What are commodities ?A typical dictionary definition would be that a commodity is an article of trade or commerce, especially an agricultural or mining product that can be transported. These days the definition of commodities can also include other items such as foreign currencies, interest rate products and the weather. Yes, I said the weather! There are actually futures contracts on the weather in different areas of the country. Back to TopWhat are futures contracts?A futures contract is a contract traded on a futures exchange for the delivery of a specified commodity at a specified future time. The contract specifies the item to be delivered and the terms and conditions of delivery. Back to TopWhere can I get information on commodities?You can start with my links page that will send you right to some of the exchange web sites where you can get information on the commodities they offer along with other information about what commodities are and how they trade. Aside from the links page, you should contact me and I will direct you to a number of places where you can get information depending on what you are looking for. Back to TopOnce in a futures contract, could I ever get stuck in a position and not liquidate?Some commodity futures contracts have limits imposed on them by their respective exchanges. If one of those commodities were to move sharply up or down on some news event and reach their daily limit, then investors trading in the opposite direction of this move would not be able to liquidate their position. To liquidate this position, either the market would have to trade off the limit or futures options would have to be bought and exercised. Familiarize yourself with the commodity you are trading and what your alternatives are if trouble arises. Back to TopWhat do you need to do to open a commodity account?Assuming that you have the financial ability and think you have the temperament then all you need to do is read, fill out and sign the commodity papers. After I receive your completed papers and first deposit, then we will assign you an account number at which point you can trade. This process shouldn't take more than a day or two. Corporate, partnership and other more complicated accounts may take longer to open because they may require a more thorough compliance review. Back to TopWhat are margin requirements and who sets them?A margin requirement in the case of commodity futures trading is a good faith deposit to help back your position. If the position goes against you, then you will eventually receive a margin call requiring a deposit of funds to bring your equity back up to where you began the trade with, known as the original margin. The respective exchanges set the margin requirements although the individual clearing firms can charge a higher requirement if they decide to do so. The margins required are normally anywhere from 5 to 15 percent of the total value of the commodity being traded. Sometimes when prices and volatility rise sharply the exchanges may raise margin requirements to a higher percentage of the total value. Back to TopFrequently Asked Questions written by David Hall.
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