Traders are often lured to into the futures markets with a fascination for day trading.  The thought of trading leveraged contracts without overnight risk is appealing to many, but underestimated by most.  As a retail broker I have had the pleasure, and the pain, of watching day traders attempt to profit through strategies ranging from scalping to "position" intra-day trading which spans several hours.   My observations have led me to the conclusion that day trading is perhaps one of the most difficult strategies to successfully employ.  However, for those that have the perseverance to dedicate themselves to the practice, contain the natural ability to eliminate emotions and have enough experience under their belt day trading may also be one of the most potentially lucrative forms of market speculation. 

As you have likely discovered, the term commodity can be used to describe a wide array of assets.  The formal definition of a commodity is a physical substance or asset that is “interchangeable” in trade.  From a more general standpoint, a commodity is any product that trades on a futures exchange.  Along with grains such as corn and wheat, commodities also come in the form of financial assets such as interest rate products and currencies.   Just as you wouldn’t prefer one bar of gold over another, you likely wouldn’t have a preference between one T-bill over another.  The Chicago Board of Trade (CBOT) futures exchanges have standardized contracts to represent each of the government issued fixed income securities known as Treasuries and the Chicago Mercantile lists a short term interest rate product known as a Eurodollar.   

There are several widely traded contracts in the realm of interest rate futures trading.  Each of these contracts carries slightly differing market characteristics and in some cases contract sizes, point values, etc.  For those unfamiliar with the futures markets, these discrepancies can be overwhelming.  However, I hope to deliver the pertinent information clearly in order to make your journey into financial futures trading as pleasant as possible.   

If you are like most people, you work hard for your money and the last thing you want to do is see it evaporate in your trading account.  Throughout my journey in the markets, I have yet to find a fool proof way to guarantee profitable trading, but what I am certain of is that you owe it to yourself to fully understand the products and markets that you intend to trade before risking a single dollar.  What you will learn from this article is merely a stepping stone but without fully understanding the basics you may never lay the foundation necessary to become a successful trader.   

When most people think of commodities they imagine fields of grain or bars of gold.  However, a futures contract may be written on any commodity in which the underlying asset can be considered fungible.  The term fungible purely means “interchangeable”, or having the ability to “comingle”, in trade.  In other words, you wouldn’t prefer to have one bushel of corn over another. Corn is corn as long as it meets the exchanges definition of a deliverable grade.  Financial products can be thought of in much of the same way.  One unit of the S&P index is just as valuable (or not) as the next.  Therefore, financial products can also be considered commodities and trade similarly on futures exchanges around the world.    

Thanks to the CME (Chicago Mercantile Exchange); financial institutions along with investment managers, corporations and private entrepreneurs have a regulated and centralized forum in which they can manager their risk exposure to changes in currency valuations.  Naturally, where there are hedging opportunities there is also room for mass speculation and that is exactly what occurs every Sunday afternoon through Friday at the CME.   

While many argue that the cash currency market, often referred to as Forex, is a much larger arena, I believe that the CME offers a very competitive trading environment in terms of execution.  I also believe that the CME currency futures are superior in terms of transparency and credibility.  This particular article isn’t intended to clarify the differences between Forex and currency futures, however, if you are interested in illumination of the arguments for and against each trading forum, be sure to read “FX vs. Currency Futures” which was published by Trader’s Journal Magazine in 2007 and can be seen on www.CarleyGarnerTrading.com.