Aluminum Futures Price
The aluminum futures price is different than the aluminum 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 aluminum 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 aluminum is 25,000 lbs. So each $.01 move equals $250.
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.
Aluminum commodity futures contract
trading can be both highly profitable and extremely risky because of leverage. Leverage is the ability to control a large
quantity of a commodity for a very modest investment. That investment is called margin. Be certain you understand the risk
of trading futures on margin before you consider opening a aluminum trading 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 aluminum product then futures
may be for you. If you are a speculator with a limited amount of risk capital then aluminum options are a better way for you
to invest in the aluminum market.
