FOLLOWING NEWS

RANGE TRADING

TREND TRADING

SCALPING

COMMODITY FUTURES

LEVERAGE

CURRENCY BAND

EXCHANGE RATES

FLOATING EXCHANGE RATE

FIXED EXCHANGE RATE

LINKED EXCHANGE RATE

CURRENCY SWAP

LIQUIDITY

MARKET SPECULATORS

COMMODITY FUTURES

A futures exchange is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. A lot of people have made a lot of money trading commodity futures. It offers a person scope to earn a huge sum of money with a very limited capital investment. When you trade in commodity futures, you don't actually buy something. What you buy its future contract purely on the assumption that the price of the item or currency is likely to move upward in the immediate future before the expiry of the contract. You buy to earn profit from this increase in price. For example, if you buy gold futures at $650 now, and the price at the expiry of the contract is $660, you would have made $10 on the commodity futures contract without buying any gold. People trade in commodity futures because it offers them an opportunity to get very large leverage on their invested capital. For example, $20,000 buy an S & P 500 stock future of the index. The same in actual equity stock could cost you $350,000. So, you get leverage of 17 times on your $20,000 if you invest in futures. This has huge ramifications where return on investment is concerned. If you make $20,000 dollars on an upward trend on this contract, you would have ended up with a 100% profit on your investment! This is as opposed to investing in actual stock worth $350,000 and getting $20,000 as return on investment. However, it's not all that simple or everyone would be trading in commodity futures. The truth is that there are many inherent risks in doing commodity futures trading too. The key is the risk to reward ratio. A lot of people are not as concerned about the return on their money as they are of their invested money returning. Greater the risk, the greater is the return. If you make a mistake, you lose just a few thousand dollars trading carefully over a long period of time, whereas if you don't have the patience, you may lose a fortune quickly in just a few large transactions. You must remember that there is a huge risk of loss in commodity futures trading. To limit this loss, people use what is known as a 'stop' or a 'stoploss'. These are orders placed to square off your position if it turns against you in any trade to limit your loss. These are considered an essential part of commodity futures trading, as you never know what unforeseen event lurks ahead that has the potential to wipe out a large chunk of your invested capital. To make money, one has to accept that you will lose money too. If you have a good trading system, and use stops in your trades, you are sure to succeed over time. Sometimes markets move so fast that your stop loss will not be hit. This is due to the broker not being able to trade the market for you because of these limit moves. It is for this reason, many only choose futures options.

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