The commodity futures exchanges provide for the standardized, organized trading of futures contracts on various grains such as corn, wheat, soybeans and rice. Futures contracts allow both producers and buyers of the different grains to lock in current prices for the future delivery of a specified amount of a specific grain. Investors or traders use futures contracts as a way to profit from the rise or fall of the spot market price of a grain. A futures contract trade tends to be a short term investment. The maximum time frame for grain futures expirations is out to approximately one year in the future.
1. Open an account with a commodity futures broker. Futures brokers are registered separately from stock and bond brokers. A commodity futures broker will be registered with the National Futures Association -- NFA -- and the Commodity Futures Trading Commission -- CFTC. Some stock brokers also offer futures trading, but many futures brokers specialize in commodity futures.
2. Set up the broker supplied or recommended trading software. Many commodity brokers offer several choices of trading software. Discuss your grain futures trading plans with a broker rep to select the most appropriate software. The broker will also assist to set up the software for the commodity products in which you want to trade or invest.
3. Study the specifications of each of the grain futures contracts in which you want to invest. Important features are contract dates, last trade date, minimum price fluctuation -- tick, tick value and the margin deposit requirements. Each grain commodity contract will have different values for these specifications.
4. Develop a strategy using market news and technical indicators to determine when to trade specific grain futures. Grain trading systems can predict futures prices from news data like crop reports and global grain production. Technical indicators use the actual price action of a grain to determine price trends or reversals. As part of your strategy development, practice trade using your select broker software. Most brokers include a simulated trading account in the package to allow you to develop skills and strategies without risking real money.
5. Start investing in or trading the grain futures contracts when your selected indicators show a pending price move in one of the grains you are watching. Each futures contract traded requires the deposit of the margin deposit amount for that particular futures contract.
6. Monitor you open trade positions to minimize losses and maximize the profits for each commodity trade you make.
- Grain futures contracts can be traded in either direction. A buy trade opens to profit from a rising price and a sell trade can be used to profit from a falling grain price. The opposite trade order will close the position.
- The e-mini grain contracts are for smaller amounts of grain than the standard contracts. The e-mini futures also have smaller margin deposit requirements. For example, the e-mini corn margin amount is $473 compared to $2,363 for the standard corn contract.
- Trading commodity futures involves a high degree of financial leverage. It is possible to lose more than your initial margin deposit when trading grain futures. Futures trading should only be done with money of which you can afford to take a 100 percent loss.
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