Futures Contracts

Futures contracts are arguably the riskiest way to invest in the stock market. When you buy a futures contract, you are obligated to purchase or sell a specific commodity by a set time and for a set price. The commodities involved usually include agricultural products (crops and animals), precious metals (gold and silver), oil and other energy products, and financial products (financial instruments and foreign currency). You can purchase futures contracts from the same brokerage firms you purchase stocks from, and you should expect to pay substantial commission fees.

Futures contracts are similar to stock option contracts, but they are much riskier because you have an obligation rather than an option to purchase or sell something. Therefore, you run the risk of losing a lot more than what you paid for your contract if you predict incorrectly on the way prices are going! And as difficult as it may be to predict the rise and fall of a stock, it's child's play compared to predicting commodity prices.

The bottom line is, unless you have great knowledge about a certain item and the market it moves in, or you have absolute, total faith that your broker knows what he's doing, this is not, we repeat, not, the place to put your investment dollars, no matter what age or stage of life you are in. While the profits are huge based on a small investment if the market moves your way, if it doesn't, your loss can easily be astronomical!

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