A:

Many resources are available for those seeking to learn to trade commodities, also known as futures, directly from the major futures exchanges including the CME Group and the International Exchange. Trading commodities involves a number of different considerations versus trading stocks. Futures trading involves a high degree of leverage and substantially more risk. Futures can also involve delivery of the underlying commodity; a speculator could end up needing to arrange for physical delivery of 5,000 bushels of corn or 1,000 barrels of oil. Investors must be well-educated before beginning to trade futures.

The first major difference between futures and stocks is that futures contracts have an expiration date, while stocks can exist perpetually. The expiration date for a futures contract has some very serious implications. Holding a futures contract through expiration may require the buyer to put up additional money to take delivery of the underlying commodity. For example, being long on a soybean contract through expiration will require the holder to put up the full value of the soybean contract, which is about $48,000 as of April 2015. Further, the holder must arrange to take physical delivery of the soybeans from a central location. Most speculators have no desire to deliver or take delivery of the physical commodity, and they offset the underlying contract before expiration. Still, investors need to be aware of the various deadlines involved with contract expiration.

Another major difference between trading stocks and futures is the use of margin. Although individual investors can also use margin in trading stocks, the leverage offered in margin on futures is much greater. When buying or selling a futures contract, an investor only needs to place a portion of the contract value in his trading account, called the initial margin. As of April 2015, the initial margin on a soybean contract is $2,200. If the value of the contract goes against the investor, the investor could receive a margin call to place additional funds in the account to continue holding the position.

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