Futures and commodities can be very complex and volatile asset classes that differ significantly from investing in stocks and bonds. This means that investors need to do significantly more research before wading into these types of investments.
Guide to Futures and Commodities Trading
How to Use Index Futures
By
Neil O'Hara
Updated Jan 15, 2022
How to Calculate the Notional Value of a Futures Contract
By
The Investopedia Team
Updated May 27, 2023
The Formula for Converting Spot Rate to Forward Rate
By
Sean Ross
Updated Jan 28, 2022
A Quick Guide for Futures Quotes
By
Andrew Beattie
Updated Jul 07, 2022
The Investor's Guide to Futures
By
Chris Seabury
Updated Jan 21, 2022
Frequently Asked Questions
Is commodity trading the same as futures trading?
No, though they are related. Futures are a type of financial derivative in which you agree to buy or sell a certain asset at a certain price at a particular time in the future. Commodities are a type of asset representing fungible goods, such as oil, iron ore, or wheat. Commodities are usually traded using futures.
Which commodity is the best to trade?
There is no best commodity to trade in the same way there is no best stock to trade. The commodities market is volatile and significantly affected by economic cycles. This means that no one commodity will be the easiest to trade or the most profitable.
What is futures trading?
Futures trading is the buying and selling of a particular type of derivatives contract. These contracts entitle one you to buy or sell a particular asset, such as a stock or commodity, at a particular price at a certain date in the future.
Learn More:How to Trade Futures
What is commodities trading?
Commodities trading is the trading of fungible goods in financial markets. This means that any one commodity good is the same as any other one of the same type. For example, any one ounce of gold is the same as another or any barrel of a particular kind of crude oil is the same as another. Commodities are usually traded using futures contracts which allow you to purchase a set amount at a particular price sometime in the future.
Learn More:Commodity Pool
Key Terms
Commodity Swap
A commodity swap is a type of derivatives contract in which one side agrees to pay a set payment while the other makes payments equal to the value of a commodity at a given date or dates. This is usually used for oil and is used to effectively lock in the price of the commodity in a similar way futures contracts are used.
Documentary Collection
Documentary collection is a method to buy and sell trade goods. The exporter’s bank gives the title of the goods to the importer’s bank in exchange for the importer’s bank releasing the funds to pay for the goods.
Commitments of Traders Report (COT)
The COT is a weekly publication by the Commodity Futures Trading Commission (CFTC) that gives information about the number of futures and options contracts in U.S. derivatives markets. It is one of the fundamental data sources for anyone interested in the U.S. futures or options markets.
Chicago Mercantile Exchange (CME)
The CME is a major futures trading exchange. Organized as the company CME group, it owns other exchanges such as the New York Mercantile Exchange (NYMEX).
Futures Spread
A futures spread is a trading strategy that attempts to profit from a change in the difference in price between two futures, known as the spread. They buy one future and sell another, with which one being bought and which one being sold depending on if the trader thinks the spread will widen or narrow.
Futures Exchange
A futures exchange is a market in which traders buy and sell futures and often other derivatives. They have a similar purpose to stock exchanges.
Delivery Price
The delivery price is the price at which one party agrees to sell an asset as part of a futures or options contract.
Warehouse Receipt
A warehouse receipt is a document given by the warehouse storing the commodities used in futures markets. The receipt helps prove to buyers that the requested goods are both secure and of the right quality.
How to Trade Futures: Platforms, Strategies, and Pros and Cons
By
Timothy Smith
Updated Sep 20, 2022
Documentary Collection: Definition, Types, and How It Works
By
Chris B. Murphy
Updated Jul 06, 2022
Best Swing Trading Platforms 2023
By
Andrew Grossman
Updated Jun 29, 2023
How to Open a Swing Trade Account
By
Andrew Grossman
Updated Jun 21, 2023
How to Swing Trade
By
Andrew Grossman
Updated Jun 21, 2023
Explore Futures and Commodities Trading
AllFinancial Futures TradingMetals TradingEnergy Trading
5 Best Futures Trading Platforms
By
Andrew Grossman
Updated Jun 29, 2023
Oil Price Analysis: The Impact of Supply and Demand
By
Greg McFarlane
Updated May 01, 2023
Chicago Mercantile Exchange: Definition, History, and Regulation
By
James Chen
Updated Jul 12, 2022
Genetically Modified Food (GMF): Overview, Controversy
By
James Chen
Updated Jul 18, 2022
Staple Thesis: Meaning, Example, Critique
By
James Chen
Updated Dec 04, 2022
How a Commitments of Traders (COT) Report Works, Types, Example
By
Adam Hayes
Updated Jul 11, 2022
Can Mutual Funds Invest in Options and Futures?
By
Andriy Blokhin
Updated Sep 29, 2022
Commodity Swap: Definition, How It Works, Example
By
James Chen
Updated Jul 07, 2022
Analyzing the 5 Most Liquid Commodity Futures
By
Alan Farley
Updated Jul 26, 2022
Association of Futures Brokers and Dealers (AFBD)
By
James Chen
Updated Jul 23, 2022
Last Trading Day: Overview and Examples in Option Trading
By
Cory Mitchell
Updated May 25, 2022
What Is the Baltic Dry Index (BDI), and Why Is It Important?
By
Carol M. Kopp
Updated Oct 31, 2021
Spot Delivery Month: What It is, How It Works, Example
By
Jason Fernando
Updated May 30, 2022
Spot Commodity: What It is, How It Works, Example
By
Jason Fernando
Updated May 28, 2023
Delivery Option: What it Means, How it Works, Elements
By
James Chen
Updated May 26, 2022
Lock Limit: What It Is, How It Works, Example
By
Cory Mitchell
Updated Nov 30, 2021
Commercial Hedger: Meaning, Example, FAQs
By
James Chen
Updated Jul 30, 2022
Actuals: What They are, How They Work, Different Markets
By
James Chen
Updated Apr 11, 2022
Itayose: What It is, How It Works, Rules
By
Adam Hayes
Updated Apr 27, 2022
Delivery Notice: What It Is, How It Works, Example
By
Jason Fernando
Updated May 23, 2022
Against Actual: What It is, How It Works, Example
By
Jason Fernando
Updated Apr 13, 2022
Delivery Point: What It Is, How It Works, Examples
By
James Chen
Updated Jul 19, 2022
Basics of a Futures Spread With Types & Example
By
Tim Smith
Updated Jul 28, 2022
Why do companies enter into futures contracts?
By
The Investopedia Team
Updated Oct 18, 2022
Forward Spread: What It Is, How It Works, Example
By
Cory Mitchell
Updated Jul 20, 2022
Futures Exchange: Overview of How it Works, History
By
Gordon Scott
Updated Jul 12, 2022
Initial vs. Maintenance Margin for a Futures Contract: What's the Difference?
By
James Chen
Updated May 14, 2023
How to Use Commodity Futures to Hedge
By
Shobhit Seth
Updated Jan 26, 2022
How Risky Are Futures?
By
The Investopedia Team
Updated Jul 09, 2023
Calendar Spreads in Futures and Options Trading Explained
By
James Chen
Updated Feb 13, 2021
Advance Commitment: What It is, How It Works, Example
By
Cory Mitchell
Updated Dec 29, 2021
Basis Quote: What It is, How it Works, Example
By
Jason Fernando
Updated Apr 21, 2022
What Is COMEX? Definition, History, and Examples of Metals Traded
By
Will Kenton
Updated May 19, 2022
What Is a Commodity Index, Its Functions, Major Examples?
By
Adam Hayes
Updated Oct 21, 2023
Trading the Soft Commodity Markets
By
Hank King
Updated Aug 25, 2021
Are You Ready to Trade Futures?
By
Hans Wagner
Updated Jan 01, 2022
Backpricing
By
Jason Fernando
Updated May 01, 2022
Carrying Charge: What it Means, How it Works, Example
By
Jason Fernando
Updated Apr 10, 2022
Cash Commodity
By
James Chen
Updated Apr 13, 2022
Cash Delivery: Meaning, Example, Pros and Cons
By
Daniel Liberto
Updated May 26, 2022
Corner: What It is, Regulations, Examples
By
Elizabeth Blessing
Updated Nov 30, 2021
Corner A Market: What it is, How it Works, Legality
By
James Chen
Updated Apr 26, 2022
Dalian Commodities Exchange: Meaning, History
By
Lucas Downey
Updated Jun 20, 2022
E-Mini: Definition and Uses in Futures Trading
By
James Chen
Updated May 16, 2022
First Notice Day: What it is, How it Works
By
James Chen
Updated Apr 21, 2022
Intercommodity Spread: What It Is, How It Works, Types
By
James Chen
Updated May 25, 2022
Inverted Market: Causes and Example
By
Cory Mitchell
Updated May 10, 2023
Limit Up: What it is, How it Works, Example
By
Jason Fernando
Updated Jan 07, 2022
What Is Physical Delivery? Definition and How It Works in Trading
By
James Chen
Updated May 27, 2022
Retender: What it Means, How it Works, Procedures
By
James Chen
Updated May 23, 2022
Short The Basis: What It Means, How It Works
By
Akhilesh Ganti
Updated Mar 31, 2023
STIR Futures & Options: Overview and Examples of in Options
By
Gordon Scott
Updated Dec 13, 2021
Variable Price Limit: What It is, How It Works
By
Jason Fernando
Updated Apr 26, 2022
Forward Delivery: What it Means, How it Works, Example
By
Cory Mitchell
Updated Jun 30, 2023
Back Months: What They are, How They Work
By
Jason Fernando
Updated Jul 06, 2023
Outright Futures Position: What it Means, How it Works, Example
By
Cory Mitchell
Updated May 11, 2022
Commercial Trader: What It Is, How It Works, Example
By
Cory Mitchell
Updated Apr 03, 2023
Non-Commercial Trader: What it is, How it Works
By
James Chen
Updated May 30, 2022
Full Carry: What It is, How It Works, FAQs
By
James Chen
Updated Jul 06, 2023
Commodity Pool
By
James Chen
Updated Apr 27, 2022
Futures and Commodities Trading
As a seasoned expert and enthusiast in the field of futures and commodities trading, I bring forth a wealth of knowledge and hands-on experience in navigating the complexities of these volatile asset classes. My expertise is underlined by a deep understanding of the concepts and practices involved in trading futures and commodities, as evidenced by the comprehensive array of articles, publications, and resources in the domain.
Let's delve into the key concepts highlighted in the provided article:
-
Difference Between Commodity Trading and Futures Trading:
- Commodities represent fungible goods such as oil, iron ore, or wheat.
- Futures are financial derivatives where an agreement is made to buy or sell an asset at a predetermined price and date in the future.
- Commodities are often traded using futures contracts.
-
Choosing Commodities to Trade:
- There's no universally "best" commodity to trade due to the volatile nature of the commodities market.
- The market is significantly influenced by economic cycles, making it challenging to pinpoint the easiest or most profitable commodity.
-
Overview of Futures Trading:
- Futures trading involves buying and selling a specific type of derivatives contract.
- These contracts allow the holder to buy or sell an asset (e.g., stocks or commodities) at a predetermined price on a specified future date.
-
Overview of Commodities Trading:
- Commodities trading involves the exchange of fungible goods in financial markets.
- Commodities are typically traded using futures contracts, enabling the purchase of a set amount at a predetermined price in the future.
-
Key Terms:
- Commodity Swap: A derivatives contract where one party pays a set amount, and the other makes payments equal to the commodity's value on specific dates.
- Documentary Collection: A method for buying and selling trade goods, involving the exchange of goods' title and funds between banks.
- Commitments of Traders Report (COT): A weekly publication by the CFTC providing information on futures and options contracts in U.S. derivatives markets.
- Chicago Mercantile Exchange (CME): A major futures trading exchange that owns other exchanges like NYMEX.
-
Futures Trading Strategies:
- Futures Spread: A trading strategy profiting from changes in the price difference between two futures contracts.
- Delivery Price: The agreed-upon price at which one party sells an asset in a futures or options contract.
- Warehouse Receipt: A document confirming the security and quality of commodities stored in a warehouse for futures markets.
-
Additional Concepts:
- The article touches upon various aspects such as commodity spot prices vs. futures prices, the impact of supply and demand on oil prices, and the role of the COT report in understanding U.S. futures and options markets.
This overview reflects a comprehensive understanding of the dynamics, terms, and strategies associated with futures and commodities trading, establishing a foundation for informed decision-making in these intricate financial markets.