If you don’t mind losing $5,000 in 10 minutes, you can enjoy trading commodity futures contracts. There is an old saying among commodity traders: “It is very easy to make a small fortune from raw materials. Start with a big fortune!”
This is not an issue for people who are emotionally attached to their money, but on average thousands of ‘investors’ are lured into the commodity markets year after year.
Why? Due to the possibility of achieving a high win rate by using the built-in leverage available to commodity futures traders.
Commodity markets include wheat, corn, soybeans, pork belly, gold, silver, fuel oil, timber, and many other general commodities. Large companies operating in this market use commodity futures contracts to fix the selling price of their products before delivery.
This practice is called ‘hedging’. On the other side of the trade are the traders, who speculate whether the price of the commodity will rise or fall before the contract is to be delivered. Since futures contracts can be bought with leverage, this financial instrument is suitable for speculation.
For example, managing a $5,000 corn contract may require as little as $500 in cash, or 10% of the contract’s face value. For example, if the price of corn goes up and the contract becomes worth $5,500, then the speculator has made $500 from $500, for a 100% return.
Compare this to the common stock market, which limits leverage to 50%, so a $5,000 share requires a minimum of $2,500 in capital. If the stock’s value rises to $5,500, the profit is $500 compared to the $2,500 invested, with a return of “only” 20%. A 100% return certainly looks a lot better, right?
You can easily see why investors looking for quick profits are hypnotized by the lure of big profits with maximum leverage in commodity futures trading. However, the real problem is that leverage works BOTH WAY.
You can lose your entire investment in minutes due to the wild price swings that sometimes occur in this volatile market. Suppose a $5,000 contract falls to $4,000 in value instead of rising.
Not only will you lose the original $500 you put into the contract, but the extra $500 as well. You could go bankrupt in no time.
So why do people play this game? The average investor doesn’t wake up in the morning and say to themselves, “Okay, I think I’m going to start trading commodities.”
What happens is they get a sales pitch from a “guru” who trades in commodities, who claims to have the “system” to make a clear profit in this wild market. The price of these “systems” ranges from $25 to $5,000 or more, and is sold under the promise of “great returns” on a small initial investment.
READ ALSO
August 6, 2022
Things To Do Before Investing Into A High Yield Investment Program
August 6, 2022
7 Tips on Preventing Identity Theft
August 9, 2022
Start Up Forex without Capital
Newsletter writers or commodities experts regularly blow up myths about turning $5,000 into a million dollars in less than a year. Typical commodity system offers come in lengthy sales letters or booklets explaining methods of winning on “9 out of 10” trades or similar elevated claims.
Of course, if it is possible to trade correctly 90% of the time, one can easily amass millions of dollars in a very short amount of time. So why are these people so eager for you to spend $195 on their super-duper trading course? Because they may not be making real money from their own trading program!
There is much safer money to be made selling other people with the idea of getting into commodity futures trading.
There is no surefire way to consistently make money in this market, simply because the price of the underlying commodity can fluctuate wildly, depending on a complex set of variables, many of which are downright unpredictable.
Therefore, the only people who consistently make money in the commodities markets are brokers, who collect commissions for executing trades, whether they win or lose.
There are also some successful professional traders who make a living in this market. But most people who deal with commodity futures lose money. Alas, with the lure of great
Don’t be one of them! Leave trading in commodity futures to the pros and stick to more boring forms of investing, such as investing in mutual funds or stocks and bonds.
