Everything a Beginner Needs to Know About Commodity Futures

bags of commodities

Commodity futures are financial contracts in which two parties agree to buy or sell a specific quantity of a commodity at a predetermined price on a future date. These contracts are used to hedge against price fluctuations in the physical commodity markets, and they are traded on futures exchanges.

In a commodity futures contract, the buyer of the contract is agreeing to purchase a certain amount of the commodity at a specific price on a specific date in the future, while the seller of the contract is agreeing to deliver that same amount of the commodity at the same price on the same date. The price of the commodity is determined at the time the contract is signed, but the actual exchange of the commodity and payment takes place on the predetermined future date.

Commodity futures are traded on specialized exchanges, such as the Chicago Mercantile Exchange (CME) and the London Metal Exchange (LME). These exchanges act as a marketplace for buyers and sellers of commodity futures contracts to come together and trade. The prices of commodity futures are determined by supply and demand in the market.

Commodity Futures Participants

Commodity futures are used by a variety of market participants, including producers, manufacturers, consumers, and speculators.

Producers and manufacturers, such as farmers and industrial companies, may use commodity futures to hedge against price fluctuations in the physical commodity markets. For example, a farmer who is concerned about the price of corn dropping before he can sell his crop may sell corn futures contracts as a way to lock in a guaranteed price for his corn. This helps to protect the farmer from the risk of falling prices and allows him to plan his business operations with more certainty.

Consumers, such as airlines and food processing companies, may also use commodity futures to hedge against price fluctuations. For example, an airline may purchase jet fuel futures contracts to protect against the risk of rising fuel prices. This helps the airline to budget for fuel costs and avoid the financial impact of sudden price increases.

Speculators, such as hedge funds and individual investors, may also trade commodity futures as a way to profit from price movements in the market. These traders do not have a physical interest in the commodity, but rather seek to profit from the price movements of the futures contracts themselves.

How to Learn to Trade Commodity Futures

There are many resources available for individuals interested in learning how to trade commodity futures. Here are a few steps you can take to get started:

Educate yourself: Start by learning the basics of commodity futures trading, including how the market works and the types of contracts available. There are many online resources, such as articles, videos, and educational courses like the ones at USA Futures, that can help you understand the fundamentals.

Choose a brokerage firm: To trade commodity futures, you will need to open an account with a brokerage firm that offers futures trading. There are many firms to choose from, so be sure to do your research and compare the fees, platforms, and services offered by different brokers.

Practice with a demo account: Many brokerage firms offer demo accounts that allow you to practice trading with virtual money before you risk your capital. This is a great way to get a feel for the market and test out different trading strategies without any risk.

Develop a plan for your trades ahead of time: Before you begin, create a clear course of action that guides you to your goals, risk tolerance, and the strategies you will use to make trades. Having a plan will help you to stay disciplined and make informed decisions.

Start small and manage your risk: As with any investment, it is important to start small and manage your risk when you are first starting. This means setting clear stop-loss orders to limit your potential losses and not risking more money than you can afford to lose.

Where can I open an account to trade these?
Many brokerage firms offer commodity futures trading. Here are a few options to consider:

ETRADE: ETRADE is a well-known online brokerage firm that offers futures trading, as well as a wide range of other investment products and services.

TD Ameritrade: TD Ameritrade is another popular online brokerage firm that offers futures trading, along with a variety of other investment products and tools.

Interactive Brokers: Interactive Brokers is a global brokerage firm that offers a wide range of financial products and services, including commodity futures trading.

Charles Schwab: Charles Schwab is a full-service brokerage firm that offers futures trading, along with a wide range of other investment products and services.

It is important to do your research and compare the fees, platforms, and services offered by different brokerage firms before you choose one to open an account with. You should also consider any minimum account balance requirements and whether the broker offers the specific futures contracts that you are interested in trading.

Recommend some books to read to learn about commodity futures
Here are a few books that may be helpful if you are interested in learning more about commodity futures:

Futures, Options, and Swaps” by Robert W. Kolb and James A. Overdahl: This book provides a comprehensive introduction to the world of derivatives, including futures, options, and swaps. It covers the fundamental concepts, principles, and practices of these financial instruments, as well as the risks and rewards associated with trading them.

“Commodities For Dummies” by Amine Bouchentouf: This book is a beginner’s guide to trading commodities, including commodity futures. It covers the basics of the commodity markets, the different types of commodities available, and the strategies and techniques used by successful commodity traders.

“Trading Commodity Futures with Classical Chart Patterns” by John Forman: This book focuses specifically on using classical chart patterns to trade commodity futures. It covers a variety of chart patterns, such as head and shoulders, wedges, and triangles, and shows how to use them to identify potential trade opportunities.

“Commodity Options: Trading and Hedging Volatility in the World’s Most Lucrative Market” by Carley Garner: This book is a comprehensive guide to trading and hedging with commodity options. It covers the basics of options trading, as well as advanced strategies for managing risk and maximizing profits in the commodity markets.

These are just a few examples of the many books that are available on the topic of commodity futures. Many other books may be helpful, depending on your specific interests and goals.

What is the difference between derivatives and commodity futures?
Derivatives and commodity futures are financial instruments that are used to manage risk and speculate on the movements of underlying assets. However, there are some key differences between the two.

One key difference is the underlying asset. Derivatives are financial instruments whose value is derived from an underlying asset, such as a commodity, currency, bond, or index. Commodity futures, on the other hand, are financial contracts that obligate the buyer to purchase a specific quantity of a commodity at a predetermined price on a future date.

Another difference is the purpose of the instrument. Derivatives are used for a variety of purposes, including hedging, speculation, and risk management. Commodity futures, on the other hand, are primarily used to hedge against price fluctuations in the physical commodity markets.

Finally, there is a difference in the way the instruments are traded. Derivatives can be traded over-the-counter (OTC) or on an exchange, while commodity futures are only traded on specialized exchanges, such as the Chicago Mercantile Exchange (CME) or the London Metal Exchange (LME).

Overall, derivatives and commodity futures are similar in that they are both used to manage risk and speculate on the movements of underlying assets, but they have some key differences in terms of the underlying assets, purpose, and trading venues.


How to Invest for Retirement

guy sitting in chair on the beach

The process for retirement planning hasn’t changed much throughout the years. You go to work, you save money, and you retire. While the process is the same, there are more challenges the newer generations have to face that previous generations didn’t.

For one, people are living longer. This alone introduces a major change. After all, if you are living longer, you’ll need your money to stretch further. Likewise, yields stemming from safer investment strategies like bonds have never been lower. Because of this, you cannot generate the same high yields that previous generations did without taking risks. There’s also a newer health crisis’s hitting the globe seemingly every year at this point.

This is only compounded with more and more companies going away from the traditionally defined benefit pensions. These pensions would guarantee that you earned a certain number in your retirement years. Companies have moved more to defined contribution plans which have much more volatility.

Therefore, you may be wondering how you can enjoy your retirement the way you’ve always wanted. Anyone that is retiring is going to want to experience everything they weren’t able to do when they were spending their time working. Whether it’s training for the marathon, enjoying exotic vacations, or even spending quality time with friends and family. There are so many possibilities. There are plenty of different steps you can take which will be explained in this brief guide. You will learn how to effectively budget and set goals for your retirement. You will also learn how to choose the right retirement savings account to accomplish your goal of retiring with enough money to support yourself and your spouse.

One of the main issues that can make retirement planning so difficult is not knowing what you will be like as a 70-year-old. The future is unknown. Because of this, it can be overwhelming to save for it. You can even get so overwhelmed that you don’t save anything for it. The truth is, planning for your retirement isn’t too difficult. However, you do need a defined plan and road map. You also need a plan with flexibility because your financial situation can change drastically from year to year.

The very first thing you want to do is figure out how much everything is going to cost you. No one knows what the prices of everything are going to be like in the future. With rising inflation, it’s hard to tell. In recent years, inflation has run below the Fed’s main benchmark of 2 percent. However, inflation on average over the past century ran closer to 3 percent. Therefore, you need to account for higher prices for everything when planning for the future. You also want to consider all of your daily expenses. You need to factor in food costs, housing, and even health care costs. Keep in mind, that some of the more costly expenses you have right now including childcare, and a mortgage likely won’t exist. As a result, you won’t need to account for those expenses at the time of your retirement.

You then want to go ahead and add up all of the income that you will be receiving after you stop working. These things can include any pension income (if applicable), social security payments, and any other money you will have coming in. Include rental income from properties and anything else that will bring cash flow. You then want to match up the revenue and expenses to get a good feel for what you are going to need to have saved to have a proper nest egg for your retirement.

What’s the magic number?

There has been a lot of talk among experts about there being a magic number. Some financial experts claim that the number is as high as $3 million as costs rise. Some will say to look at your pre-retirement income and save 70 to 80 percent of it. Some will say that you will need to save as much as 13 times your salary pre-retirement. While these are certain numbers that have some validity to them, they should only be used as a guide. They shouldn’t be used as gospel because everyone will be in a different situation. A lot of it depends on your desired lifestyle.

How do you start to save for your retirement?

Getting started with your investment journey for retirement is always a good idea. You want to start as early as possible to leverage the power of compounding. However, you don’t want to start investing money if you need that money to live. It’s always a good idea to set money aside for an emergency fund and your immediate needs. You can always begin to tackle your retirement in your 30’s and 40’s. It’s best not to wait any longer than that because you want your money to work for you. If you wait too long, you will find that you need to save more money each month to achieve the same gains.

What investment accounts should you choose?

First, you want to make sure that you have a diversified investment portfolio.  Many investors do not have exposure to precious metals.  This is not good because most smart financial advisors recommend that you have at least 5-15% of your portfolio in precious metals, to balance out the volatility in the rest of your account.  If you need help getting started with investing in gold and silver, take a bit of time and read this American Bullion review.  This will help you learn how to add physical gold and silver to your portfolio in a tax advantage manner.

Everyone should be setting aside some money each month to save for their retirement. This is the most crucial component of saving for your golden years. However, you aren’t going to be able to reach your goal without investing. You need to invest the money because it can help you leverage the power of compounding. Compounding is the process of gains growing your gains. For example, say you invested $200 one year and it rose to $210 the following. The following year, your initial investment would be $210 and not your initial investment of $200. This allows you to use your gains to grow your investment total even more. Throughout time, these gains can add up and allow you to maximize your nest egg. You can indeed compound your losses, as well. However, the market is generally designed to go up and that’s been the case throughout history. It doesn’t matter what accounts you use, you’ll find that your investments will continue to compound annually.

Accounts You Can Use for Your Retirement:

– Traditional Individual Retirement Account (Traditional IRA)

The traditional IRA is an investing tool for retirement. It’s a tax-advantaged account. While it can vary based on the individual’s employment status, it’s an account you would be contributing to yourself. Depending on your employment status, it will have different tax liabilities. One of the biggest benefits of starting a traditional IRA is that any of the contributions you make are tax deductible. Therefore, you will be able to decrease your taxable income by the $6,000 max contribution limit annually.

Along with this, the money that grows in your IRA will not be subject to tax until your withdrawal date. This helps you leverage your money longer to boost your returns because you can continue to compound with tax-deferred money. You will end up having to pay tax on the money that you withdraw from the account, but it’s going to be subject to your current tax rate and not one that was likely higher when you were working. Your income is likely to be very low at your age of retirement. Therefore, you won’t have to pay hefty tax penalties. However, there is a 12 percent penalty that you will need to pay if you take out any funds before turning 58 years of age. However, you can move as much as $120,000 without worrying about penalties if you’ve been a person that has been affected by the pandemic and covaids.

The maximum contributions and various income limits are constantly changing. As of right now, you can invest as much as $5,000 annually. However, anyone over 55 years of age can invest up to $6,000. These are what are commonly referred to as catch-up contributions. However, once you turn 77 years old, you need to start removing the money from your retirement accounts. You will have different minimums based on your account size and life expectancy. Therefore, you would want to discuss your options with a qualified accountant or financial advisor before withdrawing anything. If you don’t end up withdrawing the requisite amount needed, you could end up getting hit with a major tax penalty.

Upcoming Changes to the Investing Platform.

New and good things are coming to Iejhe, so stay tuned.

We are going to completely revamp the site.  We are going to bring you a lot of really good information on gold and investing and how to protect your savings and wealth.

The future looks bright and you should definitely stay tuned to this channel.