The large companies that operate...

Jan 18, 2012 8:41 AM

Commodity Futures Trading – Why It isn’t For Average Investors, or Methods to Lose Money Quickly And not using a Trip to Las Vegas

from Legitimate Online Business Opportunity by admin

In the event you don’t mind losing $5,000 in 10 minutes, you could enjoy trading commodity futures contracts. There’s an old saying among commodity traders: “It is simple to make a small fortune in commodities. Just start with a huge fortune!” This isn’t a business for those who are emotionally attached to their money, yet thousands of average “investors” get lured into the commodity markets year after year. Why? As a result of the possibility of creating high percentage gains using the built-in leverage which is available to commodity futures traders. The commodity markets include wheat, corn, soybeans, pork-bellies, gold, silver, heating oil, lumber, and diverse other common trade items. The large companies that operate in these markets use commodity “futures” contracts to fasten of their selling prices for the product just before delivery. This tradition is named “hedging.” At the other side of that transaction is the trader, who speculates on whether the priced of the commodity will go up or down before the contract is due for delivery. Because futures contracts will be purchased using leverage, these financial instruments lend themselves to speculation.

For instance, control of a corn contract worth $5,000 may only require $500 of exact cash, or 10% of the face value of the contract. If the corn goes up in value, and the contract becomes worth, say, $5,500, the speculator has made $500 on his or her original $500, for a 100% return. Compare this with the regular stock market, which limits leverage to 50%, in order that $5,000 worth of stock requires not less than $2,500 of capital. If the stock goes as much as $5,500 in value, the $500 gain is against $2,500 invested, for a return of “only” 20%. The 100% return sure looks much better, right?