Futures Contracts

The commodity trading is based on buying and selling futures contracts, which may be due to exchangers and brokers buy and sell commodity to everyone. So everyone has a chance to speculate or to guess whether the price of the commodity will rise or fall on the basis of such a presumption to buy or sell the commodity futures contract. By possession of such a contract, the trader can bring either profit or loss. If the trader buys a futures contract and the price of the commodity has grown, a sales trader can sell a futures contract at a much higher price and then collect the appropriate profit.

If you would like to know that we need to buy and sell futures contracts for our business, let’s now take a closer look at what all such futures contract entails.

First, we first need to know what commodity we need to buy or sell. On U.S. commodity exchanges, it is possible to buy and sell a wide range of commodities: wheat, oats, corn, beef, pork, lumber, gold, silver, cotton, cocoa, sugar, coffee, rice, soybeans, and many, many more. How can we know that which commodity our business needs to buy or sell on the basis of technical analysis of the charts to gain more chances for profit, so there is no other reason to prefer one commodity over another.

If we what know in which commodity we should trade, we must also know about delivery month. Individual commodities can be purchased with different delivery dates: for example, we can buy corn to be delivered in December 2012. Some commodities can be resold through futures contracts for several years. For us it is important to know about the months when commodities are traded widely. Such months are called closest contract months or front month).

So if you ever buy a commodity futures contract, you should ask your broker about the commodity contract month. So a commodity futures contract should never be stick to longer than the date of end. Once it starts near end date, you need to immediately get rid of commodity contract that instructs the broker to ensure its immediately selling to buyers who purchases commodity futures contract from us. This will definitely get rid of the obligation and physically takeover the commodity.