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Commodity And Futures Trading - Exactly It's Not For Brand New Traders

Author: Craig

If you don't mind losing $5000 in 10 minutes, you might take pleasure in trading commodity futures contracts. There's an old saying amongst commodity traders: "It's easy to make a small fortune in commodities. Just begin with a large fortune!"

This really is not a business for individuals who are emotionally attached to their money, however a large number of average "investors" get lured into the commodity markets every year. Why? Due to the possibility of making high percentage gains using the built-in leverage that's available to commodity futures traders.

The commodity markets involve wheat, corn, soybeans, pork-bellies, gold, silver, heating oil, lumber, and numerous other common trade items. The big firms that operate in these markets use commodity "futures" contracts to secure their selling prices for the product in advance of delivery.

This practice is known as "hedging." On the other side of that transaction is the trader, who speculates on whether or not the price of the commodity will go up or down before the contract is due for delivery. Mainly because futures contracts might be purchased using leverage, these financial instruments lend themselves to speculation.

For instance, control of a corn contract worth $5000 may only need $500 of actual cash, or 10% of the face value of the contract. If the corn company's market capital goes up in worth, and the contract becomes worth, say, $5500, the speculator has made $500 on his or her original $500, for a 100% return.

You could very easily see why investors in search of fast gains are hypnotized by the lure of huge profits using maximum leverage in commodity futures trading. The actual issue, however, is the fact that the leverage works in both directions.

You are able to lose your entire investment in a matter of minutes on account of the wild price gyrations that occasionally occur in these volatile markets. Let's imagine the $5000 contract drops to $4000 in value instead of increasing.

You have not only lost the original $500 you put into the contract, but an extra $500. You can go broke rapidly this way.

So why do people play this game? Average investors don't wake up in the early morning and say to themselves, "Right, I think I'll start trading commodities."

What takes place is, they receive a sales pitch from a commodity trading "expert" claiming to have a "system" for generating sure-fire earnings in these wild markets. These "systems" range in cost from $25 all the way up to $5000 or more, and are sold based on the promise of "huge profits" from a small opening investment.

There is certainly no sure-fire way to consistently make money in these markets, simply because the underlying commodity costs can swing wildly back and forth depending on a complicated set of variables, many of which are completely unpredictable.

You will find also a handful of successful professional traders who make a living in these markets. However the vast majority of people that dabble in commodity futures lose money.

Unfortunately, with the lure of enormous returns and easy capital, a fresh crop of innocent traders enter the market each year, only to become rapidly fleeced out of their money.

Do not be one of them! Get professional help when raising capital in the stock market. You don't want to make an investment mistake and buy shell company stocks.

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