Commodity Trading

What is the difference between ordinary commodity trading and a commodity manager? A commodity trader looks to make money for himself. A commodity manager makes his or her living earning money in the stock market. This of itself makes for a compelling reason to look at the way that commodity managers approach the market and how they view events that affect various commodities.

Stock Options and The Housing Market

Stock option trading strategies have become a closely monitored item among many commodity managers. Once the strength of the economy, housing has become a serious liability and a consistent negative impact on stock prices. Because of this negative influence, the housing sector will continue to have a disruptive effect on stock futures.

Commodity Managers and Hurricanes

The mild start to the 2007 hurricane season has actually been on the minds of many commodity managers in futures trading. Without an active hurricane season, commodity managers are seeing orange juice futures plummet. Orange grove owners are no doubt waiting to sell futures contracts, hoping to see an upturn in prices. Additionally, speculators holding naked selling naked puts are likely to extremely nervous as a storm-free season could leave them with huge losses.

Other Weather Related Futures

With an unusually long heat wave for the Midwest growing regions, commodity managers are seeing prices continue to move upward in soybean and corn futures. These prices will continue to climb until the region sees relief from the soaring temperatures.

Wheat futures are another commodity that continues to rise. While a pricing correction may be close at hand, fears of a worldwide wheat shortage will keep the price of futures orders high. Another strong performer, coffee futures are viewed by many commodity managers as a commodity on the verge of a breakout.

Precious Metals

Precious metals like gold and silver, along with copper always occupy a place of interest for commodity managers. Futures brokers routinely monitor these metals because of their close ties with the American economy. Futures trading in copper, as of late, has been in somewhat of a defensive position. Copper is a strong indicator of the economy. It normally rises or falls based on the strength of the economy, both in the US and in the world.

Silver and Gold futures tend to inversely track the economy, especially in the US. When the economy and the US dollar struggle, gold and silver prices usually rise. To start the second half of 2007, commodity managers have actually seen the prices for gold and silver futures drop as the dollar has gained some strength.

What Does It All Mean?

Commodity managers look for any advantage they can find when trading commodities. It doesn’t matter whether they are trading in pork bellies or crude oil futures, finding trends before they occur means finding profits. This idea is true not only for commodity managers but for your garden-variety investor as well. If you can predict what is going to occur in the future, you can more profitably invest in it. The key to this knowledge is extensive research and a watchful eye on the events that affect each particular commodity.

Conclusion

Commodity managers make their living knowing what will happen at the futures exchanges before it occurs. By understanding the dynamics that affect various commodities, it is possible to foresee changes in trends and place futures orders based on solid research and a watchful eye on both the weather and the news. Seeing futures the way an expert does can help even the everyday investor to profit from futures trading.

Author: Stephen Bigalow
Article Source: EzineArticles.com
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Commodities are products traded solely on the basis of price. The products are undifferentiated products, goods or services that are not traded based on quality and features, only on price. Historically, commodities were items of value, of uniform quality that were produced in large quantities by many different producers. The items from each different producer were considered equivalent. Commodities are defined by an underlying contract and standard, rather than the quality of the product.

History

Chicago was the birth place of the first commodities market, way back in the 1840s. Farmers would bring their wheat to the market and exchange it for good, hard cash. Futures contracts developed from there. A farmer would contract with a dealer to sell a set amount of produce to him at a set date for a set price. It was comforting for both parties – the farmer knew how much he was going to get paid and the dealer knew exactly how much he was going to pay for these commodities.

This practice of commodities trading evolved over the years that ensued. The farmer would decide not to sell and cede the contract to another farmer to fulfill, or the dealer might decide that he did not want the produce anymore and then on-sell the contract to another dealer.

Naturally supply and demand entered the equation. If the harvests were poor, the produce would fetch a much higher price and if the crops were abundant, a leaner price prevailed. Before long, speculators were in on the act. They started trading the futures contracts in the hope of buying the commodities at a low price and selling these for a handsome profit.

What defines a successfully tradeable commodity?

To successfully trade, commodities must:

Be standardized. If the commodities industrial or agricultural, it must be unprocessed. Have an adequate shelf-life, if these are agricultural.

There should be sufficient fluctuation in supply and concomitantly price. The reason for this is that without the risk factor, profits are meagre and unappetizing. Examples of commodities are: electricity, wheat, chemicals, metals, pork bellies, RAM chips, labor and currency.

Difference between commodities and stocks
The main difference between stocks and futures contracts from a trading perspective is that, unlike stocks, which you could keep for a very long time, commodities are held for a very short time only. Futures contracts are used to hedge commodity price-fluctuation risks or to take advantage of price movements, instead of trading the actual cash commodities.

How are commodities traded?
Commodity Future and option trading take place at exchanges such as the Chicago Board of Trade, Euronext.liffe, London Metal Exchange and the New York Mercantile Exchange, and other online trading systems. At the exchanges, areas are provided, each designated for a different futures contract. Those trading on the floor must be members of the exchange and registered with the Commodity Futures Trading Commission. Those traders, who are not members, work through brokerage firms who are.

To conclude
Commodity future option trading is both complex and risky, so the shoe may not necessarily fit just any body’s foot. If you are considering commodity future option trading, you should evaluate how much you are prepared to lose should push come to shove. Choose a trading method that you are comfortable with and that is best suited to achieving your objectives. The bottom line in commodity future option trading is that, if you exercise good judgment and manage your risks effectively, commodities trading are likely to richly reward your efforts!

Author: Ian C Jackson
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As commodities have been growing in popularity among savvy investors, they offer fertile territory for a financial copywriter looking to expand his clientele. So here is a basic introduction to this lucrative niche.

Even though many individual investors haven’t been directly introduced to the concept of commodities, they are often included in mutual fund investments incorporated in their investment portfolios.

Commodities refer to tangible goods such as crude oil, soybeans, gold, platinum and corn. These tangible commodities are exchanged internationally on virtually every stock exchange as every global marketplace relies upon these goods for manufacturing and trade. Commodities can be traded as a future or on a spot trade basis. Spot trade refer to commodities which are settled immediately, or on the spot, rather than at a future point in time (futures).

To write about commodities, a financial copywriter must understand Futures Contracts

To help investors understand commodities, the financial copywriter must be able to communicate the concept of “futures.” Futures refer to contracts to buy or sell a commodity in the future, for a specified price and for a specified quantity. A futures contract refers to an arrangement between a buyer and seller for a specific commodity.

Futures contracts executed between buyers and sellers consist of the following information:

o Which commodity is being purchased or sold
o The date the commodity will change hands
o The quantity of the commodity changing hands
o The price agreed upon between the buyer and the seller Who Invests in Commodities?

As previously mentioned, many individual investors are unaware that they participate in the commodities markets as the investments are contained within mutual funds held within their portfolio. A financial copywriter should be aware of several investor types who proactively seek commodities as a portion of their portfolios, primarily to act as hedges against other asset class movements.

The players that the commodities markets attract include:

o Large Speculators- Institutional investors and commercial traders often trade commodities without taking physical possession of the goods. They profit on the price differentials, providing portfolio growth in the form of profit for their respective investors.

o Small Speculators- While large speculators and commercial traders are more common within this marketplace, individual investors can hold commodities within their portfolios by working with a commodities broker.

How to Begin Trading Commodities

Before investing into commodities, evaluate your portfolio’s holdings, your personal investment risk tolerance, your investment time frame and your short term and long term financial goals. Commodities act as one asset class among 22 current options, with each asset class working in relationship with each other. Many investors select commodities as a hedge against other asset class downturns. To begin trading commodities, you will need to establish a relationship with a commodities broker.

Author: Leon Altman
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With all the current volatility in the world’s stock markets, a lot of people are wondering whether it makes sense to invest in anything at all at the moment. Well, I personally see drastic stock market drops as a chance to buy stocks on sale before the price eventually goes back up. But beyond that, there are alternatives to stocks for those who can’t stomach the current state of affairs.

An alternative to stocks is investing in commodities. What are commodities? They are raw materials used to create products that people really need. Things like food, agricultural products like wheat and cattle, oil and gas, and metals like gold, silver, and aluminum.

How are commodities bought and sold?

Most commodities used to be just sold at the local market. Obviously that would present some trouble for the individual investor who can’t store cattle or wheat at home. But in the 1800s, commodity future exchanges were set up. Future and option contracts on commodities can be traded on exchanges around the world. So you no longer have to possess the actual barrel of oil itself, you can possess a contract to own it in the future, and these contracts can be sold.

Futures and options are advanced trading avenues and in my opinion are best avoided for the novice investor. But these days there are other ways to invest in commodities, like buying units in a mutual fund that buys commodity futures.

Why invest in commodities? What are the benefits?

In recent years commodities prices have outperformed stocks and bonds. One reason is that demand for commodities from developing countries is increasing. As massive developing countries like China and India build infrastructure and increase manufacturing, steel, oil, and other commodities will be needed in huge quantities. Increased demand, coupled with decreased supply for some commodities such as oil, will continue to send prices higher. With Asia’s rapid development this will likely continue.

Commodities also move up when stocks go down. Commodities are real assets, unlike stocks and bonds, and they react differently to changing economic conditions. Commodities prices tend to increase with inflation. Stocks and bonds on the other hand, tend to perform better when the rate of inflation is stable or slowing. Since 1990, commodity prices have been negatively correlated with the S&P 500. Since commodities are not positively correlated with stocks and bonds, they diversify your portfolio and help reduce risk and increase returns over time.

Commodities are not only a hedge against inflation, but also a hedge against destabilizing events or catastrophes. Commodity prices rise during times of crisis such as wars and stock market crashes. After the Iraqi invasion of Kuwait, stocks dropped while commodities performed well. And during the stock market crash of 1987, stocks dropped by 30% while commodities held steady. There are people out there who horde gold as a way to preserve wealth in some coming cataclysmic event. I would never want to invest in ONLY GOLD, but these people are right that in the event of catastrophe commodities like gold will be far more useful than stocks or cash (which will likely become unbelievably devalued if there’s a catastrophe of huge proportions).

That’s not to say that commodities are free of volatility. They are equally or slightly more volatile than the stock market, but they rarely drop at the same time as the stock market. In these volatile times with stocks continuing to drop or stagnate, commodities are an essential part of any diversified portfolio.

Author: Paul Jorgensen
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If you’re looking to get into commodities trading, you should first understand what it means. Commodities are products that are bought, sold and usually not processed. Some examples of commodities are financial investments and agricultural products. Foreign currencies are also in that group.

A lot of products that used to trade locally have now expanded into the global market. Thanks to technology, more money can be made by the global expansion. Many countries, including the United States, have become one big melting pot for global trading.

When commodities first evolved, not a lot of people were using them. When people found out that it was better to take a risk on this as opposed to stocks and bonds, more people jumped on board. Now anyone can get involved in commodities trading.

When you’re involved in a commodity transaction, it is set up through futures contracts. Futures contracts are purchased and/or sold on the date specified for the future. A price is put in place and the transaction is completed at a later time.

There are also contracts called spot contracts. These are contracts that are used for transferred commodities. They get shifted when a contract is created then instead of a future date. This type of contract can be used for a future contract after a specific time period. The type of commodities investing can vary.

When you invest in commodities, you don’t have to endure a lot of risks. That’s why people like to invest in them. When you get an increase in commodities, it can offset any losses you may have. The risks in commodities are minimal because you’re investing in different things. When you have contracts for later dates, you don’t encounter a lot of risks.

There is not a problem when you’re watching how your commodities work out. Even when stocks and other stuff aren’t going so good, you can at least count on your commodities to hang tough. Unlike stocks, you can tell how well commodities are going to do. You should never compare stocks and bond with commodities because they are two different entities. Plus, stocks and bonds are more volatile because of their uncertainty in the daily market.

If you’re not familiar with investing in commodities, you should find someone who is knowledgeable in it. Commodity trading advisors can assist you on what to do in the market. They will also let you know when it’s time to get rid of that commodity.

When choosing an advisor, look at what you what to accomplish. After you’ve done that, find someone who would be able to help you with your goals. You don’t necessarily have to go to a brick and mortar facility. Since people are so busy these days, it might be better if you contact them by phone or e-mail first. Then you can set up a time to meet, if necessary.

You can do other things besides trading in commodities. You can also make investments using a diverse package of funds.

With commodities, you are less likely to lose money than you would if you were strictly investing in stocks and bonds. That’s why it’s important to diversify your money if you’re planning on creating a nice financial portfolio.

Author: Gary Giardina
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With a rich history and an exciting future, trading in the commodities markets will continue to be very popular. For those who are already involved in commodity trading, it can be an exciting adventure. For those who are thinking about getting in, now is a great time to learn how to invest. For both the newcomer and the experienced trader, a little understanding about commodities markets is always helpful.

Commodities Markets In The US

Today’s commodities markets in the United States trace their origins to futures trading in Chicago, IL in the early 1800s. Because of its location at the base of the Great Lakes and its close proximity to the farms of the Midwest, Chicago was a natural center for transportation, distribution and trading commodities. Overages and shortages of agricultural products caused extreme changes in price. An exchange was needed that would bring together a market to find potential buyers and sellers of a commodity instead of making people bear the burden of finding their own. In 1848, the Chicago Board of Trade (CBOT), the world’s first futures market was formed. Trading was originally in futures and the first contract was written on March 13, 1851.

General Futures Exchange Information

Unlike in the past, you will not actually go to the commodities markets to do business with the futures exchanges. You will invest through your broker who will take your commodity orders to the exchange floor for you. Your contact with a broker can either come from telephone contact to relay orders or electronic commodities trading in the Internet. While there are futures exchanges throughout the world, the best known markets in the US are in Minneapolis, Kansas City, New York and Chicago.

Regardless of which method is used, the basic concept is the same; the investor submits his or her futures options market order and based on the information contained in the futures contract, a purchase or a sale is made on behalf of the investor by a commodity broker. As you probably remember, this legally binding agreement gives the purchaser the right, not the obligation, to buy or sell the underlying asset. While the commodities themselves might be different, the commodities markets are the same.

Commodities Markets

While the world of the Internet has eliminated some of the magic of the commodities markets, the actually floor trading is still fascinating. Most commodities markets are divided into pits where the brokers stand facing the center. Each is dedicated to commodities trading that are specific for that pit. For example, the Chicago Board of Trade has large pits for soybeans, T-bonds and corn futures in addition to many others. The COMEX in New York is home to more that one futures exchange. There you will likely find pits for such commodities as heating oil, gold, cotton, coffee and orange juice.

Another consistent feature of commodities markets is that like trading in the stock market, the people that are on the floor must be members of that particular exchange. By paying dues and assessments, these members help to support the exchange. For non-members, it is necessary to find a member broker to do your commodity investing.

The commodity market provides the place to trade and has all of the related support facilities, such as phones and price-reporting and dissemination systems. The commodity market does not set prices or buy and sell for itself. It does, however, have an extensive operation for monitoring the actions of those involved to ensure to the US government that strict trading rules exist and are being followed.

Conclusion

From their humble beginnings in Chicago in the 1800s, commodities markets have become sophisticated places for successful traders to invest in futures and options. Combined with online futures trading, commodities markets are prepared to take investors from the past into the future.

Author: Stephen Bigalow
Article Source: EzineArticles.com
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