What is Futures Investing

Futures investing is a form of trading in which you speculate on whether or not the price of commodities will go up or down. You, the investor, try to buy low and sell high. The trader doesn’t usually actually buy the commodity itself, but rather buys a futures contract. These have various expiration dates which are standardized. For example, gold contracts have expiration dates of, February, April, June, August, October and December. If you felt the price of gold was going to rise in the new year, this being September you would purchase a February gold contract. And you don’t have to hold the contract until February. If you hit a price point you like beforehand you can sell your paper then. In fact as contracts get closer to their expiration date they become more liquid (more trading volume).

What is a commodity? Well they are mostly hard goods that are commonly used every day. Things such as wheat and corn, lumber and steel, gold and oil, even currencies. The nice thing about futures investing is that it is a margin trade, you make a leveraged purchase. So say gold is selling at $400 per ounce. A gold futures contract holds 100 ounces of gold, therefore the contract is $40,000. But normally you only put up 10% so you get $40,000 dollars worth of gold for $4000. So if gold goes up by say 15% you have a nice profit of $6000 (minus commissions).

Also the commissions are low on futures investing so you keep more of your profits. Plus this market is open and a lot less succeptible to insider trading. But be sure to learn as much as you can about futures and commodity trading before you begin. There is a lot of money to be made, but a lot to be lost as well.

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