For many average investors, commodity futures trading are quite hard to understand and deal with due to a largely complex trading process. However, it is only hard to novel investors. Once you have understood the running concept, you can start counting returns even before you invest your money. This article will give you a few pointers towards that direction.
To make it big in commodity futures trading you must have a broker who is well versed in futures trading or an FCM (Futures Commission Merchant). An FCM is an intermediary between the futures market and public traders. The broker deposits a certain margin online to the realm of futures trading market so that he or she can make the trader recognized. We have two brokerage types namely the discount brokers and the full service brokers.
In commodity futures, the trading performance is held in place by a contract that is known as a futures trading contract. The commodity futures contracts are created so that the underlying commodities a trader has invested in can be traded sometime in the long run at a more fixed rate, mostly in the current market prices of the time. Just like trading in stocks, the commodity futures are traded only at certain trading markets that are centralized for that sole purpose, such as Globex and S&P.
Many investors in the futures trading world of commodities are mired by the misconception that it is the commodity futures exchanges that establishes or determines the prices of commodity futures when selling or buying. The truth however is that the commodity’s demand and supply ratios are the determining factors of the market price rates. Like in all trades, you must remember that if the buyers exceed the sellers, the price automatically shoots up. The converse is also true.
Essentially, the sell and buy orders are the ones that determine the kind of prices to be set and they originate from multiple sources. All orders are channelled through the trading exchange for appropriate execution. Commodity futures trading has evolved over the years and currently it has been affected to an extent by online markets. Futures trading online offers the convenience of trading from home and a wider market reach.
A huge number of brokerage firms that have set up their websites. This allows you to trade in distinct commodities on these websites. The brokers on the other hand require you to begin trading only after registering an account with them and after you have downloaded a trading platform, which will give you the ability to trade. Some of the futures trading sites provide you with a number of commodities trading service execution, from broker execution, foreign exchange currencies, self directed execution online to automated system execution. All of these can easily be in use in commodities trading except the foreign exchange platform of execution.
The importance of a commodity futures trading broker is that he or she is responsible for the maintenance of records that include the customer deposit margins, completed transactions, money balances and open futures.