Commodity Future Forex
The orientation of most business premises are directed towards acquisition of commodities. It is kind of an exchange of goods for money. In the local trade industry, there are rules that govern such exchanges. Even though they are at times not visible in signed pacts, these deals must be respected. In the forex markets, the trade is categorized into the following two criteria; commodity future forex and financial future forex. Each of the trade processes have similar exchanges but differ only in the final objective.
Commodity future forex
In this type of trading, the final result is evidenced with tangible products being acquired. In simple terms, its objective is to realize purchase of a commodity. The products could be machinery, food stuffs, material and supplies or precious metallic items.
Financial future forex
In a financial future forex trade, the exchange of currencies is done to secure more financial assets in liquid form. For example, obtaining bonds or treasury notes is one of the possible acquisitions using this system. The delivery of the item is made after the conclusion of the pact.
The advantage f both systems is that they use electronic communications to make the deals. Therefore, before the real deal is made, there has to be an agreement of the delivery details. Time specification can be made for delivery of the commodity in future contracts. Liaison between the two partners in the deal is established on a ground level and exchange takes place.
During the facilitation of this, the participants of the trade must realize that commodity futures pacts are subject to modification. These changes are determined by the daily behavior of the commodities. Under normal circumstances, the deal is set at a standard limit. There are two types of changes.
Limit down if the change is negative and limit up for a positive change. The commodities are set at standard limits to prevent poor pricing of the items.
If the two trading futures are to be compared in terms of returns, the commodity futures investments offer the best returns. This is because it is more diversified and incorporates the sale valuable world’s wealth. However, it is more risky since its prices are more susceptible to adjustment. Simple world events greatly affect the prices geographical and political interests will sometimes act as barriers which prevent successful transactions. On the other hand, financial futures are more secure and guarantee profitable returns.
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