How to Buy Commodities Options
More and more people around the world are discovering derivatives trading these days. Derivatives are securities that derive their prices from the prices of some underlying assets. Commodity options are a major part of the derivatives market.
A commodity option is basically a contract that gives you the right, but not the obligation, to sell the underlying commodity, such as gold or crude oil. Commodity options' main features are a strike price--the price at which the commodity could be bought or sold, and maturity--the time when the contract expires.
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Instructions
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Learn as much as you can about commodity options. What are the factors that influence commodity options to rise and fall? How can you predict which way the prices will go? Also study the market behavior of the main underlying assets that determine prices of commodity options: oil, gold and agricultural produce.
You can find it helpful to read specialized books on commodity options. Pick those that were written by former star traders who had recent commodity options trading experience.
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Determine how much money you are willing and able to invest in commodity options. Most brokers require a minimum deposit to start trading with them--$1,000 or $2,000 is usually enough.
You should know, however, that commodity options are prone to great price volatility and so investing in them involves a significant degree of risk.
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Find a trustworthy brokerage firm that offers attractive trading terms. You can easily find many brokers on the Internet, as all of them offer online trading these days. Pay close attention to the range of commodity options they offer and their commission fees. You can check a broker's "legitimacy" with its regulator (Commodity Futures Trading Commission (CFTC) in the U.S.).
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Open a trading account with the broker you chose, deposit the funds you set aside for investing in commodity options, and start trading.
Depositing your funds is easy. Your broker will provide the details of where to send the money you want to deposit via a bank wire transfer. It takes about 2 to 5 days for the funds to arrive.
When you start buying commodity options, be cautious. Don't put all your deposit in one commodity option class, but spread your risks by investing in different commodities.
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