Learning About Commodity Futures Could Benefit Your Portfolio

Commodity futures used to be inaccessible to anyone besides professional traders. However, in recent years, the average trader has gained access to commodity exchanges, and, accordingly, commodities futures. Unfortunately, many investors still choose not to trade commodity futures. Trading commodity futures could prove monumental for your portfolio. It’s an investor’s best interest to take the time to learn about commodity futures.

Why You Should Learn More About Commodity Futures 

There are two primary reasons why even the most casual of investors could benefit from learning about commodity futures. First and foremost, equity investors now have more access than ever to futures in the ETF market. Not only does futures exposure come from exposure to commodity-specific ETFs, but it also comes from alternative ETFs.

Secondly, commodity futures are an excellent form of portfolio diversification. Commodity markets operate under basic economic principles where supply dictates demand, and so forth. Commodity markets are incredibly stable and are far less volatile than other securities futures. Additionally, experts view commodities as an underappreciated asset class, providing ample opportunity for long-term growth and diversification.

Basics Of The Futures Market

If you are an investor who is used to handling equities and options, there are a few things you’ll need to understand about the futures market. Most important is the fact that futures are not an asset. This is one of the most common misconceptions about futures. Futures are a contract that gives the investor the right to purchase or sell an asset at a later date.

Understanding The Futures Market 

One of the primary differences between the futures market and the equity market is the use of the word “margins.” Investors are taught to avoid margins in the equity market because they represent leverage, which typically serves as a trap for a poor investment.

Margin, regarding the stock market, means that the investor has taken out a loan so that they can increase their exposure to a particular stock. If the stock fails, the investor will not only be out the principle but the interest accrued on the loan as well, resulting in an more significant loss.

However, margin, regarding a futures contract, represents the amount of money that investors deposit into a clearinghouse. Typically, clearinghouses will limit the Initial Margin deposit to less than ten percent of the rice of the future. Furthermore, clearinghouses require both buyers and sellers to deposit their margin into the account, which helps mitigate long-term risk as both entities will be able to close out their position.

Another critical difference in the futures market is how contracts are settled. Futures investors have the option to:

  • Offset their position as the expiration date approaches
  • Convert the agreement into a cash settlement
  • Deliver the commodity

The exchange handles any cash conversions or delivery, although these outcomes are rare. However, the fact that owners could offset their position provides them with significant flexibility. Offsetting can help reduce exposure and the likelihood of taking a loss, which is why futures should serve as part of any long-term investing strategy.


US LAW requires trading and trading education accompanied to post legal disclaimers as to market and personal performance, as well as investment risk. Please carefully read and study the Legal section of this website and any agreement you sign. Any agreement to doing business with SP500Trader.com website or Delta Trading Group, Inc is verification that you have read, understand, and agree to the terms of risk associated with futures trading and financial investing as described.

Important Futures Trading Disclaimer

Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. You must review customer account agreement prior to establishing an account.

Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial. Carefully consider the inherent risks of such an investment in light of your financial condition. Though proper education, tools, and practice are necessary, they do not guarantee profitable results. 

Education Oriented

SP500Trader.com and the Delta Trading Group, Inc. are educational entities; be sure to consult with your financial advisers, brokers, and other professional services about the risk of trading. Though we offer a common language to learn about trading and risk, we are not a signal service. You must use your own discretion when doing any kind of trading in any financial market. SP500Trader.com and the Delta Trading Group, Inc. are not responsible for interpretation, opinions, or losses by its members, liaisons, instructors, mentors, vendors, contractors, or administration, as none of these entities can guarantee your success. 

Internet Trading Risks

There are risks associated with utilizing an Internet-based deal execution trading system including, but not limited to, the failure of hardware, software, internet connection, or services provided by third parties. Since SP500Trader.com and the Delta Trading Group, Inc do not control vendor signal power, its reception, or routing via Internet, configuration of your equipment or reliability of its connection. We are not be responsible for communication failures, distortions, or delays when trading via the Internet. 

Accuracy of Information

The content on this website is subject to change at any time without notice, and is provided for the sole purpose of assisting traders to make independent investment decisions. SP500Trader.com and the Delta Trading Group, Inc have taken reasonable measures to ensure the accuracy of the information on the website. The company does not guarantee its accuracy, and disclaims liability for any loss or damage which may arise directly or indirectly from the content or your inability to access the website, for any delay in, failure of the transmission, or the receipt of any instruction or notifications sent through this website.

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Slippage

Your broker may have a contractual agreement not to seek redress for slippage, it’s obligation to execute stop loss orders at the stop loss price or better, will not apply to limit and stop loss orders during hours when it is closed. This also does not include bad price spikes. Bad price spikes are removed from the price charts quickly to alleviate confusion.

Turn Your Home Trading Dream Into A Reality

Has the thought of working from your home been a dream of yours since your first job interview? While the thought of making a living buying and selling from the comfort of your couch might be appealing, most aspiring home traders fail because they don’t take the work seriously. Intentions and enthusiasm only go so far; it’s the structure and discipline that carry you to the goal line. If you really want to achieve success and earn a living from the comfort of your home, you’ll need to take these four steps before you can turn a profit.

Four Steps To Work-From-Home Success

1) Get organized. When you work from home, you might be thinking more about mopping or vacuuming your “trading floor” than working on it. Your home office is surrounded by everything that makes it a home, and very little by what makes it an office. Your first step to success is to organize your office area and remove distractions. Keep desk essentials limited to items such as:

  • Your computer
  • Notebooks
  • Pens
  • Calculator

2) Treat it like a business. Between the media and brokers, trading is often depicted as a game. Treating your home-trading business as a form of entertainment, however, will leave you lacking in profit. Trading should be based on the specific set of rules that you follow and stick to. There’s nothing wrong with a bit of boring when it creates success. When things get rough, leave the drama on the dance floor and understand that costs and losses make you who you are. Then, move on.  

3) Create a routine. No one will be looking over your shoulder, asking for deadlines, or making the palms of your hands sweat. Working from your home gives you freedom, but this freedom can be detrimental to your bottom line unless you create structure. Get out of bed on time each day, and take regularly scheduled breaks for meals, exercise, and errands. Leave the house often so that when you return, you feel like you’re coming back to work.

4) Dress for success. It’s an old joke that working from home means working in your pajamas. Don’t be that person. Get up each day and get ready by shaving, showering, doing your hair, or whatever you would do if you were heading to the office. Sitting at your desk in a button down shirt and dress pants will make you feel more professional.

Rely On Reality To Make Your Dream Come True 

A dream is just a dream if you don’t infuse a bit of reality. Implementing these four habits into your daily life can help you overcome the battle that many work-from-home career traders’ face. Take them into consideration, and make a viable plan before you even log into a brokerage account. Remember that trading is a business; treat it with respect and dignity, and your dream has all the potential of becoming a profitable reality.