Futures Trading
Futures trading is the art and business of buying and selling contracts on commodities. These contracts are specific in detail i.e. 5000 bushels of corn would make up a corn contract traded on The Chicago Board of Trade. Each commodity contract also spells out the grade of the commodity and in the case of a grain contract whether it is new or old crop.
The attraction of futures trading is a small amount of margin money that can control a contract that represents a value fifty times the margin needed to control one contract. An example would be putting up $500 to control one corn contract, which is 5000 bushels of corn. A penny change in the corn price equals $50. The price swings due to weather or crop problems can be 50 cents to several dollars. As you can see, this could mean huge profits or disaster for the futures trader or speculator.
The opposite side of a speculator is the hedger trader. Companies like oil companies or grain users trade futures to lock in their cost of needed product. A company that makes products out of copper could use the copper futures market to lock up copper prices for a year in advance. If the price then goes up like it has done in the past, the company has protected itself from the price swing.
Futures trading is conducted on exchanges located primarily in Chicago, New York and London. The Internet has made current price information available instantaneously. Software manufacturers have developed trading programs that help to predict price direction.
Speculative futures trading is like trying to catch lightening in a bottle. If the trader succeeds, the amount of money made can be counted in the millions. If the trade goes south, the losses can be just as great. Suffice it to say, futures trading is not for the weak of heart.
Ken Charnley is a personal finance publisher whose website http://www.online-loans-pro.com/ is dedicated to quality information on online loans. For all your online loan needs visit and Apply for Loans Online
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