Commodity trading is a standardized contract trading method in which investors buy and sell various commodities on the futures exchange after paying a deposit of 5%- 10%. Ordinary investors can make a profit by buying low and selling high or selling high and buying low. Spot enterprises can also use futures to hedge and reduce their business risks. Futures traders generally buy and sell futures contracts through futures brokerage companies. In addition, the obligations they have to undertake after buying and selling the contract can be relieved by reverse trading (hedging or liquidation) before the contract expires.

Futures trading is developed by commodity producers from forward contract trading in spot trading in order to avoid risks. In the forward contract transaction, traders gather in the commodity exchange to exchange market information, find trading partners, sign the forward contract through auction or negotiation between the two parties, and when the contract expires, both parties end their obligations by physical delivery. In frequent forward contract transactions, traders find that there is a price difference or interest difference in the contract itself due to the fluctuation of price, interest rate or exchange rate, so they can make profits by buying and selling contracts without waiting for physical delivery. In order to adapt to the development of this business, futures trading came into being.

Characteristics of futures trading

1. Small and wide. Futures trading only needs to pay 5- 10% performance bond, and it can complete several times or even dozens of times of contract transactions. Due to the leverage effect of the futures trading margin system, it has the characteristics of "small and wide", and traders can use a small amount of funds to conduct large transactions, saving a lot of working capital.

2. Two-way transaction. In the futures market, you can buy first and then sell, or you can sell first and then buy, so the investment method is flexible.

3. Don't worry about the performance. All futures transactions are settled through the futures exchange, which becomes the counterparty of any buyer or seller and provides guarantee for each transaction. So traders don't have to worry about the performance of the transaction.

4. Market transparency. Trading information is completely open, and trading is conducted by means of open bidding, so that traders can compete openly under equal conditions.

5. Tight organization and high efficiency. Futures trading is a standardized transaction with fixed trading procedures and rules, which are linked one by one and operate efficiently. A transaction can usually be completed in a few seconds.

Difference from spot.

Spot trading is a commodity currency transaction with one hand paying and one hand delivering. The "cash on delivery" mentioned here not only refers to the situation that the money and goods have been transshipped and the payment has been settled. Spot transactions include barter transactions, spot transactions (clearing currency and goods) and forward transactions. Generally speaking, spot forward transactions need to sign spot contracts. As an agreement, the spot contract clearly stipulates the rights and obligations of both parties to the transaction, including the quality, quantity, price and delivery date of the goods traded by both parties. After the contract is signed, the buyer and the seller must strictly perform the contract. During the contract period, if the market situation develops towards the party that is not conducive to the transaction, then this party cannot breach the contract. In addition, if one party to the transaction is short of funds or has an accident, it may make it difficult to perform the contract. Futures trading is not like this. The object of futures trading is not a concrete object, but a unified "standard contract", that is, futures contract. After the transaction is completed, the ownership of the goods has not really transferred. During the contract period, either party to the transaction can transfer the contract in time without the consent of others. Performance can be achieved by physical delivery or hedging futures contracts.

The ultimate goal of futures trading is not the transfer of commodity ownership, which is different from the buying and selling in the spot market. In the futures market, the biggest headache for futures traders is that a truck of soybeans is delivered to the door. When buying and selling futures contracts, some people want to speculate for profit, while others want to avoid price risks. Futures trading is very attractive to investors who want to profit from market price fluctuations, or to producers and operators who want to protect themselves from drastic price changes.