Commodity Investing 101- Advantages and Disadvantages of Futures

One of the few female industrialists, Malini Saba built her business, Saba Industries, from the ground up over the course of more than two decades. Saba Industries operates commodities businesses in Asia. Ms. Saba believes that the commodity field is set to experience a boom in the coming years. A popular way for individuals to invest in commodities continues to be through futures contracts.

On the most basic level, a future is an agreement to purchase or sell a specific amount of a commodity, such as a metal or agricultural product, for a set price at a later date. Individuals can profit from futures if the commodity changes price in the direction that they believe it will. Futures come with a large amount of leverage, which means that accounts can fall to zero or grow by more than double in a matter of minutes from rather small price changes.

Investing in futures provides several advantages. The investment can be long or short, and it is a pure play based on one underlying commodity. People on the right side of a trade stand to make a lot of money. At the same time, opportunities for great profit come with significant risk, and futures markets often prove very volatile. Investment in these markets is especially risky for individuals without a lot of experience. When trades go against a position, individuals could lose their entire deposit or more, even if they close it quickly.