Commodity Futures Contract
Categories: Derivatives, Trading
A commodity futures contract is an agreement between a buyer and seller (often via a clearing house) where it’s agreed that a certain amount of something will be sold from seller to buyer on a certain date in the future.
Basically, it’s a really specific IOU.
Why bother with commodities futures contracts? Well, some people like to use them to make a profit. If they think the price of a commodity will go up, they can enter a futures contract on that commodity at the current, lower price. In the near future, the seller will be giving the buyer the goods at lower-than-market price (if the buyer was right in their speculation). This can be risky though, since speculating using short positions in futures can lead to a downward spiral of money loss.
More often, those dealing in commodity futures contracts care about the commodities, like raw materials for business and manufacturing. In that case, commodity futures contracts benefit both buyers and sellers, because they offer stability in price. Whether the prices go up or down, buyers and sellers are both guaranteed steady, fixed prices. The seller gets to sell a steady amount of the commodity, and the buyer gets a steady amount of the commodity incoming. When you’re in business, stability is worth it.
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Finance allah shmoop What are commodities This is a comm
owed And this is my monnet ease And neither of
them have anything to do with commodities though if you
say them fast enough well you'll never mind A commodity
is something that is common like it's everywhere See the
com o there for the big hand Like gold is
a commodity it's everywhere oil is a commodity it's everywhere
seven hundred fourteen page paperback copy of moby dick is
a commodity and yes we can't resist clueless politicians are
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That copy of moby dick is the same copy whether
you get it at your local bookstore If a physical
book stores even exist anymore or on amazon the serial
killer of those aforementioned book stores So if something is
the same everywhere well what would be the opposite Well
how about a swim lesson from michael phelps You know
you can't buy that on amazon Not yet anyway Or
say you want to be the proud owner of a
three headed dog Well you might be able to find
one somewhere but it's going to cost you a whole
lot of kibble Or what if you were looking to
buy a blouse like one that was worn by j
edgar hoover Well those are pretty uncommon and or unique
commodities Well the basic idea is that most commodities can
be sold by lots of people so their profit margins
are generally low They may sell an extreme volume but
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same copy of moby dick don't don't you think the
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will drop the price really low and you'll take it
Yeah unfortunately then you have to read that book That 00:01:41.357 --> [endTime] book really will be your way