In the world of online trading, one trades, stocks, currencies, and commodities. Commodities are certainly bought and sold directly but commodity futures are a different matter and fall into the world of the online trader. The point of commodity futures is to stabilize prices and give producers and buyers of commodities an opportunity to hedge their investment risk. Commodity futures can be traded directly or by way of options. What commodities can be traded as futures? Precious metals such as gold bullion, agricultural products such as wheat, or energy products such as crude oil are all available as commodities futures. Where does one trade commodity futures? Knowing how to trade commodities starts with the basics.
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.
Commodity is the generic term for any marketable item that people produce, dig up, or refine for in order to sell to satisfy demand. Trading of commodity futures is possible because tradable commodities are standardized. For example, one can buy or sell a futures contract for a specific grade of crude oil. Refined gold bullion is standardized as are pork bellies, varieties of corn, soybeans, and much, much, more. Thus a soybean contract can be satisfied by crops from Brazil or Iowa. A corn contract can be satisfied by shipments from Nebraska or the Ukraine. For the commodity futures trader it may make little difference who is going to eventually sell or pay for a specific contracted lot of a commodity. The trader will most commonly exit his contract by making an opposite trade one he has made a profit or minimized a loss.
What Determines Commodity Futures Prices?
The price of a bushel of corn, ounce of gold, or barrel of oil is determined by market forces, supply and demand. Commodity prices have to do with what is on hand, what is in transit, and what is likely to be available in the foreseeable future. For example, known oil reserves have the effect of reducing today’s oil prices. Excellent weather raises crop forecasts and depresses the price of corn, soybeans, or wheat. The threat of war and disruption of crude oil transport raises the price of oil. On the other hand a worldwide recession reduces the demand for oil and thus lowers prices. When one adds futures to the equation one needs to consider what the state of supply and demand will be in a month, year, five years, or ten years, depending on how far out futures contracts are available for a given commodity. In trading commodity futures traders keep all this in mind and then engage in technical analysis of market pricing in order to profit from short term market movement.
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