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Commodities

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What Are Commodities?

Commodities: you have probably heard the term before, but what does it really mean? Simply, commodities are goods like beef, gold or lumber. When farmers and other producers put their goods up for sale they are selling commodities.

But, you may be thinking, I don't raise cattle or mine gold... how can I trade commodities? You will be acting as a speculator or a middleman. For instance, let us follow the life of some corn and I will show you how you fit into this picture.

Imagine a small field of corn growing on a farmer Joe's farm. This particular field of corn is still too young to be sold, but farmer Joe has been watching the corn market by checking the price of a bushel of corn in the newspaper every morning. He has watched the price of a bushel of corn go from $3.01 per bushel to $3.16 per bushel over the last month. He knows that it costs him about $2.50 per bushel to break even farming the corn. So when he wakes up on Wednesday morning and he reads in the newspaper that the price of corn has gone to $3.25 per bushel, he decides that he is going to sell his field of corn at that price. He figures that at $3.25 per bushel, he is pulling in a decent profit on his crop. He realizes that the price of corn may continue to go up or it may go lower… no one really knows. He is willing to sell because he wants to lock in that price for his corn. So farmer Joe calls up his broker, and tells his broker that he wants to sell his corn. But farmer Joe's corn is not going to be ready to harvest until 3 months later. So farmer Joe sells his corn with the understanding that he will deliver that amount of corn 3 months from that day. But who is going to agree to pay $3.25 per bushel for farmer Joe's corn crop?

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CAUTION:

TRADING COMMODITIES, STOCKS AND/OR COMMODITY OR STOCK OPTIONS INVOLVES RISK. MONEY CAN BE LOST AND/OR MADE TRADING ANY SECURITY AND/OR OPTION. PAST PERFORMANCE OF A TRADING SYSTEM OR MARKET IS NOT NECESSARILY INDICATIVE OF THE FUTURE PERFORMANCE OF THAT SAME SYSTEM OR MARKET. MOCK TRADING AND ITS HYPOTHETICAL PERFORMANCE RESULTS ARE INHERENTLY LIMITED AND SHOULD ONLY BE USED AS A LEARNING TOOL AND NOT A MEASURE OF FUTURE PERFORMANCE. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED WITHIN THIS SITE, SUPPORT AND TEXTS. OUR COURSES SHOULD BE USED AS LEARNING AIDS ONLY AND SHOULD NOT BE USED TO INVEST REAL MONEY. IF YOU DECIDE TO INVEST REAL MONEY, ALL TRADING DECISIONS SHOULD BE YOUR OWN.


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