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Contracts in Commodities Market

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What is an Online Commodities Futures Trading Contract?

Online trading of commodities futures creates acommodities 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 calledthe future price of the underlying asset.Commodities futures brokers can assist you in online commodities trading.

Types of Investors

There are two kinds of participants in online commodities trading markets: hedgers and speculators.Hedgers dont 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.

Types of Contracts

Futures are standardized contracts traded on an exchange. In 1848, the Chicago Board of Trade (CBOT) was established and is one of the oldest futures exchanges in the United States. Other major futures trading exchanges include:

  • Chicago mercantile exchange (CME)
  • New York Board of Trade (NYBOT)
  • Intercontinental Exchange (ICE)
  • London Metal Exchange (LME)
  • Multi Commodity Exchange (MCX)
  • New York Mercantile Exchange (NYMEX)

Derivativesare contracts where the value(price)of the underlying security is based on a similar asset or product (real asset). With derivatives, the underlying security can be bonds, commodities, currencies, indexes, or stocks.

The most important point to remember about derivatives is that the value of the derivative depends on something else, which is the underlying asset. This means that when the value of the underlying asset changes, it causes the price or value of the derivative to change as well.

How Does a Commodities Contract Work?

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About the author

Ilan Levy-Mayer has been a commodities broker for over 15 years, and holds an MBA in Finance and Marketing from Hebrew University in Jerusalem. Ilan is currently the Vice President and a Senior Broker at Cannon Trading Company . He is also a CTA of Levex Capital Management and his daily blog was voted the #1 Futures Blog from Trader's Planet.

His experience in the industry dates from the beginning of online trading, and he has also developed several trading systems over the years. In addition, Ilan has written several articles about trading methods and trading psychology, and has been quoted and published several times in SFO magazine, Futures, and Bloomberg. He has been invited to speak at the Chicago Board of Trade, a significant distinction.

Ilan specializes in analyzing the markets based on timing methods, proprietary technical indicators, using support and resistance levels and looking at multiple time frames.

Take a step in the right direction and contact me today, Toll-Free: 800-454-9572 or direct: +310-859-9572. You may also directly e-mail me, Send mail.


Disclaimer: This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts here in contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgement in trading. 

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