Home
>
Stocks & Mutual Fund
>
How Commodity Trading Differs from Stock Trading

How Commodity Trading Differs from Stock Trading

There are major differences between trading stocks and trading futures. While stories of fortunes made or lost overnight on the futures markets are largely untrue, the futures trader, if using a sound trading system, can usually make more money on the futures market and make it much faster. However, if that trading system is not sound the trader can have greater losses.

This is because futures contracts are highly leveraged. Margins (the deposit required) on futures contracts are much less than for stocks, as low as 3% on some futures contracts compared with up to 50% for stocks. As well, futures investors are not charged interest on the difference between the margin and the full contract value.

The margins for futures contracts act more as a performance bond or good faith deposit whereas the margin for stocks is more of a loan. Although the margin on futures contracts is quite small, it rides the full value of the underlying contract as that contract rises or falls, thus providing the leverage mentioned earlier.

Commissions charged by futures brokerages are normally much less than brokerage commissions for other investments.

Futures markets use the open outcry (auction type) method of trading ensuring very public, fair, and efficient markets. Plus, it is much harder to trade on inside information as so many variables affect the markets. Also, futures markets are very liquid. Transactions can be completed quickly, which lowers the risk of adverse market moves

If you own stocks you are an owner of the company. This allows you to share in the company's profits, and losses, through dividends, and increases or decreases in the stock's value. It also gives you certain voting rights with the company. However, a company can go bankrupt, leaving you holding worthless stock.

When you buy and sell futures you are only entering into a contract and don't really own anything. What you have is an agreement to buy a commodity or financial instrument (wheat or Treasury Bonds for example) at a specified price at a certain date in the future.

The person on the other side of the transaction has agreed to sell you that commodity or financial instrument at that specified price by the specified date. If you sell a futures contract prior to that date you have offset your position and have either a profit or loss on the trade.

The stock you bought 3 years ago is the same stock you can buy today. Futures contracts, on the other hand, have very limited lives. They are traded in a regular series of contract months referred to as delivery months.

Futures contracts have expiration dates after which no further trading for that month can take place. The September corn contract you traded last year is not the September corn contract you are trading this year. In fact last September's corn contract no longer exists.

Many futures contract months of the same commodity trade simultaneously on the market, sometimes even years into the future. The current contract is called the front month and the other contracts are called the back months. They are called back months even though they are for future months.

For example, corn trades for the months of January, March, May, July, September, November and December. Suppose today's date is August 4, 2000. The current contract month for corn would be September 2000 and so is called the front month. The months of November and December 2000, January 2001, March 2001, May 2001 and July 2001 are back months even though they are in the future and even flow into the next year. (This may sound confusing but its not ...really)

All of these months can be traded at the same time although most of the trading activity takes place in the front month.

When the current month expires the next contract month becomes the front month and so on.

Rob Hall is a successful futures trader, President & CEO of his own investment firm, and international author. His books on learning to trade futures markets are distributed through Sumas International Sales Ltd. View them at http://www.futuresopps.com/comm.htm

detailed home cleaning Park Ridge ..

In The News:

The Fox News AI Newsletter gives readers the latest AI technology advancements, covering the challenges and opportunities AI presents.

Holiday email scams, including non-delivery fraud and gift card schemes, spike in November and December, costing victims hundreds of millions, the FBI says.

Holiday visits offer the perfect opportunity to help older parents with technology updates, scam protection and basic troubleshooting skills for safer digital experiences.

Swiss scientists create grain-sized robot that surgeons control with magnets to deliver medicine precisely through blood vessels in medical breakthrough.

Researchers exploited WhatsApp's API vulnerability to scrape 3.5 billion phone numbers. Learn how this massive data breach happened and protect yourself.

Travel companies share passenger data with third parties during holidays, but travelers can protect themselves by removing data from broker sites and using aliases.

Xpeng's humanoid robot moves so realistically that crowds believed it was fake, marking a major advancement in robotics technology ahead of 2026 commercial launch.

Researchers discover phishing scam using invisible characters to evade email security, with protection tips including password managers and two-factor authentication.

iPhone and Android users can reduce battery drain and data usage by restricting Background App Refresh to Wi-Fi connections instead of mobile networks.

Scammers nearly stole an Apple account by exploiting the support system with authentic-looking tickets and phone calls, users can protect themselves with safety steps.

FoloToy restored sales of its AI teddy bear Kumma after a weeklong suspension following safety group findings of risky and inappropriate responses to children.

Threat intelligence firm Synthient uncovers one of the largest password exposures ever, prompting immediate security recommendations.

Viral video shared by Elon Musk shows Tesla's Optimus humanoid robots performing tasks from cooking to construction, garnering over 58.5 million views on social media.

Chinese hackers used Anthropic's Claude AI to launch autonomous cyberattacks on 30 organizations worldwide, marking a major shift in cybersecurity threats.

Apple's new Sleep Score feature gives you a rating for your nightly rest quality. Learn how to set it up on your Apple Watch and iPhone today.

Essential phone settings to enable before losing your device, including Find My network, location services and security features for iPhone and Android.

The Fox News AI Newsletter gives readers the latest AI technology advancements, covering the challenges and opportunities AI presents.

Cybersecurity research shows weak passwords remain a major threat, with simple patterns and number sequences putting millions of accounts at risk.

New Android malware BankBot YNRK silences phones, steals banking data and drains crypto wallets automatically. Learn how this advanced threat works.

FDA approves first human trial for Paradromics' brain-computer interface that could restore speech for paralyzed patients through neural technology.

New phishing platform QRR targets Microsoft 365 users across 1,000 domains in 90 countries. Learn how to spot fake login pages and protect your accounts.

OpenTable now uses AI to track your dining habits and share insights with restaurants. Learn what data they collect and how to protect your privacy.

Google's discontinued Nest thermostats still secretly upload home data to company servers despite losing smart features, raising serious privacy concerns.

New Android malware NGate steals NFC payment codes in real-time, allowing criminals to withdraw cash from ATMs without your card. Learn protection tips.

DoorDash confirms data breach exposing customer names, emails, addresses after social engineering attack. Learn how to protect yourself from scams.

How Commodity Trading Differs from Stock Trading

Stocks & Mutual Fund