Commodity Futures Trading An Overview

Futures trading are the trading of future contracts. Commodity future contracts are contracts made to trade the underlying commodities everyplace in the future at a fixed rate, usually in the present day rate. Like stock trading, futures are traded in point centralized trading markets like S&P and Globex.

Recently, there is a huge increase in the number of traders trading futures contracts. This can be of many reasons as 1) the simplicity of trading enabling effectively any one to trade, 2) high liquidity present in the market due to the huge volumes of trades done very day, 3) the stability of the market compared to others, 4) simple to own underlying commodity can buy a high priced product at lower prices at the time of contract, 5) low fee rates compared to trading underlying futures stocks, 6) the ability to trade from home with reduced working hub, 7) lower initial investment needed, the availability of mini futures requiring less account minimums and having narrow spreads, and 9) the presence of a diversity of underlying products present on market.

There are mainly two types of futures trading contracts unfilled in a futures market as those demand a physical manner of speaking and those demand a cash agreement. The contracts which demand a physical manner of speaking are known as commodity futures and contain futures for agricultural commodities like rice, wheat, sugar, oats; energy commodities like natural gas, crude oil, heating oil and others such as animals, wood etc. Futures contract which demand a cash agreement are known as financial futures and occupy treasury notes, bonds, mutual funds etc.

The buying of futures, in the commodity futures market, is known as going long and selling the futures is known as going small. According to the trading style followed, online futures traders can be broadly classified in to two as hedgers and speculators. Hedgers are traders who trade for price certainty. Usually they are the issuer of futures contracts, who do so to tackle the potential loss at the actual trading time of the underlying commodity. Speculators are the actual traders buying, land and selling these contracts for profit. Speculators contain all types of traders; arbitragers, day traders, swing traders and position traders.

Every Futures trading demand a futures trading broker or futures fee commercial (FCM). A futures trading broker is an intermediate linking the public trader and the futures market, who deposit a margin from the web trader to the futures trading market to make the trader a recognized one. There are two types of futures trading brokers, full-service brokers and discount brokers.

A futures trading broker is responsible for maintaining the records such as each customers margin deposits, open futures, money balances, transaction concluded etc. For as long as these services futures trading brokers charge a fee fee, which varies which brokers. All these process are evenly monitored by Commodity Futures Trading Fee (CFTC), the federal agency caring against management, abuse, fraud and scams in futures commodity trading.

Author: Praveen Ortec
Condition Source: EzineArticles.com