Thu Jul 14, 2011 4:32pm EDT
* Gold at record in wake of Moody's warning on U.S. debt * Bernanke says Fed not ready to act yet, weighs on market * U.S. stocks fall, along with oil
(Updates with U.S. stock, gold closing levels) By Caroline Valetkevitch NEW YORK, July 14 (Reuters) - Gold prices hit a record high
on Thursday in the wake of Moody's warning that the U.S.
government may lose its top credit rating, while stocks and oil
prices fell after the Federal Reserve chief dampened hopes of
further economic stimulus. Fed Chairman Ben Bernanke reiterated on Thursday that the
U.S. central bank would be prepared to inject more stimulus
into the system if the U.S. economy worsens, but told a U.S.
Senate committee that the time had not come yet and noted
inflation had picked up since late 2010. For details, see
[ID:nN1E76D0IG] While Bernanke's comments broadly pushed commodities lower,
gold rallied on a safe-haven bid after Moody's warning late
Wednesday, which was the latest jolt to investors who are
already on edge about the spreading debt crisis in the euro
zone. The credit rating agency said it could strip the world's
biggest economy of its coveted AAA credit status on the growing
risk that it could default because Washington has not reached a
deal to raise its $14.3 trillion debt ceiling. For details see
[ID:nLDE76D01W] The U.S. Treasury has warned that after Aug. 2 it will not
have enough money to pay all of the country's bills if a deal
is not reached over cutting the fiscal deficit to allow the
debt ceiling to be raised. Spot gold XAU= touched a record high of $1,594.16, and
was up 0.3 percent at $1,586.11 an ounce. U.S. gold futures
GCQ1 for August delivery settled up $3.80 an ounce. The precious metal posted its ninth straight daily rise,
its longest run of gains since October 2006, notching total
gains for the period of more than 7 percent. "This is more about fear, about the dollar, the debt
troubles in Europe, as well as the possible downgrade of the
U.S. credit rating by Moody's," said Commerzbank analyst Eugen
Weinberg. "For gold, this is (one of) the best times." BERNANKE WEIGHS ON MARKETS U.S. stocks fell after Bernanke backed off hints that
additional near-term stimulus could be on the way, removing a
possible catalyst from a market already facing plenty of
obstacles. Wall Street had snapped a three-day losing streak on
Wednesday after comments by Bernanke, in his first of two days
of testimony before Congress, suggested that the Fed could be
ready to act again to support the economy. "Bernanke has backed off considerably from what might have
been more stimulus, and that made yesterday's rally like eating
sugar for lunch: nothing more than a short burst of energy,"
said Kent Engelke, chief economic strategist at Capitol
Securities Management in Richmond, Virginia. The Fed chairman also renewed his warning that a United
States debt default would be devastating for the U.S. and
global economies. The Fed ended its most recent asset-purchase program in
June. Traders said another round of easing would flood the
financial system with yet more money and encourage investors to
reach for higher-yielding currencies and assets. The Fed's easy money policies since 2008 have helped
bolster stocks. The Standard & Poor's 500 index is up about 95
percent from its March 2009 closing low. Technology stocks led the losses on Wall Street on
Thursday. At the close, the Dow Jones industrial average .DJI was
down 54.49 points, or 0.44 percent, at 12,437.12. The Standard
& Poor's 500 Index .SPX was down 8.85 points, or 0.67
percent, at 1,308.87. The Nasdaq Composite Index .IXIC was
down 34.25 points, or 1.22 percent, at 2,762.67. World stocks as measured by MSCI .MIWD00000PUS were down
0.7 percent while the FTSEurofirst 300 .FTEU3 ended down 0.9
percent. In Asia overnight, Japan's Nikkei .N225 ended down
0.3 percent. In the foreign exchange market, the U.S. dollar was up 0.02
percent against a basket of currencies .DXY. Both the euro
EURCHF=EBS and dollar CHF=EBS at one point hit record lows
against the Swiss currency as investor demand for the
traditional safe haven remained elevated. OIL SLIDES Oil prices dropped in volatile trading following Bernanke's
comments. On the New York Mercantile Exchange, August crude CLQ1
fell $2.36, or 2.41 percent, to settle at $95.69 per barrel,
trading from $94.53 to $98.88. Thursday's slip was the biggest
one-day percentage loss since July 8. ICE Brent August crude LCOQ1 went off the board after
falling 46 cents to settle at $118.32. U.S. Treasuries prices slipped as well, with benchmark
10-year Treasury notes US10YT=TWEB trading 20/32 lower in
price to yield 2.96 percent, up from 2.88 percent on Wednesday
afternoon. "The potential downgrade of U.S. debt caused the market to
sell off a little bit overnight, but given all the headlines
concerning the potential downgrade, the markets are trading
extremely resiliently here, and I would not be surprised if
once we digest this bit of supply we continue to motor toward
lower yields," said Scott Graham, head of government bond
trading at BMO Capital Markets in Chicago.
(Additional reporting by Jeremy Gaunt, Nia Williams, Jon
Harvey and Atul Prakash in London, and Frank Tang, Robert
Gibbons, Ryan Vlastelica in New York; and Andy Sullivan and
Deborah Charles in Washington; Editing by Leslie Adler)
Friday, July 15, 2011
Sunday, May 16, 2010
What Are Margins: Simplified Answers to FAQs
In trade parlance, a margin basically refers to the collateral both parties-the buyer and seller-place in a clearing house or in a margin deposit to ensure that both parties will honor the futures trading contract they have voluntarily gotten themselves into. In a sense, margins are a security deposit to ensure that the customer or buyer will fulfill his obligation to pay the ordered goods on a date or period specified in the futures trading contract. The seller has an equal obligation to deliver the goods or products he specified in the futures trading contract so he is also obliged to place surety in the clearing house.
A margin is also referred as performance bond that is the amount of 5 to 15 percent of the total contract value. Margins can be in the form of money or cash, treasury bonds, bank guarantee, and fixed deposit receipts. You can also deposit certificates of your real estate properties as collateral.
The Types of Margins
As mentioned earlier, there are different types of margins. These types of margins are the following:
Among the types of margins that investors can opt for are clearing margins. They are surety between companies or corporations and their customers. Clearing margins are done to ensure that corporations will fulfill their obligations stated in the futures trading contracts.
On the other hand, the initial margin is the required equity amount to secure a futures position. This type of margin can be considered as means of performance bond in the way that the maximum exposure is not limited to the initial margin amount.
The customer margin is also useful within the futures trading industry. The customer margin accounts are always made sure by the Futures Commission Merchants that the sellers and buyers of currency trade maintain their contract obligations. Margins are very important for traders to calculate the market risk and value they would be entering. Customer margins are also synonymously used with performance bond margin.
A term commonly used by speculators in the futures trading market is the margin-equity ratio. This type of margin represents the amount of their capital that is traded at a particular time.
Maintenance margin is also one type that is considered a daily offset of profits and losses. Since futures trading is based on a daily market trend, the prices of commodities vary day by day. Hence, the profit or loss of the trade position can be debited to the futures exchange holders.
Premium margins serve as the collateral that the trader should deposit as an obligation once the option is exercised. This premium margin is an indication that a seller of an option can fulfill his obligation to the trade. Moreover, the premium margin is considered equal to the premium needed as payment to purchase the option back and close his position.
Lastly, the additional margin is aimed at covering the possible fall on the value of the position after the present day of trading. Additional margin is regarded as the potential loss under worst consequences.
A margin is also referred as performance bond that is the amount of 5 to 15 percent of the total contract value. Margins can be in the form of money or cash, treasury bonds, bank guarantee, and fixed deposit receipts. You can also deposit certificates of your real estate properties as collateral.
The Types of Margins
As mentioned earlier, there are different types of margins. These types of margins are the following:
Among the types of margins that investors can opt for are clearing margins. They are surety between companies or corporations and their customers. Clearing margins are done to ensure that corporations will fulfill their obligations stated in the futures trading contracts.
On the other hand, the initial margin is the required equity amount to secure a futures position. This type of margin can be considered as means of performance bond in the way that the maximum exposure is not limited to the initial margin amount.
The customer margin is also useful within the futures trading industry. The customer margin accounts are always made sure by the Futures Commission Merchants that the sellers and buyers of currency trade maintain their contract obligations. Margins are very important for traders to calculate the market risk and value they would be entering. Customer margins are also synonymously used with performance bond margin.
A term commonly used by speculators in the futures trading market is the margin-equity ratio. This type of margin represents the amount of their capital that is traded at a particular time.
Maintenance margin is also one type that is considered a daily offset of profits and losses. Since futures trading is based on a daily market trend, the prices of commodities vary day by day. Hence, the profit or loss of the trade position can be debited to the futures exchange holders.
Premium margins serve as the collateral that the trader should deposit as an obligation once the option is exercised. This premium margin is an indication that a seller of an option can fulfill his obligation to the trade. Moreover, the premium margin is considered equal to the premium needed as payment to purchase the option back and close his position.
Lastly, the additional margin is aimed at covering the possible fall on the value of the position after the present day of trading. Additional margin is regarded as the potential loss under worst consequences.
Who Trades Futures: Know the Trade Key Players
For an individual without an economic or financial background, it is understandable to ask what futures trading is. Basically, futures trades are premeditated trading wherein the completion of the transaction would be on the agreed date by the buyer and seller. The prices are also predetermined and the goods would be delivered at a particular date in the future. Futures trades are sealed with a contract and is legally binding with legal sanctions attached should failure of delivery happens.
The contracts of the futures trading clearly stipulate the terms and conditions of the trade and are regulated by government agencies and guaranteed by a clearing house. Futures trading contracts are commonly initiated by the buyer to ensure that the product of certain goods and commodities would go directly to the contracting party. In simple terms, futures trading contracts are black-and-white reservations to ensure that the buyer will get his needed products at a particular time in the future. Having a contract where the exact price of the products are indicated would ensure the buyer and seller that the price would not be affected by varying factors such as natural calamities, exchange rates, and product decay.
The Process
Futures trading contracts are formal contracts entered into by businessmen, producers, and entrepreneurs. To consider a futures contract successful, both parties must go through this process:
A hedger or an investor takes a look at the market for possible good investment on things he prefers to invest on.
If he has already decided which area should he invest or what he needs for his business venture, a contract would be made between two parties with provisions clearly stipulated therein.
The exchange of commodities and payment is done on the indicated date in the contract. Other specifics such as price, quantity, the mode of payment, and delivery are also stated in the futures contracts.
After the indicated period like three months or a year, the delivery or exchange of goods will take place.
And the futures contract can be closed and deemed completed.
Who Trades Futures?
Usually, the ones who get into futures trading are major investors, entrepreneurs, small-scale and big-time businessmen as buyers, while the usual producers or sellers are farmers, livestock growers, miners, and local crop growers. Futures trading is a financial and economic relationship by sellers and buyers who are interested to attain financial profit with money, bonds, and treasury notes as underlying products.
The contracts of the futures trading clearly stipulate the terms and conditions of the trade and are regulated by government agencies and guaranteed by a clearing house. Futures trading contracts are commonly initiated by the buyer to ensure that the product of certain goods and commodities would go directly to the contracting party. In simple terms, futures trading contracts are black-and-white reservations to ensure that the buyer will get his needed products at a particular time in the future. Having a contract where the exact price of the products are indicated would ensure the buyer and seller that the price would not be affected by varying factors such as natural calamities, exchange rates, and product decay.
The Process
Futures trading contracts are formal contracts entered into by businessmen, producers, and entrepreneurs. To consider a futures contract successful, both parties must go through this process:
A hedger or an investor takes a look at the market for possible good investment on things he prefers to invest on.
If he has already decided which area should he invest or what he needs for his business venture, a contract would be made between two parties with provisions clearly stipulated therein.
The exchange of commodities and payment is done on the indicated date in the contract. Other specifics such as price, quantity, the mode of payment, and delivery are also stated in the futures contracts.
After the indicated period like three months or a year, the delivery or exchange of goods will take place.
And the futures contract can be closed and deemed completed.
Who Trades Futures?
Usually, the ones who get into futures trading are major investors, entrepreneurs, small-scale and big-time businessmen as buyers, while the usual producers or sellers are farmers, livestock growers, miners, and local crop growers. Futures trading is a financial and economic relationship by sellers and buyers who are interested to attain financial profit with money, bonds, and treasury notes as underlying products.
What Is Traded: Know the Basic Forms of Exchanges
In ordinary terms, a trade happens when there is a voluntary exchange of either services or goods and even both. A complete trading process happens when two individuals or entities went on their own separate ways after exchanging commodities or services with whatever medium they have agreed on, like money or another product. A direct exchange of commodities or services without the involvement of money or currency is called barter. Historically, barter was the sole mode of trading before, but eventually, the development of other medium of exchange such as the use of money, non-physical money, and credit paved the way to a more advanced and precise method of trading. Eventually, trade variations such as futures trading were developed.
The Various Forms of Trade
There are two basic forms of trade, and these two are:
The bilateral trade or an exchange of commodities or services between two individuals or traders. An example of this process is your casual buying of things such as from a hotdog vendor. You give the hotdog vendor some dollars, he gives you your ordered hotdog and the trading cycle was completed. Bilateral trade can also be applicable in other forms of trade like futures trading.
The multilateral trade happens when more than two individuals are involved in the process such as agreements between several nations regarding trade and exchange policies. Multilateral trade is complex and is sometimes difficult to harmonize due to the involvement of several entities or countries.
Where Does Trading Happen?
Trade and trading can happen anywhere as long as there is a consented and voluntary exchange between parties, but generally, trade takes place in local and international market. A market can be physical such as your supermarkets in your area or it could be electronic or non-physical markets. Trading can also take place in transactions for the future or futures trading. A perfect example of non-physical markets can be found on the Internet and on websites that offer goods and commodities where the transfer of money happens electronically or between virtual accounts. Trade can also happen in the black market or illegal trades where commodities are passed through the backdoor of a country without proper documentation. This type of trading is illegal and financially detrimental to a country because the government cannot collect taxes from the commodities channeled through the backdoor.
What Is Traded?
Technically, anything can be traded provided there is consent from the rightful owner of the commodity. Anything can also be subjected to futures trading following the aforementioned premise. Real properties such as lands and fixed assets should have papers to support ownership and to legitimize the trading whether spot or futures trading. Trade that involves services should be voluntary and must be coupled with just compensation.
How Do You Identify a Good Trade?
The commodities and services you have paid for must be commensurate to your payment. To ensure that you are getting into a fair and legal trade, check the background of the person you are trading with or read the labels of the things you buy to know that you are buying safe and quality products or you are getting into a safe futures trading.
The Various Forms of Trade
There are two basic forms of trade, and these two are:
The bilateral trade or an exchange of commodities or services between two individuals or traders. An example of this process is your casual buying of things such as from a hotdog vendor. You give the hotdog vendor some dollars, he gives you your ordered hotdog and the trading cycle was completed. Bilateral trade can also be applicable in other forms of trade like futures trading.
The multilateral trade happens when more than two individuals are involved in the process such as agreements between several nations regarding trade and exchange policies. Multilateral trade is complex and is sometimes difficult to harmonize due to the involvement of several entities or countries.
Where Does Trading Happen?
Trade and trading can happen anywhere as long as there is a consented and voluntary exchange between parties, but generally, trade takes place in local and international market. A market can be physical such as your supermarkets in your area or it could be electronic or non-physical markets. Trading can also take place in transactions for the future or futures trading. A perfect example of non-physical markets can be found on the Internet and on websites that offer goods and commodities where the transfer of money happens electronically or between virtual accounts. Trade can also happen in the black market or illegal trades where commodities are passed through the backdoor of a country without proper documentation. This type of trading is illegal and financially detrimental to a country because the government cannot collect taxes from the commodities channeled through the backdoor.
What Is Traded?
Technically, anything can be traded provided there is consent from the rightful owner of the commodity. Anything can also be subjected to futures trading following the aforementioned premise. Real properties such as lands and fixed assets should have papers to support ownership and to legitimize the trading whether spot or futures trading. Trade that involves services should be voluntary and must be coupled with just compensation.
How Do You Identify a Good Trade?
The commodities and services you have paid for must be commensurate to your payment. To ensure that you are getting into a fair and legal trade, check the background of the person you are trading with or read the labels of the things you buy to know that you are buying safe and quality products or you are getting into a safe futures trading.
Commodity Exchanges: How Do They Work?
One of main resources that are widely used by people around the world are commodities. Energy, for example, is one useful commodity that is produced throughout the world today as well as natural gas, oil, silver, gold, and similar others. On the other hand, food commodities are also available such as rice, corn, sugar, cattle, meat, poultry, etc. These items are made accessible to everyone because of the trading mechanism that is followed across the world's market. These goods are widely marketed by investors into local or international trade by means of commodity exchanges or they can also be subjected to futures trading.
There is good income from investing in commodities. Hence, if you are considering to venture on this type of trade or futures trading, it is important to equip yourself with the following useful information.
Commodity Exchange Defined
The physical products such as livestock, fuel, as well as other industrial metals can be exchanged and traded for equivalent financial value or they can be chosen for futures trading. Much like trading cash or stock, investors can greatly benefit from commodity trade.
The concept of commodity exchanges can be likened to making a trade on the future value of the specific commodity you wish to trade. In this trade, commodities are sold in a standardized contract or futures trading contract. Much like buying or selling other goods, the ownership of the commodity is just like the typical trade in a store. However, commodities trading are usually considered valuable for futures trading as in the case of selling a commodity at a fixed price on a particular date. It is good to enter into a commodity or futures trading contract when the price on a certain date is less than its real cost, making the trade a good investment. It is important to remember that one should avoid trading if commodities are higher that the real market value.
The Relation of Commodities Exchange and the Economy
Since everything about business and trade highly affects the trend in a country's economy, commodity exchanges also plays a big part in influencing the economy. Trading in commodities greatly influences the economy because of its role in making predictions about the prices of goods in the future, which are important in the market. In the case of oil trade, for example, there is a significant price watch over its value across the globe. This is because of the interrelated relationship between the trend of supply and demand, politics, geography, as well as other factors that affects commodity market. But if you want the price of your commodity to be unaffected by external factors, go for futures trading.
Risks and Opportunities in Commodity Exchanges
Commodity exchanges are way faster than the flow of income and the growth of investment than trading in stock market or futures trading. Although commodity trading can give a lot of opportunities for investors, certain drawbacks are almost constantly inevitable. For example, the risk of losing your investment in a bad contract is one thing you must watch out for in investing on commodities. It is also important that the investor can cover up the expenses involved in commodity trading especially because of the unstable prices.
There is good income from investing in commodities. Hence, if you are considering to venture on this type of trade or futures trading, it is important to equip yourself with the following useful information.
Commodity Exchange Defined
The physical products such as livestock, fuel, as well as other industrial metals can be exchanged and traded for equivalent financial value or they can be chosen for futures trading. Much like trading cash or stock, investors can greatly benefit from commodity trade.
The concept of commodity exchanges can be likened to making a trade on the future value of the specific commodity you wish to trade. In this trade, commodities are sold in a standardized contract or futures trading contract. Much like buying or selling other goods, the ownership of the commodity is just like the typical trade in a store. However, commodities trading are usually considered valuable for futures trading as in the case of selling a commodity at a fixed price on a particular date. It is good to enter into a commodity or futures trading contract when the price on a certain date is less than its real cost, making the trade a good investment. It is important to remember that one should avoid trading if commodities are higher that the real market value.
The Relation of Commodities Exchange and the Economy
Since everything about business and trade highly affects the trend in a country's economy, commodity exchanges also plays a big part in influencing the economy. Trading in commodities greatly influences the economy because of its role in making predictions about the prices of goods in the future, which are important in the market. In the case of oil trade, for example, there is a significant price watch over its value across the globe. This is because of the interrelated relationship between the trend of supply and demand, politics, geography, as well as other factors that affects commodity market. But if you want the price of your commodity to be unaffected by external factors, go for futures trading.
Risks and Opportunities in Commodity Exchanges
Commodity exchanges are way faster than the flow of income and the growth of investment than trading in stock market or futures trading. Although commodity trading can give a lot of opportunities for investors, certain drawbacks are almost constantly inevitable. For example, the risk of losing your investment in a bad contract is one thing you must watch out for in investing on commodities. It is also important that the investor can cover up the expenses involved in commodity trading especially because of the unstable prices.
Futures Trading Defined: What You Need to Know
One type of investment that you can have the chance of earning large profit is by investing in futures. This type of trade involves all the necessary speculation on the price of a specific commodity such as crude oil, livestock, or grain. What you will just have to do in futures trading is to make definite speculations on the price trend of certain commodities and then make a good market decision based on the price flow.
For instance, if you are investing on crude oil, you will surely expect that the price of the commodity will increase in the future. Hence, this trend of the oil commodity will encourage investors to buy oil contracts. Speculators play a great part in the exchange of future contracts and they either take large profit or suffer damaging losses. So if you are planning to invest in futures trading, here are some pieces of information that can help you in your futures investment.
Know the Difference Between Stock Exchange and Futures Trade
You may be wondering what the difference between investing in stock exchange and trading in futures contract is. In a stock exchange, stocks are sold and bought representing a partial ownership of the company shares or profit shares. While on the other hand, in futures trading, it is the contracts that are sold and bought for the certain trade of a commodity over a specific period depending on the agreement of the buyer and seller of the commodity. Moreover, these contracts are standardized in terms of quality, quantity, as well as the time and delivery of the commodity. The only variable factor in this type of trade is the price.
Know Why Futures Trading Is Important
Investors are always looking for opportunities to earn higher income; hence, futures trading is one way of achieving this goal. The benefits you will get from this kind of investment will highly depend on the extent of the effectiveness of risk management in businesses. With the use of effective risk reduction strategies, the cost and losses that investors might experience will be greatly regulated and savings will also be felt by consumers since prices will be lower for commodities.
In entering into futures contract, it is important that both parties specify in complete details the stipulation of the terms of the price flow, quality and quantity, and the delivery details of certain items.
Know If Futures Trading Is Right for You
Knowing the advantages of futures trading and the things involved in trading for commodities will greatly help in your decision of entering into the futures trade. Because this type of investment is not entirely complicated and the profits largely depend on the movement of commodity prices, most investors are attracted in commodity trading. Moreover, it is relatively easy to buy or sell futures, but on the other hand, commodities are dependent on environmental factors such as droughts, hurricanes, tornadoes, and other calamities that can greatly affect crops, for instance.
However, these risks can be managed effectively if traders know what they are playing at and can efficiently speculate on commodity prices.
For instance, if you are investing on crude oil, you will surely expect that the price of the commodity will increase in the future. Hence, this trend of the oil commodity will encourage investors to buy oil contracts. Speculators play a great part in the exchange of future contracts and they either take large profit or suffer damaging losses. So if you are planning to invest in futures trading, here are some pieces of information that can help you in your futures investment.
Know the Difference Between Stock Exchange and Futures Trade
You may be wondering what the difference between investing in stock exchange and trading in futures contract is. In a stock exchange, stocks are sold and bought representing a partial ownership of the company shares or profit shares. While on the other hand, in futures trading, it is the contracts that are sold and bought for the certain trade of a commodity over a specific period depending on the agreement of the buyer and seller of the commodity. Moreover, these contracts are standardized in terms of quality, quantity, as well as the time and delivery of the commodity. The only variable factor in this type of trade is the price.
Know Why Futures Trading Is Important
Investors are always looking for opportunities to earn higher income; hence, futures trading is one way of achieving this goal. The benefits you will get from this kind of investment will highly depend on the extent of the effectiveness of risk management in businesses. With the use of effective risk reduction strategies, the cost and losses that investors might experience will be greatly regulated and savings will also be felt by consumers since prices will be lower for commodities.
In entering into futures contract, it is important that both parties specify in complete details the stipulation of the terms of the price flow, quality and quantity, and the delivery details of certain items.
Know If Futures Trading Is Right for You
Knowing the advantages of futures trading and the things involved in trading for commodities will greatly help in your decision of entering into the futures trade. Because this type of investment is not entirely complicated and the profits largely depend on the movement of commodity prices, most investors are attracted in commodity trading. Moreover, it is relatively easy to buy or sell futures, but on the other hand, commodities are dependent on environmental factors such as droughts, hurricanes, tornadoes, and other calamities that can greatly affect crops, for instance.
However, these risks can be managed effectively if traders know what they are playing at and can efficiently speculate on commodity prices.
Futures Contract: The Legally Binding Agreement
Futures Contract: The Legally Binding Agreement
There are many ways in which you can increase your income by more than a hundred percent. One of the options you can take is by investing your money on trade such as commodity trading. There are a number of commodities such as oil, livestock, gold, and many others that you can buy and sell over the market. And one popular and common way of investing in commodities is by engaging in a futures trading contract.
What Really Is a Futures Trading Contract?
You might be hearing about this sort of contract that investors enter while trading with commodities. So what exactly is a futures trading contract? This so-called contract that investors enter into while playing in commodities trade is an agreement between two parties technically called the short position and the long position. The former is defined as the person or body who agrees in supplying the commodity while the latter is the party who receives the goods. For instance, in the case of a farmer and a bread maker where the farmer would be the one to supply the commodity, and of course, the bread maker will be the one to buy the commodity.
Moreover, everything in the futures trading contract should be specified and made certain such as the quantity and quality, specific price per unit, as well as the date the means of delivery. Pricing in the futures contract will have to be agreed and confirmed by the traded commodity and the financial value that is equivalent to the base trade. Hence, in the price contract of 4,000 bushes of grain, the price per bushel should be around $3 depending on the agreement of the two parties.
The Profit and Loss in a Futures Contract
When it comes to the profits and losses that key players encounter in a futures trading contract, these two ups and downs of business investments are highly relative on the everyday flow of market trends that are calculated regularly on a daily basis. For instance, the future contracts for wheat rises up to $4 per bushel. The farmer, from this price movement of the commodity has lost $1 because the selling price for bushel is only $3 per bushel. The bread maker, in turn, will profit since he will pay less from the real price of the commodity.
Because in the futures trading contract prices are adjusted in a daily basis, the transactions will of course be settled in cash and the physical commodity is sold in the cash market. Cash market and futures market prices generally tend to flow in parallel with each other so that when the contract ends, prices will be in unison.
Importance of the Futures Market in the Economy
The futures market is increasingly active and changing. Hence, it is considered as a very good source of significant information on the movement of the market as well as the economy. The discovery of prices is one important factor that the economy can benefit from futures trading. Moreover, risk will also be managed and reduced when purchasing since commodity prices are relatively unstable.
There are many ways in which you can increase your income by more than a hundred percent. One of the options you can take is by investing your money on trade such as commodity trading. There are a number of commodities such as oil, livestock, gold, and many others that you can buy and sell over the market. And one popular and common way of investing in commodities is by engaging in a futures trading contract.
What Really Is a Futures Trading Contract?
You might be hearing about this sort of contract that investors enter while trading with commodities. So what exactly is a futures trading contract? This so-called contract that investors enter into while playing in commodities trade is an agreement between two parties technically called the short position and the long position. The former is defined as the person or body who agrees in supplying the commodity while the latter is the party who receives the goods. For instance, in the case of a farmer and a bread maker where the farmer would be the one to supply the commodity, and of course, the bread maker will be the one to buy the commodity.
Moreover, everything in the futures trading contract should be specified and made certain such as the quantity and quality, specific price per unit, as well as the date the means of delivery. Pricing in the futures contract will have to be agreed and confirmed by the traded commodity and the financial value that is equivalent to the base trade. Hence, in the price contract of 4,000 bushes of grain, the price per bushel should be around $3 depending on the agreement of the two parties.
The Profit and Loss in a Futures Contract
When it comes to the profits and losses that key players encounter in a futures trading contract, these two ups and downs of business investments are highly relative on the everyday flow of market trends that are calculated regularly on a daily basis. For instance, the future contracts for wheat rises up to $4 per bushel. The farmer, from this price movement of the commodity has lost $1 because the selling price for bushel is only $3 per bushel. The bread maker, in turn, will profit since he will pay less from the real price of the commodity.
Because in the futures trading contract prices are adjusted in a daily basis, the transactions will of course be settled in cash and the physical commodity is sold in the cash market. Cash market and futures market prices generally tend to flow in parallel with each other so that when the contract ends, prices will be in unison.
Importance of the Futures Market in the Economy
The futures market is increasingly active and changing. Hence, it is considered as a very good source of significant information on the movement of the market as well as the economy. The discovery of prices is one important factor that the economy can benefit from futures trading. Moreover, risk will also be managed and reduced when purchasing since commodity prices are relatively unstable.
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