What is an Online Commodities Futures Trading Contract?
Online trading of commodities futures creates a commodities contract, which is a legal agreement between two parties. The contract specifies that you agree to buy or sell a product or asset to be “delivered” later at a certain price. The buy/sell price is called the future price of the underlying asset. Commodities futures brokers can assist you in online commodities trading.
Commodity Markets and the Stock Market
Over my years as a commodity broker, my brain tended to think of the following correlation: when stocks are “hot”, commodity markets tend to under perform. When stocks tumble, commodity markets tend to do better.
As the years progressed and the markets evolve, as they always do, my brain started thinking along the lines of “when crude oil futures are hot, commodity markets start sizzling…”
Then a few years went by and the same brain, just a bit older started whispering….”when the dollar index is strong, commodity markets tend to get weaker…..”
The bottom line is that all of the statements above were true at one point or another and some may be true as you are reading this BUT the main conclusion should be:
Commodity markets compromise of many different markets and segments like grain futures, energy markets, softs, meats, metals and much more. These markets are all affected by some mutual elements like dollar strength but also by very specific elements like supply and demand, weather, geo political and much more.
Do your homework and just like the commodity futures markets, keep evolving, evaluating and educating yourself.
Types of Investors
There are two kinds of participants in online commodities trading markets: hedgers and speculators. Hedgers don’t necessarily seek to profit by trading commodities futures; they are striving to stabilize their income and expenses (the costs of their business operations). This allows them to make a budget and predict their costs to their investors and board of directors. Most speculators do not want to physically take possession of the underlying asset: they do not want truckloads of corn dumped in their driveway. Speculators are betting on the future prices of certain commodities. They have the power to cause dramatic price swings in the futures markets, but they also provide liquidity – the ability to sell an investment at its near-value – to the futures markets.
