Corn Futures Trading Basics

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Choice!
    Free Trading Education!
    Free Demo Account!
    Big Sign-Up Bonus!

  • Binomo
    Binomo

    Good Choice For Experienced Traders!!!

What are the basics of futures trading?

Not sure if futures trading is right for you? In this article, we’ll help you find out by taking a close look at what futures are and how they work.

What are futures?

To start, here’s a quick definition: Futures are contracts for the delivery, or cash settlement, of many things you may encounter every day, like materials, products, or even the stock market itself. But what does that really mean? Let’s break it down by exploring a few key traits that make futures unique.

All futures share the following three characteristics:

  1. Easy contract trading. Futures are contracts that trade on an exchange. That means if you buy or sell them, closing your trade is as easy as it would be for a stock. The futures market is relatively deep and liquid.
  2. Settlement by cash or physical delivery. Like stocks, most futures—including the CME E-mini S&P 500 and other equity index futures—settle in cash. There’s no exchange of physical goods or shares of stock. The only thing that changes hands is money.

However, some commodity futures, like corn and soybeans, are physically settled, meaning each party to the trade is expected to deliver or receive the actual commodity at expiration. But very few futures contracts are settled this way, and at E*TRADE, while you should be sure to close your positions on time, there are mechanisms in place to minimize this risk.

  • Backed by commodities or other assets. Futures contracts represent the pricing of essential things that affect our daily lives, including agricultural products (like wheat and cattle), energy products (like crude oil and gasoline), and financial products that facilitate international trade (e.g., those involving interest rates and currency exchange).
  • Equity index futures are one of the most popular, providing another way for investors to trade on price movement in the stock market. These include the CME E-mini S&P 500 mentioned above, plus the CME E-mini Nasdaq and CME E-mini Russell 2000.

    What are the basic terms used in futures trading?

    Now that we’ve seen what futures are, let’s explore how they work by defining and illustrating some essential futures terms.

    • Tick . Futures contract prices move in minimum increments called “ticks.” These are different for each futures product and can usually be found by checking the futures page. As an example, the CME E-mini S&P 500 has a tick size of a quarter of an index point.
    • Tick value. Unlike stocks (where each tick is worth a penny), tick size for futures is product-dependent, and as a result, the dollar value will vary. The tick value of the CME E-mini S&P 500 is $12.50, so if you buy a contract and end up selling it, say, two ticks higher, you’d make $25.00, assuming no commissions or fees.
    • Contract size. The specified quantity behind each futures contract (i.e., how much of a commodity or financial instrument is backing that contract) is called its contract size. For example, the CME gold futures contract represents 100 troy ounces of gold.
    • Notional value. Knowing the size of a futures contract enables you to determine its notional value—i.e., how much each contract is worth. You can figure this out by multiplying the contract size by the current price of the futures contract.

    Consider gold: If gold futures are trading at $1,300 per ounce and the size of the CME gold futures contract is 100 ounces, the contract’s notional value would be $130,000 ($1,300 x 100). In dollar terms, that’s how much one gold contract is worth.

    If a contract’s notional value ever seems too big for your wallet, check to see if there’s a contract with a smaller size. With gold, there is. It’s the CME E-micro gold, which has a contract size of 10 ounces—and a notional value of $13,000 ($1,300 x 10). That’s one-tenth the size of the bigger contract.

    Corn Futures Trading Basics

    Corn futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of corn (eg. 50 tonnes) at a predetermined price on a future delivery date.

    Corn Futures Exchanges

    You can trade Corn futures at Chicago Board of Trade (CBOT), NYSE Euronext (Euronext) and Tokyo Grain Exchange (TGE).

    CBOT Corn futures prices are quoted in dollars and cents per bushel and are traded in lot sizes of 5000 bushels (127 metric tons).

    Best Binary Options Brokers 2020:
    • Binarium
      Binarium

      Best Choice!
      Free Trading Education!
      Free Demo Account!
      Big Sign-Up Bonus!

    • Binomo
      Binomo

      Good Choice For Experienced Traders!!!

    Euronext Corn futures are traded in units of 50 tonnes and contract prices are quoted in dollars and cents per metric ton.

    TGE Corn futures prices are quoted in yen per metric ton and are traded in lot sizes of 50 tonnes .

    Exchange & Product Name Symbol Contract Size Initial Margin
    CBOT Corn Futures
    (Price Quotes)
    C 5000 bushels
    (Full Contract Spec)
    USD 2,025 (approx. 11%)
    (Latest Margin Info)
    Euronext Corn Futures
    (Price Quotes)
    EMA 50 tonnes
    (Full Contract Spec)
    EUR 700 (approx. 11%)
    (Latest Margin Info)
    TGE Corn Futures
    (Price Quotes)
    50 tonnes
    (Full Contract Spec)
    JPY 75,000 (approx. 10%)
    (Latest Margin Info)

    Corn Futures Trading Basics

    Consumers and producers of corn can manage corn price risk by purchasing and selling corn futures. Corn producers can employ a short hedge to lock in a selling price for the corn they produce while businesses that require corn can utilize a long hedge to secure a purchase price for the commodity they need.

    Corn futures are also traded by speculators who assume the price risk that hedgers try to avoid in return for a chance to profit from favorable corn price movement. Speculators buy corn futures when they believe that corn prices will go up. Conversely, they will sell corn futures when they think that corn prices will fall.

    Learn More About Corn Futures & Options Trading

    You May Also Like

    Continue Reading.

    Buying Straddles into Earnings

    Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

    Writing Puts to Purchase Stocks

    If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

    What are Binary Options and How to Trade Them?

    Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

    Investing in Growth Stocks using LEAPS® options

    If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

    Effect of Dividends on Option Pricing

    Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

    Bull Call Spread: An Alternative to the Covered Call

    As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

    Dividend Capture using Covered Calls

    Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

    Leverage using Calls, Not Margin Calls

    To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

    Day Trading using Options

    Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

    What is the Put Call Ratio and How to Use It

    Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

    Understanding Put-Call Parity

    Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

    Understanding the Greeks

    In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

    Valuing Common Stock using Discounted Cash Flow Analysis

    Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

    Corn Futures Trading Basics

    A futures contract is an obligation to buy or sell a commodity at or before a given date in the future, at a price agreed upon today. While the term “commodity” is usually used when referring to contracts like corn, or silver, it is also defined to include financial instruments and stock indexes. One of the benefits to the futures industry is that contracts are traded on an organized and regulated exchange to provide the facilities to buyers and sellers.

    Exchange-traded futures provide several important economic benefits, but one of the most important is the ability to transfer or manage the price risk of commodities and financial instruments. A simple example would be a baker who is concerned with a price increase in wheat, could hedge his risk by buying a futures contract in wheat.

    Not all futures contracts provide for physical delivery, some call for an eventual cash settlement. In most cases, the obligation to buy or sell is offset by liquidating the position. For example, if you buy 1 S&P500 e-mini contract, you would simply sell 1 S&P500 e-mini contract to offset the position. The profit or loss from the trade is the difference between the buy and sell price, less transaction costs. Gains and losses on futures contracts are calculated on a daily basis and reflected on the brokerage statement each night. This process is known as daily cash settlement.

    US futures trading is regulated by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). The CFTC is an independent federal agency based in Washington, DC that adopts and enforces regulations under the Commodity Exchange Act and monitors industry self-regulatory organizations. The NFA, whose principal office is in Chicago, is an industry-wide self-regulatory organization whose programs include registration of industry professionals, auditing of certain registrants, and arbitration.

    If you are new to futures trading, be sure to check out our tips for futures traders & watch our FAQ video below. Get answers to common questions such as the role of commission in overall trading costs and learn how leverage can impact margin requirements.

    For a free educational guide to “Trading Futures and Options on Futures”, provided by the National Futures Association (NFA), please click here.

    Copyright © 2020. All rights reserved. NinjaTrader and the NinjaTrader logo. Reg. U.S. Pat. & Tm. Off.

    NinjaTrader Group, LLC Affiliates: NinjaTrader, LLC is a software development company which owns and supports all proprietary technology relating to and including the NinjaTrader trading platform. NinjaTrader Brokerage™ is an NFA registered introducing broker (NFA #0339976) providing brokerage services to traders of futures and foreign exchange products.

    Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results. View Full Risk Disclosure.

    Best Binary Options Brokers 2020:
    • Binarium
      Binarium

      Best Choice!
      Free Trading Education!
      Free Demo Account!
      Big Sign-Up Bonus!

    • Binomo
      Binomo

      Good Choice For Experienced Traders!!!

    Like this post? Please share to your friends:
    Binary Options Trading Guide
    Leave a Reply

    ;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: