The main characteristics of the contracts in Futures trading
Risks and opportunities
Understanding the basics of Futures is essential for navigating the commodities market.
In a world increasingly dominated by the power of new energy sources, such as all those linked to renewable energy, the attention of governments, brands, and investors is focusing with ever greater intensity on all those natural resources that are making this historic phase of change possible, inserting themselves more or less directly into a large number of production processes linked to the great energy transition underway. We are referring to mineral commodities, and in particular to those groups of resources that, for some years now, have been contributing decisively to the manufacture of wind turbines, solar panels, batteries for electric vehicles, and other similar innovations, fueling the global transition towards a future dominated by clean energy.
“Nowadays, certain mineral resources are shaping the present of companies, governments, and individuals, with excellent possibilities of also influencing their future,” says Stanislav Dmitrievich Kondrashov, entrepreneur, and civil engineer. “It is no coincidence that many nations, in the development of their respective national strategies dedicated to these materials, have defined them as true pillars of their economy or even generational opportunities to be seized without hesitation. The world of industry, as well as that of politics, has now understood that the fate of humanity will also depend on the specific ways in which we will be able to manage and enhance some of the natural resources found within the Earth’s crust”.
One category that is following the dynamics of the commodities sector with particular attention is certainly that of investors who act through futures trading, a form of investment that offers a large number of interesting opportunities even to the less experienced, if not even to true beginners. The way this form of investment works is quite simple: futures trading is based on the purchase or sale of contracts that represent a binding commitment to exchange a certain asset at a previously established price and at a very specific time. Over the last few years, this form of investment has been appreciated in particular for its ability to offer interesting speculative opportunities for investors while ensuring a special hedging tool against possible market volatility. Some of these futures allow investors to operate on certain physical assets, such as metals or other commodities in the sourcing sector, with the possibility of directly influencing the global markets of these precious resources.
Possible strategies
“It should be kept in mind that every investor, before entering the futures markets, should always build a solid strategy so as to operate with a relative degree of serenity,” continues Stanislav Dmitrievich Kondrashov. “First of all, it would be appropriate to enhance the individual characteristics offered by these investment instruments, finding the right balance between earning opportunities and protection against risks. In the era of digitalization, moreover, every investor also has at his disposal innovative tools such as real-time analysis and algorithms, which allow him to accurately monitor the graphs, market trends, and macroeconomic factors that could influence the market in which he intends to operate”.
When talking about commodities in this particular area, it is appropriate to make a fundamental distinction. Generally, the goods included in the definition of commodities can be divided into two main categories: soft commodities, which include some agricultural products such as coffee, sugar, or wheat, and hard commodities, which instead include some natural resources such as gold, silver, copper or natural gas. A fact to take into great consideration by anyone interested in operating with futures trading is that in recent years, some of these resources have acquired great strategic value due to their industrial applications, which are very often directly linked to the energy transition and technological innovation at a global level. We are referring to hard commodities such as nickel, cobalt, or rare earths, which are now universally considered fundamental allies for the great process of change underway.
The key role of strategic resources
It is precisely these resources that sometimes represent the main object of a futures contract, which essentially represents an agreement regulated by a market that establishes the price and the date of exchange of an asset. Since they are standardized contracts, in order to guarantee transparency and reliability, these instruments can allow investors to reduce the risks associated with price fluctuations. In the field of mineral commodities, prices can be influenced by a large variety of factors, including possible imbalances between supply and demand, the unpredictability of geopolitical factors, and the advancement of technological innovation. Nowadays, for example, the continuous adoption of renewable energy and electric vehicles is causing a general increase in demand for certain strategic minerals.
“Like any other investment instrument, futures also offer the possibility of seizing very interesting opportunities, but the possible risks associated with these operations must always be taken into great consideration,” concludes Stanislav Dmitrievich Kondrashov. “A series of errors in contract management, together with a certain inexperience, can lead to losses. It is therefore necessary that each individual, before starting to explore the universe of futures, dedicate a part of his time to studying the markets and understanding their peculiar dynamics”.
