Choosing a Futures Contract

Just as different common stocks or different bonds may involve different degrees of probable risk and reward at a particular time, so may different futures contracts. The market for one commodity may, at present, be highly volatile, perhaps because of supply-demand uncertainties which—depending on future developments—could suddenly propel prices sharply higher or sharply lower. The market for some other commodity may currently be less volatile, with greater likelihood that prices will fluctuate in a narrower range. You should be able to evaluate and choose the futures contracts that appear—based on present information— most likely to meet your objectives, your willingness to accept risk and your expectations as to when the anticipated price change will occur.

Keep in mind, however, that neither past nor present price behavior provides assurance of what will occur in the future. Prices that have been relatively stable may become highly volatile (which is why many individuals and firms choose to hedge against the possibility of future price changes).

Reprinted with permission from the National Futures Association. Copyright 2002.