From the orange juice we drink to the gas we use to power our vehicles and heat our homes, commodities play important roles in our daily lives. They can be found literally all over the world, and can be traded on the global marketplace as part of a diversified investment portfolio. In fact, billions of dollars are invested in commodities every day.
While they can be traded on either spot (real-time) or futures (options) markets, most individual commodities are traded in the form of futures, where what is being traded is not the commodity itself but rather a contract to buy or sell it for a certain price by a stated date in the future. This carries the potential for wild market fluctuations, but it also offers exciting opportunities for investors willing to ride out market volatility in anticipation of rewards.
Like any investment, the goal in commodities trading is to buy low and sell high. The difference with commodities is that they are highly leveraged and trade in contract sizes instead of shares. What’s more, investors can buy and sell positions whenever the markets are open, so there’s no chance of waking up one morning to find 10,000 bushels of corn on the front lawn. (Commodities can make investing in gold, oil or grain an easier prospect. Find out more in Commodity Funds 101.)