The benefits of trading commodity futures in Australia are vast. Not only can you lock in a future price for your goods, but you can also use futures contracts to hedge against risk. Commodity futures are a crucial part of the Australian economy and play an essential role in global trade. This article will explore some of the benefits of trading commodity futures in Australia. We’ll also look at some of the most popular commodities traded on the Australian market.
If you are keen to start trading right away, you can open a live account with Saxo.
What are commodity futures contracts, and how do they work?
A commodity future is a contract between two parties to buy or sell a specified amount of a commodity at a predetermined price on a specified date in the future. The buyer of the contract agrees to purchase the commodity, and the seller agrees to sell it at the price and date specified in the contract.
The most common commodities traded on futures exchanges include agricultural, precious, energy, and industrial metals. Futures contracts are traded on an exchange, and the prices are determined by supply and demand.
The benefits of trading commodity futures contracts
There are many benefits to trading commodity futures contracts. Futures contracts can be used to hedge against price risk and can also be used to speculate on future prices.
Hedging with futures contracts
When you hedge with a futures contract, you protect yourself against the risk of price movements in the underlying commodity. For example, if you’re a farmer who produces wheat, you might choose to hedge your production by selling wheat futures. This way, if the price of wheat falls in the future, you’ll still receive the agreed-upon price for your wheat. Similarly, if wheat prices rise, you’ll have to pay more for your wheat, but you’ll be protected from volatility.
Speculating on future prices
Futures contracts can also be used to speculate on future prices. If you believe the price of a particular commodity will rise in the future, you can buy a futures contract and profit from the price increase. Similarly, if you think the price of a commodity will fall, you can sell a futures contract and profit from the price decline.
How to get started in commodity futures trading
If you’re interested in commodity futures trading, there are a few things you need to know. First, you’ll need to open an account with a broker that offers commodity futures trading. You can trade commodity futures online or over the phone.
Margins for different commodities vary but typically range from 5-10%. So, if you’re buying a wheat future for $100 per ton, your margin would be $5-$10 per ton.
Once you have an account and margin deposited, you’re ready to start trading. When you place an order, you’ll need to specify the contract size, price and expiration date. Once your order is filled, you must buy or sell the commodity at a price specified in the contract.
Commodity futures contracts are a crucial part of the Australian economy and offer vast benefits to traders. If you’re interested in trading commodity futures, open an account with a broker that offers commodity futures trading.
Top tips for successful commodity futures trading
Now that you know the basics of commodity futures trading, here are a few tips to help you get started:
Define your goals and risk appetite- Before you start trading, it’s essential to define your goals and risk appetite. Are you looking to hedge against price risk? Or are you looking to speculate on future prices? Knowing your goals will help you determine which commodity futures contracts to trade and how much risk you’re willing to take.
Use stop-loss orders- A stop-loss order is an order to sell a commodity futures contract at a predetermined price, and it can help you limit your losses if the price of the underlying commodity falls.
Use limit orders- A limit order is an order to buy or sell a commodity futures contract at a predetermined price. It can help you take advantage of price movements and can also help you protect your profits.
Manage your risk- It’s essential to manage your risk when trading commodity futures. Set a stop-loss, limit orders, and don’t trade more than you’re comfortable with losing.
Commodity futures trading can be a great way to hedge against price risk or speculate on future prices. Following these tips can help ensure your success as a commodity futures trader.