Trading In The Futures Market Is Not For The Squeamish

The stock market is quite a common way to make money for those investors who know all about the world of finance and how to manipulate figures. However, 'futures trading' is about buying goods which may not necessarily exist yet. Commodity futures trading is the buying up of goods, like food which is still growing in the field, and selling on to other companies at a higher price.

This sounds a little complicated for sure but it is very simple to understand. A crop like wheat, for example, may be ready for the market at the end of the growing season. In this instance, let us say September. This trader will buy up 1,000 bushels of wheat from the farmer at say $4 per bushel. Although this may be in January of the same year, the contract stipulates that the farmer must give over one thousand bushels at that specific time.

Once the contract is created, the trader can now either sell on the wheat, at an inflated price, to another company or trader, so that he can make profit. He may indeed just hang onto the wheat until the price is right but in some instances, he can lose out if there is a glut of wheat and the price falls below four dollars.

Where these traders make big money is when the weather or some other natural disaster strikes and the wheat is in short supply. Companies which produce breakfast cereals or bread, for example, must get their wheat in to make sure that their brand is constantly on offer to the public. It only takes a shortage of goods for a short time for the fickle public to try another product which they may like. This then would make a hole in customer loyalty and this is where some companies have gone bust when the public no longer wants their products.

The speculator, as they are called, will try to buy up these commodities low and sell when the price is high. The Florida orange market, for example, has made millionaires of some people, and paupers of others, when the weather suddenly turns against the norm. If the frost sets into the oranges, then they are no longer suitable for juice. Alternatively, the weather may be just perfect for oranges and then there will be a glut which makes the price drop alarmingly leaving many of these speculators with egg on their face, so to speak.

These are surely dangerous games that people play, but for those bold enough to have a go it sometimes pays dividends for them. This should not be undertaken by the amateur at all, and it may be better to start dealing with normal equities on the stock exchange first to get a feel for the game.

One must always remember that just about anything can affect the price of crops or anything else being sold in this way. It is definitely not for the faint hearted and one must surely not gamble with money that is not theirs or which cannot be done without. Only gamble with money that is not needed, as the saying goes.


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Stewart Wrighter recently researched futures trading for an article on the stock market. He learned that commodity futures trading can be a lucrative profession.