Commodity And Futures Trading - Why It Isn't For New Stock Traders

 

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

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

The commodity markets include things like wheat, corn, soybeans, pork-bellies, precious metal, silver, heating oil, lumber, and several other common trade items. The big companies that operate in these markets use commodity "futures" contracts to lock in their selling prices for the product in advance of delivery.

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

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

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

You'll be able to lose your entire investment in a matter of minutes on account of the wild price gyrations that sometimes occur in these volatile markets. Let's say the $5000 contract drops to $4000 in value rather than increasing.

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

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

What happens is, they receive a sales pitch from a commodity trading "professional" claiming to have a "system" for producing sure-fire earnings in these wild markets. These "systems" range in value 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 no sure-fire way to consistently make money in these markets, simply because the underlying commodity prices can swing wildly back and forth depending on a complicated set of variables, several of which are entirely unpredictable.

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

Unfortunately, with the lure of huge returns and easy capital, a fresh crop of innocent traders enter the market every year, only to become swiftly fleeced out of their funds.

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

Establishing Financial Security Methods - Stick To The Principles Used To Create Wealth
We would all like to think of ourselves enjoying the good things in life, not having to stress about finances, and not having to be concerned about growing old or being poor.

5 Habits Of Highly Successful Shareholders
There are 7 habits that highly effective investors engage in often that separate themselves from the thundering sheep herd of investors. Read this article.

The Many Different Varieties Of Stocks A Person Can Shop For
If you are going to play the stock market, you must know what types of stock are available and what it all means!

5 Tips Regarding Buying And Selling Penny Stocks
Investing in penny stocks provides new traders with the opportunity to dramatically increase their profits, however, it also provides an equal opportunity to lose your trading budget quickly.

Excellent Investment Options For Your Hard Earned Dollar: Best Investment Options For Newbie Traders
In this article I explore the subject of the best investments for your money? The article goes into detail about just what is needed for being profitable in investing in order to produce winning outcomes.

A Lot Less Risk With Foreign Bonds - A Wonderful Financial Investment Decision
Foreign bond funds are ideal for investors seeking profit and diversification. Foreign bond funds, as their name can suggests, invest in bonds that pay interest and principal in a currency other than your home currency. Foreign government and even corporations issue these bonds.

Investing With Full Confidence - Start With What You Know
Most people's beliefs about investing are very tenuous, but there are people who are also very passionate about investing. Check out this article.

Other readings


Get Adobe Flash playerPlugin by wpburn.com wordpress themes