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futures and the options topics in this book will get you familiar with many of these concepts and accelerate your climb up the learning curve.

Commodities

In our lives there are certain products that we use everyday or at least most days. Let’s consider a typical day in the life of a typical person. She may have breakfast consisting of cereal, bacon, and orange juice. Then her car, built mainly from metals, would require gas to get her to work. She may use a computer at work, and some of its components use metals such as copper and gold (in its chips). Her house, built from lumber, may use heating oil for warmth during winter. She may have a few cups of coffee with sugar during the day, and may have bread with her lunch and dinner.Her clothes and bed sheets are mainly made from cotton.

Most of us have a lot in common with the person just described. That is because there are certain materials all of us use in our lives, without which we cannot imagine living. Meats, oil, metals, and grains are all examples of raw materials used widely by our society, and they are known as commodities. Our everyday dependence on commodities assures that large volumes of these materials are bought and sold to satisfy the market demand. For example, oil (petroleum) is one such commodity that is consumed in large quantities everyday. From automobiles to airplanes to power generation facilities to the transportation industry, oil is the lifeblood of our society. Not to mention that heating oil, plastics, fabrics, and numerous other products we use everyday are also derived from oil.

Dealing in commodities has become a lucrative practice for many who profit from the sheer volume and price volatility associated with them. They are commodity traders who practice the old rule of buy low …