The investment strategies for futures can be divided into three types based on the investment objectives of futures investors: The first is the standard buy-sell approach, the second is hedging, and the third is arbitrage.

1. Buy-Sell Approach

The most commonly used phrase or "strategy" for investing and trading is; buy low and sell high, or sell high and buy low. This trading strategy is basically consistent with the way to profit from stock trading.

Example: Suppose the weather this year is highly unfavorable for the growth of soybeans, this implies that the price of soybeans may rise due to projected poor harvest.

You can pay a $10 margin to buy a futures contract that expires on December 31 at $5/kg (100kg/lot). By December 15, the price of soybeans had risen sharply, and the price of this futures contract has become $15/kg. At this point, you can opt to sell this soybean futures contract, thus realizing a profit of $10 per kilogram of soybeans ($15 less$5).

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This is a simple example of a soybean futures contract. In reality, futures contracts must be settled upon expiration. There are generally two ways to settle: cash settlement or physical delivery. Physical delivery means fulfilling the responsibility of the futures contract by delivering the actual goods ( in this case soybeans). Therefore, when the futures contract expires, both parties must fulfill the physical delivery according to the contract to complete this transaction.

Due to the complex delivery issues involved in physical delivery, such as transportation and storage, most people will not opt for physical delivery. Therefore, for commodity futures such as soybeans, most traders will choose to close their positions in advance before the last trading day to avoid delivery. 

2. Hedging

Refers to buying or selling a commodity while simultaneously performing an opposite action (selling or buying), profiting from the price difference between the two markets. It is generally a trading strategy adopted to offset or reduce the risk of loss of existing assets (such as stocks).

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Example: Suppose the NASDAQ index at present is 11,000 points, and the NASDAQ index futures contract price for March is 11,100 points, with each contract being $5 and each point of the NASDAQ being $1.

You hold 100 shares of Apple stock (AAPL) at a price of $150, with a total cost of $15,000. You expect the market to fall in the next three months. To prevent your stocks from losing value, you can choose to short 6 NASDAQ index futures contracts for March at 11,100 points.

When the NASDAQ index falls to 10,700 points, the price of the March NASDAQ index futures contract becomes 10,800 points. At this time, you choose to buy 6 March NASDAQ index futures contracts at 10,800 points. In this way, you can get a return on the March NASDAQ index futures: (11,100-10,800) x6 contracts = $1,200.

However, when the NASDAQ fell to 10,700 points, the price of Apple stock fell by 5%. So, your Apple stock position lost: $15,000 x 5% = $750.

Your hedging result: NASDAQ futures profits less Apple shares loess ($1,200-$750 = $450). Not only did you not suffer losses despite the weakening NASDAQ index, but you also profited by $450. This is the benefit of hedging. 

3. Arbitrage

Arbitrage involves taking advantage of price discrepancies for the same commodity across different markets or in different forms. Here are three examples of commodity arbitrage:

• Geographical Arbitrage: This is the most common form of commodity arbitrage. For instance, if gold is cheaper in London than in New York, a trader could buy gold in London and simultaneously sell it in New York, making a profit from the price difference.
• Cash-and-Carry Arbitrage (or Storage Arbitrage): This involves buying a commodity in the spot market (current market) and simultaneously selling a futures contract for the same commodity. The arbitrageur then holds onto the physical commodity until the futures contract expires, at which point they deliver the commodity to fulfill the contract. The profit comes from the difference between the spot price plus storage costs and the futures price.
• Time Spread Arbitrage: This involves taking advantage of price discrepancies between different delivery months for the same commodity. For example, if the price difference between oil futures contracts for delivery in December and January widens beyond the typical storage and financing costs, an arbitrageur could buy the cheaper month and sell the more expensive month, hoping to profit when the spread narrows.