Online Commodity Futures

Trading online commodity futures is an option that speculative risk seeking traders can certainly consider. Not that trading commodity futures online is for the faint of heart or for the under capitalized. Commodity price levels can and do often move in a dramatic fashion. If you decide to trade online commodity futures you should be sure to use only true risk capital to fund your commodity brokerage account. And to learn about trading commodity futures online before putting real money at risk.

One advantage in trading commodities to consider is that the very nature of commodities means that they will always have at least some value. It is highly unlikely that the producers of crude oil, gold, coffee, corn, wheat, sugar, or any other commodity will start giving them away for free. So unlike trading in stocks in companies, which can go bankrupt leaving stock investors holding the bag with worthless stock, commodities offer at least some downside protection.

A common problem in trading commodities, as it is in so many trading vehicles these days, is that many traders use too much leverage to carry commodity positions. For example, a 100 oz. contract of gold at $1,000 an oz. would have a total value of $100,000. The margin, or good faith deposit, to place 100 oz. of gold in your account may be only $10,000, or ten percent, of the total contract value.

The imprudent commodity trader, being very bullish on gold, may decide to buy ten contracts in their $100,000 trading account. This would be great if gold moves straightaway to $1,100 an oz., as a profit of $100 an oz. on 1000 oz. of gold would be $100,000. Such a move would double the money in the account. However, if gold declined by $100 an oz. to $900 before moving to $1,100 the unwise trader would be wiped out unless he/she could promptly meet a margin call from their commodity broker and place additional capital into the account.

By trading online commodity futures the trader has access to a great deal of current information, real time prices, and fast executions of commodity orders. This is a clear advantage over trading in the old pre Internet days. However, by using too much leverage in trading the commodity account, that is carrying too large positions relative to the size of the account, the trader sets up the very real potential for heavy losses.

Trading online commodity futures has its advantages but traders must be very careful in deciding how much rope to use in the form of leverage. The use of all of the leverage offered by online commodity brokers is usually a sure way to end up with losses in your account.

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