Learning about Commodity FuturesLearning 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 marketís price movements help predict where commodity prices will go next.
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