What Are Commodity Futures?

A commodity future is an exchange-traded agreement to buy or sell a specific commodity at an agreed time and place in the future. In essence, a commodity future is a prediction of a commodity's value at a certain point in the future. To say commodity futures are a bit of gamble is, at the least, a slight understatement. Returns can be impressive, but are tempered by the high financial risk involved.

So what should you consider before investing in commodity futures?

Firstly, take a long look at your financial experience and resources. Set goals and a limit on what you can afford to lose over and above the opening investment. You may have experience in other financial markets but the differences of the commodity futures market are comparable to those of football and rugby…a whole new ball game.

If you still wish to proceed, ensure you have a sound grasp of commodity futures contracts and the obligations they impose. Be fully aware of your exposure to risk and the full implications of trading in commodity futures by carefully reviewing risk disclosure documents.