The US Commodity Futures Trading Commission explains that you can open an individual account, making all the trading decisions yourself or giving your broker permission to make trading decisions on your behalf. Or you could purchase a share in a commodity pool, similar to a mutual fund.

If you choose to make your own decisions, you would buy futures (go long) when you expect prices to rise, and sell (go short) when you think prices will decline. This allows you the potential to make money on any movement in commodity prices.

When you trade futures, you’re making an educated guess about the direction prices will go. Nobody knows for certain whether a specific commodity, such as corn, will rise or fall in value. To help make the most informed guess, you’ll need to do some research and have a good understanding of the commodities you trade. It’s a good idea to look at both historical data for the commodities you wish to trade as well as current economic data that shows supply and demand. You’ll also want to keep an eye on current events, since a drought in the Midwest or political instability in an oil-producing nation can have a dramatic effect on the price of futures.

What are the risks of futures trading?
There is no guarantee that a futures contract will rise in value, and at some point in time, you’re going to have to sell it. Selling too soon could reduce the profit that you make from the contract if prices continue to rise. The bigger risk, however, is the risk of loss. The commodities that underlie the contract could be wiped out; for example, frost could wipe out the strawberry harvest that you own, rendering your contract worthless. In this case, you’ll lose whatever money you spent to buy the contract.

Another major risk is leverage. Each futures contract represents a larger amount of the underlying commodity. This means that your loss could be much more than your original deposit. You can often buy contracts on margin, putting down only 5% to 10% and borrowing the rest from the brokerage. If you engage in this type of trading, your losses will amount to the full value of the contract, not just the small percentage that you put down.

When you trade in agricultural commodity futures you also face risks such as floods, droughts and freezes. Economic factors such as inflation, deflation, recession and government intervention also come into play.

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