: Sarah and Alex enter a futures contract through a regulated exchange. They agree on a price of $1.10 per pound for delivery in six months.
If you want to start trading like the speculator in our story, follow these steps: Basics of Futures Trading | CFTC how to buy commodity futures
: Three months later, a freeze in Brazil causes coffee prices to jump to $1.50 per pound. : Sarah and Alex enter a futures contract
: Alex pays Sarah the difference in cash. Sarah uses that profit to buy actual coffee from her local supplier at the new, higher market price, effectively "hedging" her costs. 🛠️ How to Buy Commodity Futures in Reality : Alex pays Sarah the difference in cash
: To ensure both parties follow through, the exchange requires them to put down margin —a small fraction of the total contract value (e.g., $50 for a micro contract vs. $500 for standard). This acts as a security deposit, not the total cost.
: Her contract at $1.10 is now very valuable because she "locked in" a lower price.