Futures vary from typical commodity trades in that you are purchasing a promise or contract to take possession of a commodity by a certain date. Usually, the future is resold before that date is ever met. You trade based upon what price you speculate that the commodity will be worth in the future.
Once you gain a grasp of how futures are bought and sold, you can isolate which futures you would like to trade. The corn futures market has soared in the last month due to speculation that supplies will be low due to bad weather trends. Extreme heat across the plains in the month of July is thought to have stressed the crop in the pollination phase. This heat may keep kernels from fully developing. This year’s crop is down by 4.2% from the year 2010.
This speculation may turn out to mean nothing. If what analysts expect comes true, however, it will mean a dramatic increase in the corn futures market. Now might be the perfect time to buy up corn futures. Even if the supply does not drop as sharply as analysts think, any decline would be profitable for investors trading corn futures. There is a great deal of risk involved in this type of investing. If supply increases or demand decreases, corn futures will lose values, and investors will take large losses. The safest way to invest in futures is to purchase them as a way to diversify your investment portfolio. It is never a good idea to rely on one sector of the market for all of your investment income.
Futures are a complex method of trading, but can prove to be quite lucrative when traded smartly. If you take part in this market, be well informed and cautious. The corn futures market in 2011 and 2012 could result in record gains, profiting savvy investors.
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