As currencies fall in value commodities appear to rise. In fact, commodities such as gold, oil, and agriculture products simply retain their value in the face of inflation and currency devaluation. Those engaged in commodities trading know that fact. Traders engaged in commodities trading also know that supply and demand, the fundamentals, are basic to commodity prices. Those who wish to profit from commodities trading learn technical analysis. This is the analysis of past price movement with the purpose of predicting future price movement. One trades commodities in a futures market. Traders enter into contracts to buy or sell specified quantities of a given commodity on a specified future date. To profit from commodities trading one needs a firm grasp of the fundamentals that determine pricing and a clear sense of how the market reacts to changes in information.
Futures are standardized contracts between two parties to buy or sell a specific, standardized, amount of virtually anything. The price is agreed upon at the time of the contract and holds until the date of delivery. Most futures traders do not actually sell or buy commodities as they simply exit the contract by making the opposite trade prior to the delivery date. Although the price set in the futures contract for corn, beef, oil, gold, or other commodities is set the value of the contract varies and that is where the profit lies in commodities trading. In today’s world online commodities trading is common. Traders follow the news pertinent to the value of gold, cattle, or wheat. They follow pricing patterns in order to understand evolving market sentiment. Depending on the perceived changes in supply and demand the value of a commodity futures contract will rise or fall. In commodities trading one can buy or sell a contract for crude oil that is not deliverable for a decade but still make profits today. The trader simply seeks to enter and exit the trade at the most profitable times. Many traders use options in commodity trading. In doing so, they limit their risk and often leverage their investment capital.
The following is a list of United States Futures exchanges:
- CBOE Futures Exchange (CFE)
- Chicago Mercantile Exchange (CME)
- Chicago Board of Trade (CBOT)
- Chicago Climate Exchange (CCE)
- ELX Futures (Electronic Liquidity Exchange)
- ICE Futures U.S.
- Kansas City Board of Trade (KCBT)
- Minneapolis Grain Exchange (MGEX)
- Nadex (formerly HedgeStreet)
- NASDAQ OMX Futures Exchange (NFX)
- New York Mercantile Exchange (NYMEX) and (COMEX)
- NYSE Liffe US
- OneChicago, LLC (Single-stock futures (SSF’s) and Futures on ETFs)
The CME group owns CME, CBOT, NYMEX, and COMEX.
Predicting the Future
Will there be a drought in Eurasia, Brazil, or North America? These are the world bread baskets for wheat, corn, and soybeans. Will overly strong monsoon rains or a persistent drought affect the rice harvests in Southern Asia? Commodities trading in these foodstuffs requires a clear sense of what will affect supply and demand. Gold goes up when currencies falter or war threatens and oil goes up when there is unrest in the Middle East or a hurricane approaching the Gulf of Mexico. In commodities trading, traders keep an eye on the facts and the other eye on how the market is reacting. Timing the market as a day trader in commodities trading is also important, especially important news breaks.
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