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

Airbnb cleaning service Glenview ..

In The News:

ChatGPT 2025 now connects to Apple Music, Canva, Expedia, TripAdvisor and OpenTable through built-in apps that help users create playlists, design graphics and more.

Apple releases emergency patches for two zero-day vulnerabilities actively exploited in attacks. iPhone and iPad users urged to update immediately.

DoorDash launches Zesty, an AI-powered social app that recommends restaurants through conversational search, now testing in San Francisco and New York.

Cybersecurity firm Infoblox reveals that over 90 percent of parked domains now redirect visitors to scams and malware, making simple typos extremely dangerous.

The Fox News AI Newsletter covers the latest artificial intelligence technology advancements, including the challenges and opportunities AI presents now and for the future.

GPT-5.2 is now live for all ChatGPT users with improved coding, writing and image interpretation, with Kurt Knutsson offering his review.

New iPhone replacement scam uses pressure tactics and fake carrier calls to steal devices from buyers. Criminals claim shipping errors and demand urgent returns.

Amazon Ring's new facial recognition feature sparks privacy controversy as Electronic Frontier Foundation critics argue the AI upgrade expands surveillance risks.

New Android banking trojan Sturnus steals credentials, reads encrypted messages and controls devices.

Denmark's 3D-printed student village proves automation builds 36 apartments faster than traditional methods. Skovsporet project shows housing future.

Discover Android's new Sound Notifications feature that alerts you to smoke alarms, doorbells, and baby cries even when wearing headphones.

New SantaStealer malware reportedly threatens holiday shoppers with password theft. This Christmas-themed info-stealer targets browsers and crypto wallets.

The Christmas season brings a surge in Netflix phishing scams targeting shoppers with fake emails. Stacey P received convincing scam but verified account first.

San Francisco Giants invite Jamie Grohsong to throw ceremonial first pitch at Oracle Park after he learned to play baseball with a bionic hand following an injury.

FBI warns cybercriminals are stealing family photos from social media to create fake proof of life images in virtual kidnapping scams targeting victims.

Instagram's new 'Your Algorithm' tool lets you control your Reels feed in real time. The app now gives you power to customize what videos you see.

Major Marquis fintech breach exposes 400,000-plus Americans' data through unpatched SonicWall vulnerability, with Texas hardest hit at 354,000 affected.

Free up iPhone storage fast by clearing large photos and videos from Messages app. Simple steps for iOS users to delete attachments without losing chats.

Scammers are flooding inboxes with fake tracking alerts that mimic real carriers, exploiting the holiday rush to steal logins and personal data.

The Fox News AI Newsletter brings you the latest news on AI technology advancements and the challenges and opportunities AI presents now and for the future.

Texas family reunites with missing 11-year-old cat Grayson after 103 days using Petco Love Lost's AI photo matching technology and community help.

Tired of AI customer service loops? These insider tricks help you escape "frustration AI" and get real human help when you need it most for urgent issues.

Unlock richer audio from your streaming apps with simple tweaks to volume normalization, equalizer settings, and quality preferences for cleaner sound.

Scammers are sending fake Facebook settlement payout emails that mimic legitimate notices from the privacy settlement administrator to deceive users.

Holiday shopping scams surge as fake refund emails target distracted consumers during Black Friday and holiday seasons, costing Americans billions annually.

How Commodity Trading Differs from Stock Trading

Stocks & Mutual Fund