Commodity Trading

As with every other type of investing, trading commodities forces the investor to understand the relationship between knowledge and success. There is an old saying that if you completely understand a problem it is nearly solved; this is very true when you are trading commodities. While it is true there are many people that succeed at commodities trading, the typical investor will lose money. Most investors do not accomplish the things necessary to be successful and failure is the only other option. Your investing is a business that requires training, experience and plenty of digging through facts and information, things that occur in most successful businesses.

The Potential of Trading Commodities

Trading commodities has is viewed by some as being much riskier than investing in the stock market. While there is risk, the truth is an investor can raise or lower that level of risk. If your approach to your trades is conservative, you accept reasonable returns and you take the approach that this is a business, then the probability of success in commodity trading rises dramatically.

Trading commodities has its risks but the rewards can be very nice as well. One example of rewards in commodity trading is a man who is said to have borrowed less than $2,000 and amassed a $200 million fortune in ten years. While these results are extraordinary and not everyone can expect the level of successful trading he achieved, it is possible for you to make money trading commodities.

What is Involved When Trading Commodities?

Trading commodities is unlike investing in the stock market or bonds. When you are trading commodities, you don’t actually own anything. You are speculating on the future direction of the price for the commodity you are trading. The terms “buy” and “sell” merely suggest the direction you think future prices will take.

Trading commodities allows those who are involved with a particular commodity to lock in the price to avoid devastating changes later. A drilling company may sell oil futures if it believes that crude oil prices are going to fall in the future; in turn a refinery might buy futures if prices appear ready to rise. No matter which direction the prices move after that, both the drilling company and the refinery are guaranteed their price. The investor is the one who looks for changes in the commodities markets and attempts to gain advantages by buying or selling for a profit.

Is Substantial Risk Unavoidable Trading Commodities?

There is a potential of tremendous risk when trading commodities but reducing that risk can be easier than you may think. Some of the things that can be done when investing in the futures markets to limit risk include:

1. Being Conservative – Deciding to follow a conservative approach can limit your risk; avoiding greed and fear can go a long way to improving your chances for success. Those who follow an aggressive trading pattern expose themselves to much higher risk.

2. Doing Your Research – Knowing your commodity and the conditions that move it will help you to avoid changes that put your positions in danger.

3. Learning Techniques for Avoiding Loss – There are techniques you can use to help minimize loss. For example, instead of accepting a loss by taking or making a delivery, an investor can offset the position before the delivery date. If the commodity eventually makes the right move, the investor has improved his or her position.

4. Having a Trading System – Using a system like Japanese Candlesticks to track commodities and predict their future movements is not only a conservative move but a profitable one as well. Candlesticks originated in the commodities markets in Japan hundreds of years ago and it is perfect for trading commodities today.

Conclusion

While not everyone will want to start trading commodities, it is still potentially very profitable. The danger is that the risks can be limitless to an uninformed, undisciplined investor. The good news is that if you create a set of solid trading rules and educate yourself on the markets and techniques required, trading commodities can be a very rewarding and exciting adventure.

Author: Stephen Bigalow
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Commodity Market is a market where raw items or products are brought in market for selling or buying, these products are exchanged in this market.

Firstly Commodity Trading was started in the 19th century. At that time Commodity Trading was done by small clay coins which were made by baking in summers. At that time Commodity trading includes trading of sheep, pigs and other cattle, wheat and corns.

Later on Commodity Market size increased and many other things were included in it. Now Commodity Trading is done Online in most parts of the world.

There are many commodities for trading in the commodity market. Commodity Market consist of 2 type of exchanges they are:-

MCX (Multi Commodity Exchange) and

NCDEX (National Commodity and Derivatives Exchange)

MCX – MCX was established in 2003 in India. MCX is India’s no. 1 commodity exchange as it has 84% market share (2008). In worldwide it has ranking 1. in Silver 2. in Natural gas and 3. in Gold and Crude oil. MCX consists of following commodities:-

1. METAL – Aluminium, Copper, Lead, Zinc, Nickel, Sponge Iron, Steel Long, Steel Flat, Tin.

2. BULLION - Gold, Gold HNI, Gold M, i Gold, Silver, Silver HNI, Silver M

3. FIBER – Cotton L Staple, Cotton M Staple, Cotton Yarn, Kapas

4. SPICES - Cardamom, Jeera, Pepper, Red Chilli

5. PULSES - Chana, Matur, Yellow Peas

6. CEREALS - Maize

7. ENERGY - Crude oil, Furnance Oil, Natural Gas

8. Plantations

9. Petrochemicals

10. Oil and Oil Seeds.

NCDEX – It was established on 23 April 2003 and it is a Public Limited Company. NCDEX is regulated by FMC for Future Trading in Commodities. It is located in Mumbai.

Commodities Traded in NCDEX are as follows:-

1. AGRI Based Commodities – Chana, Chilli, Cofee, Cotton Seed, Crude Palm Oil, Groundnut, Groundnut Expeller Oil, Guar Gum, Guar Seeds, Gur, Jeera, Kidney Beans, Masoor Grain Bold, Staple cotton, Mentha Oil, Mulberry Raw Silk, Mulbery Green Cocoons etc.

2. BULLION - Gold 1 KG, Gold 100 gm, Silver 30KG, Silver 5 KG.

3. ENERGY - Brent Crude Oil, Furnance Oil, Light Sweet Crude Oil.

4. FERROUS METALS – Mild Steel Ingot.

5. PLASTICS - Polypropylene, Linear Low Density Polyethene, Polyvinyl Chloride.

6. NON-FERROUS METALS – Aluminium Ingot, Copper Cathode, Nickel Ingot, Zinc Cathode.

There are number of Traders who Trade in Commodity Market, But the one who Trade for long term only earns in Commodity Market. Commodity Market is for those who have long term plans regarding investment. To work online in Commodity just Search on Google “Commodity Trading Online” and you will get a lot of information and resourses. Also you can find Brokers in this way just search “Online Commodity Broker” and you will get no. Of them. If you are a Freasher in Commodity Trading then you should choose a good Advisory Company which will help you to understand the market and help you to earn Profit.

So just dont worry, hurry to go online and start your Trading in Commodities with “CapitalVia Global Research Limited”.

Author: Venika Sharma
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The futures trading market is one in which commodities are traded. This commodity trading has proven successful and profitable for many traders, but that doesn’t necessarily mean that it will be the same for you. Although the trading of futures commodities can be considered a risky business, it is a risk that is definitely worth taking. In fact, did you know that you can give commodity trading a try without risking any of your hard earned money? You can and you can do this with commodities paper trading.

Commodities paper trading is a practice that involves using “fake,” or “imaginary,” money. If you decide to try commodities paper trading, you will need to find a commodity trading broker who offers the program. When finding a commodities paper trading program to try, you are advised to search for one that is free. Many commodity trading brokers allow you to try their commodities paper trading program free of charge for a specific period of time, which is often thirty days. The decision as to whether or not you want to pay for this practice is yours to make, but you are advised against paying for something that you can easily find for free.

Although it is nice to know that commodities paper trading exists, there are many hopeful traders who wonder why they should take the time to try it. If you are one of those individuals, you should know that there are number of benefits to commodities paper trading. One of those benefits is giving you and idea of what may come, particularly in the way of profits. Commodities paper trading enables you to make real-time commodity trades with “fake,” or “imaginary,” money. Despite not actually paying for your trades, you are acquiring them. This is what enables you to determine if you can make a profit with commodities paper trading.

What is even more amazing is what happens if you find yourself not making a profit with commodities paper trading. As you likely already know, there are many who are able to profit from commodity trading, but there are others who end up losing money. When doing commodities paper trading no real money is involved. This is what enables you to “lose,” money, but learn from your mistakes. That is why commodities paper trading is sometimes referred to as a training program. By first opting for commodities paper trading, you are able to learn helpful techniques, as well as certain techniques that you should avoid in the future. It is also important to mention that many commodities paper trading programs are completed with the assistance of a commodities trading broker, who is at your disposal.

For more information on commodities paper trading, like the real time market features that you will have access to, as well as the additional benefits of commodities paper trading, you will need to find a commodities trading broker that has the program available for taking. As a reminder, try and find a commodities paper trading program from a well-known commodity broker, one that can assist you when you decide to start reading for real.

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Although it may sound frightening and risky to many investors, if handled correctly, commodities could be the missing piece of an investor’s portfolio. What exactly are commodities? Commodities are any mass goods traded on an exchange or in a cash market including: cocoa, coffee, eggs, lumber, orange juice, soybeans and sugar just to name a few. Industrial metals are also included with copper, aluminum, zinc, nickel, silver, and lead ranking among the most popular industrial metals holdings. Finally, the most widely followed commodities include oil, natural gas and gold.

The diversification benefits equal or surpass those of other asset classes like fixed income and real estate. The primary reason for this is their correlation, or lack thereof, to the stock market as represented by the S&P 500 (Correlation describes how similar the price movement is between two investments). Commodities have historically exhibited absolutely no correlation to the stock market or any of the bond market indices. In fact, they have a negative correlation. This non-similar pattern of performance allows an investor to minimize volatility and protect capital in down markets. Overall, these factors help to decrease overall risk in a portfolio of investments. In short, commodities have historically been a good compliment to a traditional stock, bond and real estate portfolio.

When commodities are utilized as a stand-alone investment, commodities are relatively volatile, exhibiting wild price swings. At times, they are also illiquid, prohibiting the investor from exiting a position that is dropping rapidly. Another factor to be aware of when investing in commodities is the unusual income taxation. Most notably, investors are taxed each year on their share of the profits, if there are profits, regardless of whether the investment has been sold. This is a significant disadvantage compared to investments in stocks, because one does not pay income taxes until the stock is actually sold. Finally, fees to implement a commodities strategy are significantly higher than for those of traditional mutual funds, for example. For these reasons, it is best to only consider 5-20% of one’s portfolio for this strategy.

At a time when stocks and bonds are predicted by most academics and investment gurus such as Warren Buffet, Bill Gross of PIMCO, and Jeremy Grantham of Grantham, Mayer, and Van Otterloo, to produce 5.0% returns or less over the next decade due to historically high market valuations. On a historical basis, commodities are inexpensively priced and substantial upside potential is possible. U.S. inflation is historically low right now but with the effects of massive fiscal, monetary policy and already robust consumer spending, raw goods prices will inevitably increase. When they do, commodity indices will follow. As inflation gradually rises in 2006 and beyond, industrial metals prices will rise as investors begin to direct large amounts of money into these hard asset commodities. The high correlation between commodities and inflation provide an important hedge against considerable losses in traditional financial instruments such as stocks and bonds.

In his recent book “Hot Commodities”, author and renowned investor Jim Rogers summed it up this way:

The 1980′s and 1990′s saw a bear market in commodities. Prices had fallen to levels (adjusted for inflation) not seen since the Great Depression.

For 130 years, stocks and commodities have alternated leadership in regular cycles averaging 18 years.

The long bear market in commodities has created a sharp reduction in capacity – and thus large supply-and-demand imbalances.

As economies in Asia continue to grow, there will be a strong worldwide demand for all commodities.

Historically, the prices of commodities show a negative correlation to the prices moves of stocks, bonds and other financial instruments.

Commodity prices can rise even when the economy is stuck in reverse and their returns outpace inflation.

The U.S. Federal Reserve and other banks in the world have been pursuing a policy of debasing their paper currencies.

The U.S. Federal Reserve’s policy of monetary stimulus and rapid credit expansion will continue to push up the prices of hard assets such as precious metals and other commodities.

History shows that war and political chaos only push commodities prices higher.

Commodities also provide a tactical play on the current weakness in the U.S. Dollar. As other currencies such as the Euro and Yen appreciate versus the dollar, foreign buyers can buy less goods with the same amount of currency. This artificially increases demand, and subsequently drives up the prices of commodities. Currently, effects of this phenomenon can be seen best in the gold and silver markets as prices have risen dramatically over the past year.

Commodities provide a play on globalization by their ability to aid in the improvement of the global economy. This is due to the fact that prices for industrial materials will increase as demand for industrial goods increase. As countries such as China and other emerging market economies develop, they will require more raw materials. This is especially true for industrial metals. China continues to develop at a rapid pace and consequently, their demand for raw materials continues to rise. In fact, China’s iron ore demand has increased from 5% of the world’s supply to almost 50% over the past twelve years.

Commodities have proven to be excellent investments over the last few years. There are a number of types of investment vehicles to take advantage of this great diversification play. Many of our client portfolios have benefited from this recent performance. With only small allocations to hard assets, most client portfolios have delivered returns that were twice the performance of traditional stock and bond portfolios.

Many experts agree that U.S. stocks and bonds will, in all likelihood, generate significantly lower returns over the next decade. Commodities on the other hand may have the potential for the highest returns since the 1970s due to a worldwide economic expansion especially from emerging market countries.

Copyright 2006 Rafael Velez

Author: Rafael Velez
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Everyone knows what a stock index is. It is price weighed or value weighted measure of a basket of stocks. Indexes are very important in the world of investing. If you want to invest in commodities, you should invest in a commodity index.

Just like other indexes, commodity indexes track the performance of a basket of commodities. This basket usually includes wheat, corn, soybeans, coffee, sugar, cocoa, cotton, lean hog, live cattle, feeder cattle, heating oil, gas oil, unleaded gas, crude oil, natural gas, aluminum, copper, lead, nickel. Zinc, gold, silver etc So you can see, these indexes track a variety of commodities.

The most popular commodity index is the Goldman Sachs Commodity Index (GSCI). GSCI tracks the performance of 24 commodity futures contracts. Another popular commodity index is the Reuters/Jefferies Commodity Research Bureau Index (CRB).

Now CRB is an important commodity index and it is widely followed by hedge funds, institutional investors, retail investors and economists as a commodity benchmark. CRB is based on a basket of 19 commodities that have been primarily chosen on the basis of their liquidity and performance in the past. If you are into commodity investing than you need to keep an eye on CRB. Another very important commodity index is the Dow Jones-AIG Commodity Index abbreviated as DG-AIGCI. Now DG-AIGCI places a premium on the liquidity and production of the commodities. This ensures that no commodity dominates DG-AIGCI.

Rogers Commodities Index (RCI) has a grand list of 35 commodities and tracks the most commodities amongst the different commodity indexes. Deutsche Bank Liquidity Commodity Index (DBLCI) is the newest kid. There are many ways to invest in these commodity indexes.

Now how to do commodity investing. Recently there was a news item that the famous George Soros is betting more than $600 million of his hedge fund on gold. Gold is a very important commodity that is expected to skyrocket in the near future. Remember crude oil the way, it had skyrocketed in the summer of 2008. Now, the most direct method is to trade futures contracts based on one of the above commodity indexes. There are futures contracts on some of these indexes that track their performance. So trading these futures contracts can be profitable in times of a commodity boom just like the one that is expected as the global economy recovers from the financial crisis. Then you can also trade futures contracts on individual commodities like gold, silver, crude oil, coffee, copper and stuff like that.

Another method is to invest in commodity mutual funds that track these indexes. One way is to invest with a third party manager that uses commodity indexes as the basis of their investment strategies. Some of these vehicles include mutual funds, commodity pools or Commodity Trading Advisors (CTAs).

Last but not the least, is the great investment opportunity that Commodity ETFs ( Exchange Traded Funds)provides. This is a highly popular alternative that a good investor should not miss. These Commodity ETFs track the performance of a commodity index and provide you with a great opportunity to profit from the boom in the commodity market!

Author: Ahmad A Hassam
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Commodity ETFs: How to Profit from Lower Risk Exposure

A common mistake made by many investors is to allow themselves to become intimidated by the world of commodities. Yes, it is true that investing in commodities can be risky, probably more so than stocks and definitely more so than buying bonds or mutual funds, but that doesn’t mean commodities should be ignored altogether when constructing your portfolios. If nothing else, commodities are a great way to hedge your portfolio against the vagaries of inflation. After all, the major commodities, such as crude oil and gold are denominated in US dollars. Meaning that when their prices rise, the purchasing power of dollars is weakened.

Fortunately there’s a way for astute investors to benefit from this scenario without incurring unnecessary risks.

Commodities ETFs Save The Day

As the popularity of the ETF (Exchange-Traded Fund) has surged in recent years, so has the number of commodity-centric ETFs. There are now hundreds of commodity ETFs available to investors. These offerings are ideal for investors seeking commodities exposure without the risk involved in playing the futures markets. Name a commodity and there’s probably a corresponding ETF. Everything from crude oil to coffee to gold to forex futures has been rolled into an ETF.

So what’s the advantage of owning shares in a commodity compared to the corresponding futures contract? As we’ve already highlighted, commodity ETFs significantly diminish your risk exposure. Commodities markets are notoriously volatile and it is possible to lose more than your initial investment on a commodities contract if you’re not careful. Since commodities ETFs are just like other ETFs in that they trade like stocks, your risk is simply limited to the daily performance of the ETF.

What Makes Commodities ETF Different

If you’re familiar with equity ETFs, you probably know that these funds hold a group of stocks that fit a certain criteria. For example, the SPDR S&P Retail ETF (XRT) holds only retail stocks. That’s generally the point of equity ETFs: To give investors exposure to a variety of stocks in a single sector. On the other hand, commodities ETFs may hold the actual physical commodity the ETF is supposed to be tracking, futures contracts with varying dates for that commodity or a mixture of both.

If you follow the oil sector, you have heard of the United States Oil Fund ETF (USO). USO is designed to closely mirror the daily price action in West Texas Intermediate Light Sweet crude oil. USO invests in crude oil futures contracts, cash-settled options and forward oil contracts. However, it does not directly own physical oil.

Now if you’re looking for a commodity ETF that actually holds the physical commodity, gold is the area you might want to look. Take the SPDR Gold Shares (GLD). GLD, which is designed to mirror the daily performance of gold prices, holds actual gold bullion. In fact, GLD has quickly become one of the largest holders of gold in the world. This ETF owns more gold than the central banks of many of the world’s countries. GLD never sells its gold unless it needs to pay expenses related to operating the fund.

These are just two examples of how commodity ETFs are different from their peers and there is no empirical evidence to suggest that commodity ETFs that hold futures contracts outperform those that hold the physical asset or vice versa.

Commodities Have Long-Term Potential

One of the axioms that investors hear about quite frequently is investing for the long-term, especially as it pertains to stocks. Well, that certainly applies to commodities as well. Certainly, commodities have a penchant for wild price swings, and it’s difficult for retail investors to purchase futures contracts that are more than a couple of months out, but history has show that despite the price swings, commodities typically return to their long-term averages.

This makes commodity ETFs all the more appealing because their ideal holding periods are often more favorable to investors that don’t need to make a quick buck. Holding a commodity ETF for a year or more probably isn’t ideal, but a holding period of say, several months doesn’t enhance risk and can put the investor in position for some nice returns.

The Trend Is Your Friend With Commodities ETFs

That’s another old investing adage that you’ve probably heard a million times, but being on the right side of the trend is always important, especially with commodities. Bullish commodity trends can last for extended periods and commodities don’t need a bull market in stocks to have bull markets of their own. So make sure a positive trend is forming in the commodity you’re considering before diving into its corresponding ETF.

Author: Max D.
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