The soybeans futures price
is different than the soybeans price in the cash (physical) market. Generally, the price of a commodity for future delivery
is higher than the cash price due to carrying costs (insurance, interest, and warehousing fees). This is called contango.
The opposite of contango is backwardation. Backwardation is when the price of a commodity for future delivery is lower than
the cash price Backwardation is normal in a “seller’s market.”
When you trade soybeans futures, your futures price depends on where you get into the market. After
you post your initial margin, your profit or loss depends on where you enter and exit the market (minus transaction costs).
For example:
The contract size for soybeans is 5,000 bushels. So each $.01 move equals $50. As the market moves
your account value adjusts. If your account value drops below the maintenance margin a margin call is due. A margin call can
be met by offsetting positions or adding money to your account.
Trading
futures is like driving a car without insurance. You save the insurance premium, but if you crash you will wish that you were
insured. If you have very deep pockets or deal with the physical soybeans product then futures may be for you. If you are
a speculator with a limited amount of risk capital then soybeans options are a better way for you to invest in the soybeans
market.
