Futures Trading Tutorial
Futures are OBLIGATIONS to buy or sell
People are commonly scared off when they see "obligation", but don't worry. Fewer than 2% of futures traded result in a delivery of goods (Imagine 5,000 bushels of wheat being dropped off at your house?).
The reality is that most futures positions are opened about 6 months before contract expiration. And then, exited no later than the month before expiration.
What are Commodities?
Commodities come in several forms - raw materials such as gold and oil, currency (this is commonly called forex), or indexes such as the S&P 500.
At the bottom of the page is a chart of commonly traded commodities, broken down by class.
Derivatives, huh?
Ah, another one of those lovely words that scare inexperienced investors. A futures contract is an example of a derivative.
A derivative is any hybrid investment product. Hybrid investment issues are indirectly connected to the product. Stocks involve actual ownership in a company. Bonds are loans from a company. Futures are bets on the future price of a commodity. How the commodity is used by the company, or how much money the company borrowed to obtain the commodity, is of no consequence to the futures trader. Futures traders only care about price. Since futures traders are not affected by the usage of the commodity, they are using derivatives.
Futures trading is a zero sum game
Unlike stocks and bonds, their is a loser for every winner in futures trading. That is, all the money being exchanged is put in by the pool of participants. Their is NOT an external supply of money - such as earnings for a stock owner - that can result in a win-win for everyone. Because their must be a loser for every winner, trading in futures is extremelly risky.
Can you explain some of the lingo?
- go long
- enter a futures contract to buy the underlying commodity
- go short
- enter a futures contract to sell the underlying commodity
- oco
- One Cancels the Other. Entering two orders simultaneously, the first one filled cancels the second order
, - moc
- A trade that will only be executed at close of market session, at market close price
| Commonly Traded Commodities |
| Class |
Examples |
 |
Class |
Examples |
| Currencies |
- Britisdh Pound
- Brazilian Real
- Canadian Dollar
- Eurodollar
- Japanese Yen
- Russian Ruble
|
|
Grains |
- Wheat
- Corn
- Soybeans
- Oats
- Rice
- Barley
|
| Energies |
- Crude Oil
- Heating Oil
- Gasoline
- Natural Gas
- Ethanol
|
|
Meats |
- Feeder Cattle
- Live Cattle
- Lean Hogs
- Pork Bellies
|
| Financials |
- Treasury Bonds
- T-Notes
- 30 Day Fed Funds
- 1 Month Libor
|
|
Metals |
- Gold
- Silver
- Copper
- Platinum
- Palladium
- Aluminum
|
| Indices |
- S&P 500
- Nasdaq 100
- Dow Industrials
- Russell 1000
- Nikkei 225
|
|
Softs |
- Cotton
- Orange Juice
- Coffee
- Sugar
- Cocoa
- Lumber
|
|
