Article By : Patrick Mansfield | U.S. Consumer Finance
The trade market for commodity options and futures is complex, risky and volatile, making it unsuitable for most “retail customers” and individual stock market traders.
When it comes to dollar volume, Forex markets are one of the most active types of markets. Government bodies, large banks, multinational corporations and speculators comprise most of the market's participants. Individual investors make up a small percentage of the Forex market. Losses accumulate quite fast due to foreign currency's volatile price, which quickly depletes the investor's down payment.
Futures Trading Fundamentals
Commodity futures contracts are agreements that allow investors to buy and sell specified commodities at a later date. A futures contract sets a fixed quantity and price for the commodity. While many of the contracts state the commodity's actual delivery date satisfies the contract, most of these futures contracts are liquidated earlier than the delivery date. And some contracts permit cash settlements instead of commodity deliveries.
With commodity futures options, purchasers can buy and sell expressed futures contracts for a certain price at a later date. Although there are a limited number of exceptions, commodity options, and futures trades must be conducted through exchanges by CFTC registered firms and people.
The Average Futures Markets User
The majority of futures markets participants are consumers and producers of institutional and commercial commodities. Many of the investors in this market are known as “hedgers.” A hedger trades futures to secure a commodity's future price. Once a hedger takes delivery of the commodity, they sell it on the cash market, protecting themselves against losses and maximizing their assets' value.
A speculator is another common futures market investor. The speculator's goal is to profit from a futures contract's price change.
Tips for Futures Market Participants.
The futures market is not the best trade market for the individual trader. Before purchasing commodity options and futures, any investor should:
Compile all needed information before starting their trade account.
Determine the amount of money besides their first investment they can afford to lose.
Examine the required broker-provided risk disclosure document
Know their point of contact for questions and issues.
Scrutinize their financial expertise, goals and monetary resources.
Understand all contractual obligations for purchase.