admin We really like trading with gold coins, but did you know that there’s a full market out there full of physical goods that you can trade? OK, we’re simplifying big time here. You see, we’re actually talking about the massive commodities and futures market, which is a subject that really does require its very own guide in order for you to get the basics. You could spend a lifetime just learning the commodities trade and still have a long way to go in understanding it. It can be complex in some places but like most things in life, it’s really not that bad at all.
As we mentioned earlier, commodities are all physical goods — corn, gold, oil, even soybeans. But you can’t just move raw goods like that, so you have to have something to actually trade with. That’s where the futures come in, because you have to create futures contracts in order to trade in commodities.
There are many future exchanges, but one that immediately springs to mind is the Chicago Board of Trade. The CBOT is a major hub for futures activity, and it’s definitely an exchange that you will want to watch carefully when you’re getting ready to research commodities further.
So what happens when you want to actually trade? You have to know how futures work before you can do anything else. That means working the contracts.
Futures are contracts between buyers and sellers, and they are pretty detailed. You’ll know the amount of a commodity, as well as the grade or quality of it. There is always a delivery location as well.
Anonymous trading is automatically built into the entire process, making it a favorite among investors of all asset classes.
The way you make money in futures is to buy futures low and sell them high — the same concept exists in the stock market. However, there are some differences. Let’s use an example.
There are numerous food corporations that need raw products like soybeans. Farmers need to sell soybeans quickly so that they don’t go bad, which is where the futures contracts come in. The standard contract size for soybeans in the futures world is 5,000 bushels. So a farmer would need to deliver 5,000 bushels of soybeans at a specific time — it might be September, or even November. There would be a location set for the delivery of the soybeans and life goes on.
However, this is also the part where you step in, because you can buy the contract and hold it to see if the price of soybeans will go up. If it does, they can sell it to someone else — like one of the food companies. Of course, since trading is anonymous they might not realize who is picking up the contract. The money matters, but the time the contract expires really doesn’t. You can buy a futures contract even if it won’t come due for another few weeks or even months from the date you purchased the contract. You don’t have to hold it forever, either — you might find someone that will take it off your hands quickly.
Looking at some of the crop reports around the country can give you a good idea of whether or not you want to really play the futures market. Prices can be volatile and shift quickly, so you’ll need to make sure that you do your research accordingly.
As we said at the very beginning — gold is only the beginning of your investing portfolio. If you want to move into the world of commodities, you’ll definitely find a lot of opportunities to grow your net worth and really get things done in a big way! Why not start looking into your options today?
