How do commodities trading work
United Futures Trading Company, Inc. Just what is commodity trading? Well lets look at first what a commodity futures contract is: A transaction in the commodity futures market is made on the trading floor or in the trading computers of the exchange between how do commodities trading work who are members of the exchange that particular commodity is trading on. The seller will have a broker, and buyer will have a broker. They will then transact an order for a purchase and sale. The buyers and sellers of commodity futures contracts how do commodities trading work obligations.
The buyer is obligated to take delivery and pay for the cash commodity during a specific time frame. The seller is obligated to deliver the commodity, for which he will be paid the price that was decided in the exchange pit by the brokers. Sometimes the price can be more or less depending on the grade quality of the specific material.
The buyer and seller can eliminate their obligation by offsetting their trade at the exchange before the contract comes due. This is what most speculators do in the commodity markets. There are speculators and hedgers that trade in the commodity markets.
A hedger is not interested in making a profit off the movements in price of a commodity futures contract, but rather in shifting his risk of loss on the commodity itself due to adverse price change. Speculators will buy and sell futures, or options on futures, for the purpose of making a profit.
They will buy futures a long position when they think prices will rise, or they will sell futures a short position when they think prices will fall. Both how do commodities trading work speculators and hedgers add volume to a market making it a more liquid market to trade.
Most individuals who open commodity trading accounts are speculators looking to benefit off of the price movement of the commodity being traded. Farmers, oil operators, cattle companies, etc could open a commodity futures trading account looking to be a hedger and reduce their risk of price movement. Here is a simple example of a speculator we will call him a futures trader executing a trade and how it would work.
Once the how do commodities trading work trader has established a futures trading accounthe would then call his how do commodities trading work to initiate a trade.
He would let the broker know if he was looking to buy or sell long or shortthe specific commodity he wants the trade in, the month and year of the contract he is looking to trade, the quantity, and the price which he is willing to buy or sell for or he can say Market Order to have the trade executed at the current market price in the trading pit. Sometimes conditions are present when the trade can not be executed for some reason which is rare but can happen.
After the trade how do commodities trading work executed, the floor broker would relay price paid or sold and relevant information back to the trader's broker. The futures trader's broker would then let the futures trader know the price that the Buy or Sell the trade was executed. In recent times, more trading how do commodities trading work been done through the use of online futures tradingeliminating the use of telephones and calling of brokers on the telephones.
The futures trader can trade directly from their computer and have the trade routed directly to the trading floor of the exchange. At the exchange some orders electronic markets are executed immediately in the exchanges computers.
This is becoming the more preferred method of trading because it tends to be quicker. He then calls his broker or enters an how do commodities trading work into his computer trading platform to sell the futures contract he has bought earlier in the day.
Commissions and fees would be deducted from his buy and sell. And remember the risk of loss exists in futures trading. This is just a brief example of how commodity trading works. This in no way explains all the intricacies involved with trading.
Trading commodities is risky and one should only use risk capital to invest. Please contact one of our licensed brokers who can explain more in-depth on how the commodity markets work, and determine if you are suitable to trade these fast paced markets. Also feel free to request a free investor kit from our site. Trading futures and options involves substantial risk how do commodities trading work loss and is not suitable for all investors. Past performance is not necessarily indicative of future results and the risk of loss does exist in futures trading.
All trading rates quoted per side. Applicable exchange, regulatory, and brokerage fees apply to rates shown. Please email webmaster unitedfutures. Open An Account Now Online! The Basics of Commodity Futures Trading.