Learning about Commodity Futures

Learning about commodity futures should start with formal Commodity and

Futures Training. Learning about commodity futures should continue with an organized approach to

understanding fundamental and technical analysis of

commodities.

As with all trading it is important to understand the

basics of the equity being traded as well as the markets

a commodity trades in.

Traders will often seek the guidance of an experienced

trader, read books on trading commodities, and trade in

simulation.

However, a commodity trader arrives at his or her

knowledge it is important to develop a trading strategy and to get used to tracking

commodity profits and losses. It is often through mistakes that commodities traders

learn the most.

The beginning trader in learning about commodity futures had best start by

understanding that commodity trading is trading

in futures and what that entails.

Futures trading is the buying and selling by contract of the right to buy or obligation to

sell a standardized quantity of a commodity for a specified price at a given date in the

future.

Futures contracts can be bought and sold up until the

day of contract expiration and be bought or sold in contracts

due several years in the future.

Traders deal in the likes of oil futures, corn futures, and

gold futures as well as futures on interest rates and more exotic creatures such as

carbon credits. Commodity futures trading is engaged in by companies that produce,

process, and buy commodities.

These companies are hedging their investment risk. New

traders should finish learning about commodity futures

before engaging in options trading such as buying puts

and buying calls on commodity futures.

When trading commodity futures the original contract

is based on how the market is pricing the commodity at the

time.

If the expectation is that the commodity price will change substantially the price of the

commodity future will be significantly different than if the market expects the price to remain flat for months or

years to come.

Both buyers and sellers expect to profit from price

movement of the commodity and both expect the price to move in opposite directions.

As time passes and the commodity price moves up or down the value of the futures

contract, the commodity futures price, will change.

Learning about commodity futures starts with the basics of how prices move. Learning about commodity futures then has to do with learning about fundamental analysis of the

commodity traded and technical analysis of how

other traders are pricing the commodity.

A trader in corn futures will need to follow weather

forecasts and US farm policy. Bad weather destroys crops

and drives up prices.

Price supports lead to profits and the planting of more

crops which will drive corn prices down. Gold futures

traders will watch for signs of inflation, national debt, and

catastrophic events throughout the world as

assaults on national currencies typically drive up

the price of gold.

However, only a handful of traders will be the first to

trade when news of an important event surfaces. The

rest of us need to trade the reactions of the commodities

markets.

Using time honored tools such as Candlestick pattern formations a trader can let

the market’s price movements help predict

where commodity prices will go next.

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