Why Futures Trading
Why futures trading you ask? Futures trading is an economic device to shift price risk to speculators from users of the commodity and grower/makers of the commodity.
An example of why futures trading would be, a cattle-feeding operation: This business has two great unknowns that can adversely affect the business. Cattle need to be fed and then they need to be marketed. A cattle feeder can buy futures contracts on corn and lock up the price they will pay for feed. They can sell cattle futures contracts and lock up the price they will sell their cattle for. Sharp operators can guarantee themselves a profit as long as they can deliver the cattle.
The oil companies carry out a similar operation. They buy oil future contracts to lock up their cost of oil and they sell gas contracts to guarantee themselves a profitable price for the gas.
A user of copper could do a similar trade in copper.
The person taking the other side of these trades is the speculator. If they sell the contracts, they are expecting a price decline. If they buy the contracts, they are expecting a rise in price.
Speculators are taking the price risk from the hedger. If they are correct about the price direction they can make large sums of money. It they are wrong, they can lose the ranch. Millions upon millions are made each year by speculators.
The trading disasters they have been a party too are always given great press.
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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