"What are commodities futures? Let us understand in this video about investing in commodities through futures contract. Now here firstly we will understand what commodities futures are? Commodities futures are an agreement between the buyer and the seller to deal in an underlying asset at a predetermined price and date. The underlying asset that is dealt here are basically commodities like wheat gold, crude oil, industrial metals etc.
In the case of commodities futures contract if the price of the commodity rises, then the buyer of the futures makes the profit. The buyer makes profit as the price that was agreed upon at the time of entering in the contract is lower than the current market price which results in gain for the buyer. On the other hand if the prices fall then the seller gains, a seller can buy the raw material at a lower price and sell it to the buyer at the agreed pre-determined price.
So basically, this concept states that if the price goes up buyer gains and if the price falls seller gains. Now let us discuss investing in commodities futures globally. Two most popular ways of investing in commodities are through exchange-traded funds, that is etfs and commodity derivatives. The best part of investing in commodities etfs is that it offers to invest in the commodities without owning any commodity directly and taking the advantage of the gains than dealing in commodity market offers. So, you as an investor can take the advantage of the performance of the underlying raw material in commodities through investing in the stocks of the companies who are directly engaged in commodity market.
One of the advantages of investing in these kinds of etfs is that instead of purchasing several commodities futures contracts separately an investor needs to pay for a single trade at the given price. This will save the time and additional costs involved in buying individual contracts separately. However, the derivatives market is relatively new, and it is an expert field of trading. Thorough research is required to step foot into the market for example if you want to trade in crude oil futures you will first have to study about the entirety of the crude oil markets. You will have to understand all price movements and the factors affecting it, if not you will inevitably end up making losses. Therefore, before you invest be sure to research properly and understand all complexities of commodities and futures. Thank you for watching the video.
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