Someone expecting the price of a particular commodity to increase over a given period of time can seek to profit by buying a future commodity contracts. If correct in forecasting the direction and timing of the price change, the futures contract can later be sold for the higher price, thereby yielding a profit. If the price declines rather than increases, the trade will result in a loss. Because of leverage, the gain or loss may be greater than the initial margin deposit.

For example, assume it is now March, the May CL futures contract is presently quoted at $ 37.50, and over the coming months you expect the price to increase. You decide to buy a contract of one lot by putting a margin (deposit) of US$1000. Further assume that by April the May CL futures price has risen to  $38.50  and  you

decide to take your profit by selling.

Since each lot contract is for 1000 barrel, your 100 ticks a dollar profit would be


(Selling price - Buying price) x Contract size x Amount of lots



(38.50 - 37.50) x 1000 x 1 = $1,000

Suppose however, that rather than rising to 38.50 the May CL futures price had declined to 36.50 and that, in order to avoid the possibility of further loss, you elect to sell the contract at that price. On 1000 barrel your 100 ticks a Dollar loss would thus come to $ 1,000.