be found at:
|
Commodity Futures
