It is often said that the right personal attributes coupled with the right strategies derived from fundamentals or technical analysis will often lead to successful trades. However, another factor for success that is less often emphasized is the ability to pick the right commodity futures to invest in. This is as different commodities behave differently and produce alternate results in response to news and environmental situations. Apart from that, a greater volume of traders will add to a market’s liquidity, making it easier to buy and sell futures contracts. This is as there are a huge numbers of buyers and sellers available to take up your buy or sell orders.

 

Another reason why certain traders may select certain commodity futures over others is because they do so for hedging purposes. As producers of a certain type of crop, these traders purchase futures contracts to protect themselves for any price fluctuations. They lock the prices now so that they are not at risk to incur losses in the future. Naturally, the type of commodity futures that they purchase would be in line with the commodity that they are producing.

 

Different commodity futures may pose varying degrees of risk levels. For example, some commodity prices fluctuate greatly in response to weather forecasts or breaking news. Other reasons that could cause market volatility would be uncertainty in market direction. In these situations, commodity futures prices will fluctuate within a narrow range, making it difficult to trade for profits.

 

All these variables contribute to varying risk levels for each commodity type, with higher degrees of risks that coincide with greater volatility. Therefore, investors who are less risk averse would be more likely to select a commodity that is more volatile and vice versa. In addition, investors may have different objectives when selecting a particular commodity, an area that will affect their choice as well.

 

Another determining factor would be the brokerage fees involved in trading a particular commodity. Trading in certain commodity futures markets may involve higher brokerage fees while others may be cheaper to trade. In addition, the volume traded may affect the percentage of fees to be paid to the brokerage.

 

One of the strategies when selecting commodity futures is to diversify. With a pool of different commodities, the risk levels associated with a commodity will be offset by another. This way, the investor assumes less risk as compared to if he were to place all his eggs into one basket. At the same time, he would also increase his chances of acquiring winning trades and hold on to them for the long term. This way, the profits obtained from these trades will offset the other losing trades in his portfolio.

 

In the end, selecting the right commodity for futures trading is a personal choice. Some investors may attain better trading results with certain commodities due to their gut feel on that particular market behavior. Therefore, there is no right or wrong choice of commodity futures, but rather the choice that best fits the trading preferences and behavior of the trader.