Cash and Futures for Metals Markets

To any of you in the world wide web, I would like to share some interesting points about Cash and Futures for Metals Markets. We start from very different ways. Some may be experts in futures trading markets. Some are newcomers and some may have interest and be going to join in the future. And of course, there will be ones who don't know or care about futures trading. But at least, they also put an eye on gold, currency or oil prices... Whatever you concern, I would like to start our topic today since at least I know it helps some of us.

First of all, I would like to remind you guys some basic understanding about futures and commodity - The two terms that we will see regularly in investing platform. Simply, you know futures trading is commodity trading actually. Commodities are crops, grains, metals, silver, gold, etc.

Back to our topic, when we trade commodity future markets it is essential to know the differences between actual cash prices vs. future markets prices. Let's make at this point clear.

- The future markets prices are what you see in the NYMEX/COMEX. It is what the particular commodity is trading at in the future.

- Cash prices are what the actual commodity is going for at a certain price in the real market. For example, now just look at a plumber who has copper inventory stored for use in his plumbing business! There is a certain cash price for his copper that may be higher or lower than what the futures market might be going for. The futures market was established for this type of user so that he can hedge himself against the price fluctuations of his inventory of copper.

Say this particular plumber has a big time business and stores a huge amount of copper in a warehouse. There is a specific cash price that this plumber has paid for all of the copper. Time or exactly changes in other markets or the global events influencing on fundamental for the prices such as supply and demand will make copper prices change. Then his income will be affected in two ways. If the price of his copper increases that will be beneficial to him because now he can go out and charge a higher price to his customers for the work that is done. For example, the plumber paid around $1.37 per 25,000 pounds of copper and now the cash price has increased to $1.45. He will be able to make 8 cents on his initial investment on top of the billing of the work that he puts out. But what happens if the price of copper go another way: falls? Now the price of copper is trading $1.30 and he loses 7 cents. You can see that, his business won’t be profitable because the money he makes doing the plumbing won’t even offset the loss he has suffered with the cash price.

So, what is the tip for for if you were the plumber in this situation to make sure that you will not loose? The futures trading market is essential for you to do your business, because now you can hedge the actual copper that you own by taking an opposite futures side. You or the plumber hedges with a short position in the futures market so now if the price of copper goes down you will have covered your actual losses with gains on the short. The hedges aren’t always perfect as some might come out with a minor loss or a minor gain. In the end, the fact of the matter is that the plumber can still operate his business even if the price of copper should happen to fall.

You have just viewed a shot introduction of Cash and Futures for Metals Markets. You may now figure out a little bit how the traders work in futures trading markets. But, this is not everything. There are plenty of points for us learn to be matter. And the most important is the how quick you get the news. That's why we have weekly futures market reviews or daily futures prices reports... All, are what successful traders and investors will not miss. Once you want to earn, put your eyes on the market always. The last words, I would like to remind not dare you that trading in futures and options involves a substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. Learn, learn more, learn forever!