How To Buy Commodity Futures • Fully Tested

: Alex is "short" (he promised to sell at $1.10). Since the price is now $1.50, he is facing a loss.

: Most traders like Sarah and Alex never actually touch the physical coffee. Instead, they "liquidate" or close their positions before the delivery date. how to buy commodity futures

: Sarah and Alex enter a futures contract through a regulated exchange. They agree on a price of $1.10 per pound for delivery in six months. : Alex is "short" (he promised to sell at $1

: To ensure both parties follow through, the exchange requires them to put down margin —a small fraction of the total contract value (e.g., $50 for a micro contract vs. $500 for standard). This acts as a security deposit, not the total cost. Instead, they "liquidate" or close their positions before

Imagine Sarah, a coffee roaster who needs (the size of one standard coffee futures contract) in six months. She is worried prices will skyrocket due to a bad harvest. Meanwhile, Alex, a speculator, believes coffee prices will drop because of a predicted bumper crop.