There are two kinds of traders. The traders investing in commodity trading are partially the hedgers. A hedger is a person who has a position in a cash market. A person who has an actual interest in the trading prices of a particular commodity. Many hedgers are farmers who grow the actual product, but some of them are also end users of a futures commodity, people with an equal interest in trading prices of goods they will buy at a later date. Wheat futures and corn futures are good examples of markets where people watch trading prices intently. A person who needs to buy wheat might use the commodity trading prices to place a trade in the futures market to hedge against an increase in the price of wheat. If the trading prices of wheat go up, the futures markets position would possibly gain in value while partially offsetting the increase in raw material costs on the cash market.

A farmer might use corn futures market trades to hedge against a falling price of corn. If the farmer sells corn futures now and the price goes down, his crop would be sold for less but he would make money in the commodities future trading prices. The same would hold true for a wheat farmer wishing to use the commodity markets trading prices to hedge against falling wheat prices. Trading options on futures contracts carries the same possibility. The expiration dates are a little different than futures contracts.  Some speculators will use futures markets rather than option future trading.

The larger group of participants in commodities future trading is speculators. This group has existed for almost as long as the market themselves. Speculators are willing to assume the risk of trading prices exposure in the markets to attempt to profit from a temporary or long term change in the trading prices of futures contracts. They see fundamental or technical reasons for the commodity trading prices to change and hope to profit from the change. In exchange for this opportunity, speculators create more buyers and sellers in the futures markets and increase the level of liquidity.

Speculators assume a huge amount of risk for the chance to profit in commodity trading. Since they neither produce nor purchase the actual commodity, they have to offset their futures positions before the expiration date of the contract.

The chance to profit from the daily changes in future trading prices for goods is attractive to some traders.  Assess the overall risk and determine if it is right for your portfolio. Learn all you can about commodities markets and make an educated decision before you trade.

Trading in futures and options involves a substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.