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What to Know if You Plan to Trade Commodities

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If you’ve ever traded in precious metals, you’ve traded in commodities. Commodities are physical products that people trade in the marketplace. If you’ve been thinking about trading commodities, the Commodity Futures Trading Commission (CFTC) recommends you follow some basic principles and be on the alert for possible fraud.

Always follow these basic principles before you trade in the commodities markets:

  • Ensure that you can lose all of your investment and still be financially secure because it is “risk capital”
  • Check to make sure you have your risk disclosure documents
  • Determine if you will rely on advice from a broker or make your own trading decisions
  • Understand your financial obligations in commodity futures and option contracts

There is a great deal of fraud in the commodities markets. Fraudsters steal money from unsuspecting investors and traders. These are a few ways that fraudsters try to beat you out of your money:

  • Downplay the importance of the disclosure statement
  • Tell you to borrow money to invest
  • Guarantee profit or boast about past performance
  • Promise profits due to “predictable” seasonal or market cycles
  • Make “can’t miss claims” based on information already known to the public

You can beat the fraudsters by checking their registration status and background at the National Futures Association’s Background Affiliation Status Information Center (BASIC).

If you have questions, are aware of suspicious activities, or believe you have been defrauded, please let the CFTC know immediately at www.cftc.gov/TiporComplaint.

Learn more about protecting yourself before trading commodities.