With all of the buzz surrounding commodities these days you are probably wondering just how does a penny stock trader gain exposure to something as potentially disastrous as the commodities futures market.
What exactly are futures?
Growing up in an area dominated by agriculture I used to watch the lunchtime agricultural news with a mixture of confusion and curiosity. What exactly is a lean hog future? I remember my father explaining that from his perspective no hog on any farm he ever saw had much of a future. What on Earth is a pork belly and why would anybody buy a barrel of oil? It was all rather mysterious. The image I had in my mind's eye wasn't entirely incorrect.
In investment terms, a future is a contract between a supplier of a commodity and a buyer.
How on Earth does the Futures Market work?
Essentially the buyer and seller agree a settlement price or strike value, a price for a commodity which may or may not already exist fixed at a delivery date in the future.
The buyer agrees to pay the seller and take delivery of a commodity of a certain quality at a date in the future fixed by contract and the seller agrees to supply the commodity on that date at the strike price.
The Futures Market is all about betting
As future is essentially a bet between a buyer and seller about what the future market value of the commodity will be. Some futures may be settled in cash with no physical delivery but this is not always the case. With futures there is always the very real concern that a hapless speculator unable to find a buyer may actually have to take delivery of 15000 frozen pork bellies and 2000 barrels of North Sea crude.
Futures can be bought but can they be sold?
Futures contracts can be sold on by either party before the delivery date.
How does the buyer avoid actually taking delivery of a commodity?
A safer variation of the future is an option. Rather than binding the buyer to actually taking delivery, the option, simply gives the owner of the option or right to buy the commodity from the supplier at a date in the future for an agreed price. The seller is happy to sell short because they know they will at least get a predictable price no matter which way the market goes. If the value drops and the option isn't used then the seller still has the commodity to sell and the money they received from the holder of the option.
Options can be bought but can they be sold?
As with futures, the option can be sold before the delivery date, but the owner is not obliged to buy anything or take delivery of anything. That said the option does have a market value which the owner forfeits if the option isn't exercised.
How are futures and options traded?
Futures and options are traded in specialist exchanges and would not normally be something that an amateur penny stock enthusiast would be advised to tackle. The best way for a penny stocks investor to expose their portfolio to commodities is to look for companies which produce commodities.
Want to know more about how to avoid direct exposure to the ups and downs of the futures market? Would you lie to invest in commodities without filling the garage with pork bellies and barrels of crude oil? There is a a way to with the best penny stocks 2011.
Visit the best penny stocks site today!
Article Source: http://EzineArticles.com/?expert=Blake_Green
Article Source: http://EzineArticles.com/6163583
What exactly are futures?
Growing up in an area dominated by agriculture I used to watch the lunchtime agricultural news with a mixture of confusion and curiosity. What exactly is a lean hog future? I remember my father explaining that from his perspective no hog on any farm he ever saw had much of a future. What on Earth is a pork belly and why would anybody buy a barrel of oil? It was all rather mysterious. The image I had in my mind's eye wasn't entirely incorrect.
In investment terms, a future is a contract between a supplier of a commodity and a buyer.
How on Earth does the Futures Market work?
Essentially the buyer and seller agree a settlement price or strike value, a price for a commodity which may or may not already exist fixed at a delivery date in the future.
The buyer agrees to pay the seller and take delivery of a commodity of a certain quality at a date in the future fixed by contract and the seller agrees to supply the commodity on that date at the strike price.
The Futures Market is all about betting
As future is essentially a bet between a buyer and seller about what the future market value of the commodity will be. Some futures may be settled in cash with no physical delivery but this is not always the case. With futures there is always the very real concern that a hapless speculator unable to find a buyer may actually have to take delivery of 15000 frozen pork bellies and 2000 barrels of North Sea crude.
Futures can be bought but can they be sold?
Futures contracts can be sold on by either party before the delivery date.
How does the buyer avoid actually taking delivery of a commodity?
A safer variation of the future is an option. Rather than binding the buyer to actually taking delivery, the option, simply gives the owner of the option or right to buy the commodity from the supplier at a date in the future for an agreed price. The seller is happy to sell short because they know they will at least get a predictable price no matter which way the market goes. If the value drops and the option isn't used then the seller still has the commodity to sell and the money they received from the holder of the option.
Options can be bought but can they be sold?
As with futures, the option can be sold before the delivery date, but the owner is not obliged to buy anything or take delivery of anything. That said the option does have a market value which the owner forfeits if the option isn't exercised.
How are futures and options traded?
Futures and options are traded in specialist exchanges and would not normally be something that an amateur penny stock enthusiast would be advised to tackle. The best way for a penny stocks investor to expose their portfolio to commodities is to look for companies which produce commodities.
Want to know more about how to avoid direct exposure to the ups and downs of the futures market? Would you lie to invest in commodities without filling the garage with pork bellies and barrels of crude oil? There is a a way to with the best penny stocks 2011.
Visit the best penny stocks site today!
Article Source: http://EzineArticles.com/?expert=Blake_Green
Article Source: http://EzineArticles.com/6163583
This is an excellent info and someone can learn the basic distinction between various buying and selling options in just one glance. I was trying to find the best info and one of my close friends, asserted you can understand the art at the rear of stock trading option from the ancient Greek language choice such as "know thyself" because it is important when creating a stock options trading strategy. You will often trade options and also you do anything else in everyday life, for instance, if you're careful normally you'll industry very carefully, if you're impatient in daily life you will industry impatiently. Out of this we found that you have to think about the specific characteristics and formulate your strategy close to all of them. Many thanks!!
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