The Buying and Selling of Commodity Futures

The buying and selling of stocks originated because companies needed a way to raise capital. Companies shared ownership and raised funds for building, expanding, etc. The stock market grew into what we see today. The buying and selling of commodities originated because companies wanted to manage and transfer risks. The commodities market has developed into what we see today. There are great opportunities for gain, but the risk is also greater. What happens in the futures market is watched worldwide. The activity determines the value of commodities.

Those who want to manage the risk of investing in the commodity futures market and transfer it to those who are willing to take the risk are referred to as hedgers. Those who are willing to accept the risks involved in the commodity futures market in hopes of great profits are referred to as speculators.

Futures contracts are standardized so that it will meet the needs of both the buyer and the seller for different types of commodities and financial instruments. In the commodities future contract the following will be specified:

* Quantity

* Delivery

* Quality

* Price (variable)

With standardized contracts, the contract can be exchanged for other contracts. This eliminates the needs to actually deliver or accept delivery of a particular commodity. An equal and opposite position in the futures market is created. Selling offsets or closes a long or buy position. Buying offsets or closes out a short or sell positions.

To calculate a profit or loss of a futures position, follow the formula below.

Sell Price – Buy Price x Contract Size x Number of Contracts = Profit or Loss

Buying and selling commodities is appealing because of the potential for profit. It is not for the faint of heart or those who don’t have the money to risk. Getting in debt, depleting savings, or using up a retirement fund is not advisable. When investing in commodities, there is often a minimum investment of $5000. This can be lost in a short period of time, but also great profit can be realized in a short period of time as well.

When you are sure you are ready add commodity futures to your investment portfolio and have the minimum $5000 to become an investor, contact the experts at New Century International. There are many advantages to being a New Century International client. The advantages include excellent customer service, prompt callbacks, and live quotes. Contact a New Century International financial expert today to get started investing.

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