Trading commodities such as corn, wheat and soybeans is among the most complex forms of investing. For that reason, experts warn strongly against novices entering the venue.
These types of trades can offer the most rewards--as well as the most risks--due to wild price fluctuations.
Investors almost never buy or sell commodities outright. Instead, they buy a contract to either buy or sell the commodity at a future date and set price. This is known as a futures contract.
Most investors usually sell the contract before the delivery date because they don't actually want to own the commodity. They're just betting on which way prices will move. A "long" contract means the investor thinks prices will rise, while a "short" contract is a bet that prices will fall.
Let's say you purchase a contract to buy wheat in April for $10 a bushel. If the price of wheat rises above $10, you're going to make a profit. But if the price falls below $10, you'll lose money.
Some basic facts about trading in commodities futures: