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Trading Commodity Futures Via The Internet
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Before online commodities and future trading became the high-rolling, high-stake investment ground that it is today, its early proprietors were farmers of the 1800’s.
These farmers would grow their crops and bring these to the market come harvest time in the hope of selling them. But the main concern then was that without an indicator, they could not efficiently gauge how much of their goods are needed therefore resulting either to shortages or excesses, both causing losses for the farmer.
With shortages causing loss of the opportunity to earn more and excesses causing meats and crops to rot and dairy products to spoil. Also, when a certain produce is out of season any product made from them would be priced so high due to its scarcity.
A central marketplace was subsequently created for farmers to take their harvests and sell them either for immediate or forward delivery. Immediate delivery is what is known now as the spot or cash market and forward delivery is now called futures market.
This concept helped stabilize prices for commodities that were out of season as well as served as an effective indicator of supply and demand therefore saving farmers thousands of dollars that would otherwise go to spoilage.
From forward contracts evolved commodities and futures contracts. Forward contracts are effectively agreements to buy now for payment and delivery at a specified date in the future, which is usually three months from the date of the contract.
These were originally only for food and agricultural products but now they have expanded to include financial instruments. Forward contracts have evolved and have been standardized into what we know today as futures contracts.
Basically, when dealing in online commodities or futures trading, a contract must have a seller (the producer) and a buyer (the consumer). If you purchase a futures contract, you are agreeing to buy a commodity that is not there yet for a specific price.
Although most futures contracts are based on an actual commodity, some futures contracts also are sold based on its future value based on stock market indices.
Unless you are a businessman who is into the trade of the actual commodity you purchased, you won't actually use the goods (if you’re the buyer) or actually provide the commodity (if you’re the seller) for which you're trading a futures contract.
Remember, buyers and sellers in the futures market primarily enter into futures contracts to minimize risk or speculate rather than to exchange physical goods.
On the other hand, online commodities differ from futures trading in that commodities trading may involve the physical delivery of the goods. In which case a receipt is issued in the favor of the buyer. This receipt enables the buyer to take the commodity from the warehouse.
Traders in online commodities and futures market can use different strategies to take advantage of rising and declining prices. The most common are known as going long, going short and spreads.
When an investor enters a contract by agreeing to buy and receive delivery of the commodity at a set price - it means that he or she is trying to earn from an anticipated future price increase, he or she is going long.
When he or she is looking to make a profit from declining price levels, this is going short. The speculator sells high now so he or she can repurchase the contract in the future at a lower price.
When one makes a spread, however, he or she is trying to benefit from the price difference between two separate contracts of the same commodity.
As an online commodities or futures trader, therefore, you should be armed with a firm grasp of how the market and contracts function.
Began Trading Cotton Futures News
NY cotton drops near 2-year low on bumper supplies
NEW YORK: Cotton futures fell on Friday, finishing near a two-year low for the second straight session as bumper supplies encouraged selling by speculators who expect prices to stay under pressure over the next several weeks, analysts said.
Read more...NY cotton ends up in rebound from 2-1/4-year low
NEW YORK: Cotton futures closed higher Friday on speculative short-covering in a rebound from ending at a 2-1/4-year low in the previous session, with analysts saying the euro zone debt crisis could dictate direction next week.
Read more...NY cotton ends at 2-1/4-year low as bears in charge
NEW YORK: Cotton futures settled on Thursday at a 2-1/4-year low on speculative sales as bumper supplies and a shaky global economy kept market bears firmly in control, analysts said.
Read more...ICE Adds Grains to Lure Funds Chasing USDA Price Swings
IntercontinentalExchange Inc. (ICE) , the second-largest U.S. futures market, is adding agricultural contracts to draw trading from speculators betting on price swings linked to changes in U.S. government crop estimates.
Read more...Grasslely wants to block the live release of some USDA data
The government should prevent release of the market-moving U.S. crop reports and other agricultural data during the newly lengthened commodity trading day to curb the risk of price volatility, a farm-state senator said on Tuesday.
Read more...Corn prices plunge on record corn forecast
By SANDY SHORE AP Business Writer Corn prices plunged Thursday after the government predicted corn production would set a record this summer.
Read more...Recent changes to the Dow Jones industrial average
By The Associated Press The Dow Jones industrial average has evolved continually since it was introduced in 1896. The original 12 "smokestack" companies included names like American Cotton Oil, Tennessee...
Read more...News Summary: Corn prices plunge on new forecast
By The Associated Press CORN BOUNTY: Corn prices plunged 3.3 percent after the government predicted record corn production this year. The forecast also was raised for stockpiles on hand by the end of...
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