Commodity futures online trading
Before we get on to commodity future online trading, let us understand what a future contract is. Future contract is basically a legal agreement between two parties, the seller and the buyer, in which both of them agree to receive or deliver the commodity or any other financial instrument at a fixed future date. It is very important to note here that in case of commodity trading, receives is meant for having a long positions and deliver is meant for having a short positions. Also, the agreement, though executes in a future date, takes place at the current time.
Thus, it can be said that the future contract mature at a future date and for identifying, reference is made to the date when they are going to mature. One of most important aspects regarding future trading that a person must understand is that, since the commodity is sold or bought at the expiry of term, a strong tendency for the cash is created and the future prices are moved in similar directions by almost same amount, when they react to any external factor or circumstance.
Commodity future trading:
Commodities fall into different categories like agricultural and non-agricultural commodities etc and these are also traded like stocks at the exchanges. Similarly, the commodity future trading is done at the centralized exchanges and the trades are performed electronically rather than handing over of commodities in the physical way. For example, in Canada, commodity future trading takes place with the help of Globex System at the Chicago Mercantile Exchange. Similarly in India, it takes place at MCX or the Multi Commodity Exchange.
Online commodity future trading:
In present times, there are many brokerage houses that allow trading in commodity futures online, that is, by means of Internet. In all the online commodity future trades, the clearinghouse of the exchange plays the role of buyer and seller in different types of trades and in each trade, performance and elimination of the commodity future contract is guaranteed. Buying a commodity future contract means taking long positions and selling futures contract means taking short positions.
The online commodity future trades are regulated by the governing bodies in all the countries where the commodity trading takes place. For example, In United States, online commodity future trading is regulated by CFTC or the Commodity Futures Trading Commission. This is a federal agency that has been assigned the role of regulation of futures market. All the brokerage houses that provide the facility of online commodity future trading have to abide by the set rules and principles otherwise the commission is empowered to cancel their license too. Two main roles of any regulator of online future commodity trading are risk transfer opportunities and the price discovery.
For carrying out an online future trading, a person is required to open an online future commodity trading account. This helps him to trade in commodities at the selected exchange. There are also some sources that provide multiple accesses to all the leading commodity future exchanges in the world.
The number of commodity future products varies from one exchange to another and there are more than 300 commodity future products worldwide in which a person can easily trade. Online commodity future trading can be done with respect to number of commodities like grains, metals, energy, livestock etc. The commodity futures are different from the financial futures that include interest rates, stock indexes and the currencies.
Benefits of online trading:
Though commodity future trading can be done by calling the brokerage house, there are many benefits that are obtained when a person opens an account for the online commodity future trading. First and foremost, a person is able to get trading opportunities round the clock. This means that during the trading week, i.e. from Monday to Friday, a person can easily make trade during the market hours. Even when the commodity future markets are closed, a person can make a trade by means of after hours. This is possible only when a person has an online commodity future trading account. If the access is provided to other commodity futures market of the world, the person gets the opportunity of online trading in commodity futures round the clock. For example, if a person living in United States open his commodity future account with a brokerage house that provides access to commodity future markets world-wide or say in Europe and Asia, he can virtually trade round the clock, non-stop. Second benefit of online commodity future trading is that these contracts are carried out at government regulated centralized exchanges, thus there is no space for any unfair practice being adopted by the brokerage house.
This confidence is also substantiated by the fact that the commodity exchanges provide necessary guarantee about clearing all the transactions and the buyers and sellers of the online commodity future transactions would be honored in respective ways. Since the centralized exchanges, at which the future trading takes place, are liquid, a person can easily establish as well as offset his different positions pertaining to the commodity futures. When a person applies for an online account for the commodity future trading, he is intimated about all the commodity exchanges where he can make the commodity futures trading. This is very important as a person can decide about the exchanges he desires to trade. If required exchanges are not listed, he can easily contact some other brokerage house. Third advantage of online commodity future trading is that a person can be rest assured about the execution of contract. This is because when done online, all the commodity future trades are executed in a very fast manner. It is really very surprising that a person can easily route the transaction pertaining to the commodity futures to the required destination in less than one second. Fourth advantage of the online commodity future trading is that a person can easily open and close his future positions. In fact, this is the feature that is now attracting more and more number of customers towards the commodity future market as the liquidity has risen to a very good value.
Since there are many brokerage houses that offer commodity future online trading, it is very necessary that a person chooses that source which allows for low margins and provide high leverages.
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