Commodity trading basics
As with many subjects there is a learning curve that you have to pass in order to understand the commodities market. Whenever you see a word you don’t understand use the glossary and look it up. When people say that they buy or sell a commodity or a future what they mean is that they were buying or selling a contract that controls an underlying commodity. For example, a contract for silver controls 5000 ounces of physical silver. These contracts are arranged by date for example there would be a contract for December 2009 silver what this means is the contract expires in December of 2009. The contracts also specify whether you will make delivery or take delivery of the underlying commodity. Some contracts allow you to take delivery of the underlying commodity others only allow you to sell the actual contract. The majority of speculators and never intend to take delivery and instead transfer their contractual obligation to someone else in the marketplace when this happens this is called offsetting your position. And as a speculator this is exactly what you want you will keep all the profits or losses from trading the contract however you will not have to take or make delivery of the underlying commodity.
Tags: commodity trading, fundamentals of trading commodities