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Commodities: A commodity is a product, as opposed to a service, that forms the basis for trade or commerce in that item. Typically, but not always, commodities refer to unprocessed goods such as grains, fruits and precious metals.

Commodity Exchanges: Commodity exchanges provide a bid-ask, open market for trading commodity future contracts in everything from wheat and soybeans to cattle, pork bellies and orange juice. Users of commodities trade futures contracts to hedge price exposure while speculators provide liquidity in the market.

Futures Charts: Displayed either as a line graph or bars, futures charts show the trading history of a given commodity over a time period. Charts depict trading period as short as one hour or day, or a current week. They may be the entire contract trading period.

Futures Exchanges: Similar to commodity exchanges, they tend to trade in non-perishables such as foreign currencies, options on stocks, precious metals such as gold and silver, and crude oil. Exchanges allow users of products to hedge potential price exposure as much as 18 months in advance, and speculators in the same items provide market liquidity for hedgers.

Futures Options: Require buyers to purchase, or sellers to deliver, a futures contract at a set price and date as much as 18 months in advance. Prior to the actual delivery date, a buyer may sell the option if the price declines in the interim; likewise, a seller may repurchase the option before the delivery date if the price increases.

Futures Quotes: The bid price a buyer is willing to pay, and the asking price at which a seller is willing to sell, a futures contract or option. The difference between bid and ask price is the "spread." Trades occur when buyers and sellers agree on a price, typically within the spread range.

Online Options Trading: A service offered to hedgers and speculators that allow orders to be placed and fulfilled electronically at exchanges through secure internet sites. Companies offering on-line trading should be a member of the exchange on which a transaction is being made to ensure they meet compliance rules.

Money Managers: Individuals who advise companies and speculators on likely price movements in various commodities, currencies or futures contracts. They receive a fee for their services, which include giving advice on buying and selling specific contracts.

The Future of Futures: As global economic volatility accelerates, future contracts will continue to expand as a key business tool to protect costs and profits for companies needing to hedge against rapid price changes. For speculators willing to assume the high risks of futures trading, it will continue to be a potentially lucrative income source.

Learn more about this author, Charley James.
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