Commodity Trading

Commodity trading has immense opportunities for those who are interested in diversifying their investment portfolio. The returns are much quicker than any other investment trading, allowing you to earn quickly. Moreover it also gives the trader the choice to choose an online broker along with lower commissions so that their profits are large. However it is best to be well equipped before you begin commodity trading in any commodity. Knowledge will keep the investor wary of any kind of lurking danger in Commodity trading

Let’s understand the benefits of commodity trading markets.

Online commodity trading – Online trading in commodities is an excellent choice since the investor will find it to be one place where everything needed is found. With online trading software as soon as the trading account is logged into you will find information on future trades, technical analysis, quotes, charts as well as research that will help you make the right investment choice. This is one reason why traders are free to trade in the commodities of their choice, and make their own decisions when it comes to buying and selling. Traders now no longer have to do the hard work, but can still stay on top of the trade by making the final buying or selling and even selecting commodities to trade in.

Commission – Online Commodity trading is the best option or else you cold also get a broker who will manage your account. Executing the trade is instant and trading over the phone is only a waste of time. You will also enjoy low commissions when you decide to trade in commodities. Infact it is now possible to trade in less than $10 for a round turn though an online broker. This helps in making a very profitable trade that also includes day trading, short term trading and even spreads. With lower commission charges and high returns your profit margin is much higher as compared to forex or stock trading.

Leverage – Since commodity trading works on the margin system, in other words if you have to take a position in a trade you could choose to have only a fraction of the value that is available in cash present in your trading account. No uptick rule – Futures contracts which is also a type of commodity trading can be easily bought and sold. This allows the trader to make quick profits with the rise or fall in the markets, depending on what suits the investment.

A common understanding among most is that the prices of the commodities that are traded in the commodity trading market have their prices already predetermined with the help of the commodity trading exchange. This however is not true. What most of us would be surprised to learn is that the prices of these commodities are determined depending on the market conditions of demand and supply.

The reason why a commodity price increases is because the supply of the commodities is much lower than the actual demand. If the number of sellers for a particular product is much more then that the number of buyers then the prices of the commodity falls. The buying and selling of the commodity comes from various sources and all of this is then channelized to the trading floor so that it can be executed. This forms the basis of the price execution of the products in the commodity trading markets. The buying and selling orders are then converted to the actual sales and purchases in the commodity trading floor. The regulation then further states that the prices be further determined by the public outcry from a commodity trading pit or a ring and this does not include any kind of private negotiation to fix prices.

The prices of the commodities transaction are then recorded and this is then sent out to the number of people with the help of a huge telecommunication network system. If you want a clear picture of how the sales and purchases of commodities are made, the best visual picture would be the public auction that is action packed. It follows the same kind of principle; however it is not the same for the futures market where there is a two way auction that continuous to go on even after trading hours. This two way auction is because of the standard futures commodity trading contract which does not need any kind of description of what the sale has to offer.

In a two way commodity trading contract, the volumes of the goods that are bought and sold in the exchange floor are in a sufficient volume making it a much more practicable trade. However the public auction is where you will find a lot of emphasis on the sale of the product.

The commodity trading markets main purpose is to have an organized market place where members can buy and sell commodities that they are interested in freely.

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Commodity trading system software.: An article from: Tea & Coffee Trade Journal

With the advent of new instruments for investments, many have since debated on which is the best investment. However, to me, there is nothing such as a best investment because different people have different needs and expectations for their money.

Even though we cannot distinctly tell which is the best investment, it is nevertheless still possible for us to tell which investment is better than the other. Hence, this article will help show you why commodities are better than stocks in 4 aspects.

As many of you know, people have lost money heavily in the recent stock market crash because the prices of many stocks fell to zero. One main reason for this is because price movements in stocks are heavily influenced by emotions where people over-react to negative news. Because of this, there is hardly any predictability and certainty of the profits investors can make.

In contrast, prices of commodities can never fall to zero because there will always be buyers who need it as raw materials to produce goods and services. This serves as a safety net for commodities as demand will always be present. Though the futures market is also affected by emotions occasionally, it can be reasonable to claim that commodity investments are safer than stocks due to the existence of a strong safety net.

To add on, commodity bull markets have the potential to last longer due to its heavy dependence on fundamentals like demand and supply. This is because every single traded commodity takes time to be found, grown, produced and shipped. The costs involved in all the 4 processes above are huge and thus bull markets for commodities can last long as efforts to increase supply more than demand require prices to be high enough for producers to offset these costs.

However, in contrast, bull markets for stocks are usually directed by emotions when the public over-react to positive news. For example, the dot-com bubble of the 1990s where there was a craze about technology bringing people the “New Economy”. As many over-reacted to the wonders of technology, prices of stocks related to technology skyrocketed and hit new highs, only to end up with new lows when the dot-com bubble burst. Hence, bulls for stock markets can last long, but only with an overdose of optimism which can lead to more severe results.

Furthermore, technological developments cannot replace the use of commodities. Instead, they increase the demand for commodities. For example, the invention of thin film photovoltaics like cadmium telluride for solar energy increased demand for tellurium which is also used in memory chips, optical discs and strengthener in lead and copper. This is because commodities are the raw materials we have on Earth to utilize and most technological advancements are made to use these natural resources we have.

In comparison, technological progress can replace the presence of companies, dealing heavy blows to their stock prices which itself are directed by emotion and irrational responses to news. For example, during the dot-com bubble for the 1990s, stock prices of many insurance companies remained low while those for technology-related firms rose rapidly. In stock markets, there are winner and loser stocks if something important happens.

However, for commodities, such events usually bring the prices of commodities up or down as a whole. This is because commodities are rarely categorized into winners or losers like stocks since the rise in price of 1 commodity will increase production costs for another, causing price of commodities to increase as a group.

In addition, commodities are fungible (meaning interchangeable) around the world, allowing tease to substitute current batches for another to store and ship at different times. This is because futures are made portable and easily transferred, allowing 1 contract of a commodity like cotton to be the same as another regardless of the country it is.

To compare, I don’t remember stocks having this convenient feature of being easily substituted. Here, it is clearly shown that commodity investing is more flexible than stocks in certain aspects.

In conclusion, I believe readers have gained new insights on why commodity investing can be better than stocks. However, I do hope that readers do not see me as anti-stock or overly bullish commodities. The purpose of this article is to help readers choose between stocks and commodity investments carefully and it is certainly not my wish to mislead you.

I do know that stocks have many merits and will not proceed to disregard them. However, I do believe that the study by Yale University showing commodities to be better investments than bonds in returns and less risky than paper assets to have some validity.

Author: Ong Xun Xiang
Article Source: EzineArticles.com
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The general understanding about the commodity trading futures market is that it is a very complex and difficult to analyze market. However on the other hand it is not so! Infact there are a few basic facts that people need to know of which will change their perception about what the commodity trading futures market is and how they work.

The basic knowledge is that the commodity trading futures market or the exchange market as it is known is a public marketplace where the sale or purchase of commodities takes place. These sales and purchases are done at an agreed price so that commodities are delivered at a specified date. The broker is a person who needs to do the purchase or sales of the commodities. The broker is also a part of the organized exchange and the deal is completed according to the terms and conditions as given in the standardized futures contract.

The main thing that distinguishes the futures commodity trading market and a commodity market where commodities are bought and sold is that the futures market works with the help of contract agreements that follow a standard procedure. These agreements are responsible for delivery of a particular commodity at an amount as specified for a future month. It does not include the immediate transfer of commodities ownership.

In short the buying and selling in the commodity trading futures market does not need the buyer or the seller to be the owner of the particular commodity that they are trading for. With futures the main concern is receiving the delivery or making the delivery of the commodity, however the futures should not be bought or sold during the month of delivery. The previous sale also can be cancelled at any time with respect to the equal offsetting sale. If the sale is cancelled before the commodities delivery month then the trade cancels out completely. In this case the commodity is not received by the buyer or delivered by the seller.

In reality there is only a very small percentage very specifically less than 2% of the total of all futures commodity trading contracts that are settled or entered into through the deliveries. A larger part shows that there is a lot of cancellation of deliveries of commodities even before the delivery month in the manner that is described above.

This forms the basic mechanics or the functioning of the commodity trading futures market.

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Kit includes “Track ‘n Trade Pro” CD, “Commodity Trading” booklet by Lan H. Turner and links to other helpful resources…. More >>

Commodity Trading School Trading Kit

Despite knowing that demand and supply is king in commodity investing, many investors do not know the specific facts they need to get. This has been especially so for figures on demand. To solve this issue, this article will offer readers the necessary information for demand they have to find in order to minimize risk in their commodity investments.

For demand of commodities, the first piece of information investors must have would be what the particular commodity is most used for. This is important because it shows investors the most important factor determining the change in demand for a commodity and the extent prices will be affected. For example, oil is mostly used for energy production. Thus, when demand for energy falls due to certain factors like a recession, oil demand falls.

However, for commodities like silver, the change in demand can have an indeterminate effect on prices unless we know which change is more significant. For example, silver prices are rising today because the increase in investment demand outweighed the effect of decreased industrial demand in certain industries.

To add on, investors must also know which of the current uses for a particular commodity will continue. This is important as it shows whether the current demand and price for a commodity will be sustained. This is because certain events occasionally happen to reduce demand for commodities while at the same time increasing the convenience we have.

For example, the wireless revolution has improved our standard of living by allowing us to access the Internet in more places. However, it has also reduced demand for copper wires and thus demand for copper. Should there be no other balancing factor to counter the decrease in demand, it would be reasonable to say that copper prices will fall. Hence, it is important for investors to find out whether current uses for a commodity will cease to continue.

Moreover, to ensure that they have a complete picture of demand, investors should also acquire information on the alternatives available to replace a commodity if it’s too expensive. This is important because investors can choose to exit the particular commodity and pump capital into the substitute if they get hold of this trend.

For example, copper wires are usually replaced by plastic pipes if copper prices become too high. Here, the knowledge of substitutes for a commodity can help an investor to invest in companies producing plastic pipes while profiting from copper.

Also, when demand for plastic pipes rise, oil demand will increase as plastic is a derivative of petroleum from oil. This would provide new chances for investors to invest in other commodities if performance for a commodity is unsatisfactory.

Similarly, if oil prices are closely monitored here, should copper prices fall to new levels and oil prices rises enough, manufacturers will be attracted back to copper markets and this would mean an increase in copper prices.

Here, the knowledge of alternatives can be extremely powerful for investors as they can simultaneously profit from various commodity investments if commodities markets can be closely related like this example.

In addition, investors should also explore new uses of a commodity that can come with developments in science and technology. This piece of information is necessary for an investor because it will show new needs for a commodity, meaning increased demand for it.

For example, the invention of personal computers (PCs) increased demand for copper as copper is required to produce computer system parts. Here, it is shown that some markets which may seem distinctly different can be inter-linked to each other.

To conclude, I hope investors have acquired much knowledge about using information related to commodity demand. However, it should be noted that such information for demand must be coupled with that for supply to give the investor a full picture of where he should proceed to invest in his next move.

Author: Ong Xun Xiang
Article Source: EzineArticles.com
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For those who are interested in making money commodity trading or just simply diversifying their investment portfolio trading in stocks, forex and even commodities poses a great opportunity. For those who don’t really know what commodity trading is but are willing to learn and invest in a lucrative commodities trading market should make sure that they first understand the basics.

Commodity trading in simple terms is the buying and selling of goods, you could almost draw a similar line between stock trading and commodity trading. The only difference is the kind of commodity you are trading in, as there are several items that you can trade for instance, metals, oil, grains etc.

These commodities are of certain value and considering that the quality of the commodities follows the same consistency pattern and are produced in mass by a few producers. If you think of investing in these commodities then you infact need to look at the number of resources and uses that the commodity has. If you are interested in commodity trading which almost draws its inspiration from the barter system, then you will have to participate in the commodities exchange. The plus point is that investors can trade in several exchanges depending on their need to and their comfort level.

How well a commodity trades in the market obviously depends on the kind of demand and supply that particular commodity has in the market. The price of the commodities in commodity trading can be easily affected if there are certain factors that disrupt the quality or the supply of the commodity. For e.g. If the price of rice in the market increases because of the poor crops for that year then obviously the demand for rice increases in comparison to the supply. This has a direct influence on the price of the commodity, and you will notice that the price of rice increases. If you have invested in the rice market then you stand to make good profits in your investment because of the price rise.

However you do need to know that Commodity trading too involves a certain amount of risk although commodities are considered to be much more stable as an investment. The demand and supply of the commodity is what drives the commodity price index. However some factors that could hamper the stability of the commodities trading is natural disaster, political issues, consumer tastes etc.

The primary reason why commodity trading market has evolved is because there was a desperate need to make sure that there was a continuous supply of agricultural crop that was seasonal. Japanese merchants were known to store their warehouses with rice in particular so that they could use it in future. So that they could have a raised cash warehouse holder for the rice that was stored! The rice was also known as the rice ticket that later turned to be a general commercial currency that also helped in the standardization of the commodity trading in rice.

19th century Chicago was where the commodity trading concept came about and Chicago itself eventually turned to be a huge hub for the telegraph and the rice road. After noticing the benefits of commodity trading farmers and dealers too began getting into a commodity trading contract. The farmers and traders would enter into contracts that would help the farmer sell a particular produce (rice) at a future date at a price that was already agreed upon. As a result this kind of contract between farmers and dealers etc rose to popularity, and every farmer and dealer got into this kind of arrangement. However it grew so popular that the produce changed hands through contracts even before that particular produce was delivered. However this was a great risk, especially if the produce was not as expected or anticipated. The farmers found a way though this as well, and in case of adversity they would make arrangements that the produce was delivered though another farmer, however there would be slight modification to the contract. Over a period of time the contract was modified into a kind of instrument that would protect parties who faced adverse factors like damage to crops, unfavorable climate condition, and unexpected rise in price. This called for traders to enter into the future commodity trading markets who had no intention of buying or selling wheat or any other produce. They however formed a body that would help regulate rules and keep a strict supervision over the contracts.

After this the CBOT also known as the Chicago Board of Trade was established in 1848. Chicago was chosen since it was considered to be a common place where sellers and buyers could meet, negotiate and then move forward with the contacts. Later on similar regulatory bodies for other products like the USA Chicago board or trade and Chicago merchant exchange, Sugar and Cocoa exchange worldwide, The New York commodity trading exchange and New York Coffee etc were established.

The primary reason why commodity trading market has evolved is because there was a desperate need to make sure that there was a continuous supply of agricultural crop that was seasonal. Japanese merchants were known to store their warehouses with rice in particular so that they could use it in future. So that they could have a raised cash warehouse holder for the rice that was stored! The rice was also known as the rice ticket that later turned to be a general commercial currency that also helped in the standardization of the commodity trading in rice.

19th century Chicago was where the commodity trading concept came about and Chicago itself eventually turned to be a huge hub for the telegraph and the rice road. After noticing the benefits of commodity trading farmers and dealers too began getting into a commodity trading contract. The farmers and traders would enter into contracts that would help the farmer sell a particular produce (rice) at a future date at a price that was already agreed upon. As a result this kind of contract between farmers and dealers etc rose to popularity, and every farmer and dealer got into this kind of arrangement. However it grew so popular that the produce changed hands through contracts even before that particular produce was delivered. However this was a great risk, especially if the produce was not as expected or anticipated. The farmers found a way though this as well, and in case of adversity they would make arrangements that the produce was delivered though another farmer, however there would be slight modification to the contract. Over a period of time the contract was modified into a kind of instrument that would protect parties who faced adverse factors like damage to crops, unfavorable climate condition, and unexpected rise in price. This called for traders to enter into the future commodity trading markets who had no intention of buying or selling wheat or any other produce. They however formed a body that would help regulate rules and keep a strict supervision over the contracts.

After this the CBOT also known as the Chicago Board of Trade was established in 1848. Chicago was chosen since it was considered to be a common place where sellers and buyers could meet, negotiate and then move forward with the contacts. Later on similar regulatory bodies for other products like the USA Chicago board or trade and Chicago merchant exchange, Sugar and Cocoa exchange worldwide, The New York commodity trading exchange and New York Coffee etc were established.

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Nigeria’s Oando deploys Triple Point commodity trading & risk management software product.: An article from: Africa & The Middle East Telecom

How It All Began

Commodity futures trading, as we know it today, came about for the first time in Japan in the 17th century, where rice was traded in future contracts. It was a period when farmers and buyers came together and decided to commit to each other future prices negotiated on suitable terms in exchange of grain for money. For example, a dealer would agree to buy a ton of rice at the end of the next month for a certain price from a farmer. This would be ideal for both parties, as the farmer would know how much he would get for his rice in advance, and the buyer could plan to raise the money he needed for the purchase. Contracts such as these became more and more popular and common, and were even used as collateral for taking loans. If the buyer could not take delivery of the rice, he could sell the contract to someone else. On the other hand, if the farmer could not deliver the goods, then he could hand over the contract to another farmer. Thus began commodity futures trading, as we know it today.

What Are Commodity Futures?

Today, most of the futures commodity trading exchanges are set up in a similar way. Members of the exchange do the actual trading on the floor. Stock stands for equity in a public company, and can be held as long as you want, whereas commodity futures trading contracts have a specified life. In the past, people used commodity futures trading methods generally to hedge risks and fluctuation in prices, or to take advantage of them, and not for actually buying into the commodity. The idea is that a contract requires delivery of the commodity within a certain predefined time period unless it becomes null and void. The person buying the commodity futures trading contract agrees to buy the specified commodity at a fixed price on a certain date. The person selling the commodity futures trading contract agrees to sell the commodity at a certain price on a certain date. As time goes on, the contract price fluctuates, and this brings about profit and loss in the trade. It is to be noted, however that, the delivery generally doesn’t take place. The contract is usually liquidated before its expiry. The entire trade is based on the idea that there will be no delivery, but we can speculate on the price of the underlying commodity at a future time to make money. Commodity futures trading is done all over the world now.

Different Types Of Commodities

There are many types of commodities that are traded in the international market. These can be very broadly categorized into the following:

o Precious metals like Gold, Platinum, Silver, etc.,

o Metals such as Aluminum, Copper, Steel, etc.,

o Agricultural products like Rice, Corn, Oils, Cotton, Wheat, etc.,

o Soft commodities such as Cocoa, Coffee, Tea, Sugar, etc.,

o Livestock like porkbellies, cattle, etc.,

o Energy commodities like Crude oil, Gasoline, Gas, etc.

Author: David Rivera
Article Source: EzineArticles.com
Canadian crossborder shopping

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Chapters: Dalian Commodity Exchange, Commodity Trading in China, China Beijing Environmental Exchange, China Financial Futures Exchange, Shanghai Metal Exchange, Zhengzhou Commodity Exchange, Shanghai Futures Exchange. Source: Wikipedia. Pages: 28. Not illustrated. Free updates online. Purchase includes a free trial membership in the publisher’s book club where you can select from more than a million books without charge. Excerpt: The Dalian Commodity Exchange (DCE)… More >>

Commodity Exchanges in China: Dalian Commodity Exchange, Commodity Trading in China, China Beijing Environmental Exchange

Most commodity trading experts advise that it is not right to keep changing commodity trading strategies. This is one reason why most commodity traders loose. These traders invest a lot of their time trying to find out about a particular commodity trading strategy along with gathering enough evidence that it will work. However when they begin commodity trading with these strategies there could be a few loss trades. It is a common thing for strategies to fail, especially if you are testing it for the first time in a real time environment. However this does not in any way imply that you switch over to a new strategy.

If you want to be a successful commodity trader then it is essential that your strategies are consistent as well. In other words, if you want to see sizeable profits from commodity trading, it is advisable that you choose a commodity trading strategy and use it for a long time to see if it really works. This is because the market is not always constant, moreover market condition differ often resulting in a different outcome. The general rule of a strategy is that it performs well for a few weeks when commodity trading is in a range however it then begins to fall when the market starts to trend. This is one reason why most new traders abandon systems and strategies early itself if they do not see good returns. These kinds of traders are only looking for a get rich quick commodity trading strategy; however what they do not realize is that this could be fatal in the long run.

Choosing to leave out a strategy just because it did not give any yields within the first few weeks of commodity trading is the worst decision that anyone can make. When you adopt another new strategy you will learn that the new strategy takes time to adjust and this could again result in a down period. Getting new strategies and dumping it because you haven’t found any success will prove fateful. Since any strategy takes time to start building up on profits, and as a trader looking to make the best of the commodity market you need to let a strategy give you its best.

If you are therefore looking to make profits from the commodity market then its best that you don’t skip though strategies, since changing strategies could eventually lead to a huge loss.

We all know what Commodity Trading is about, and if you are looking for a simpler way of trading in the commodities market then there is none better than Commodity Trading systems. These systems are nothing but mechanical ways of trading in commodities. However these systems have a definite entering and exiting rule for trades which every trader learns off. Learning these rules is simple as they are plugged into the trading systems program. These also help in monitoring the data as well as prices that the commodities undergo. These price triggers form the basis of the buy and sell signals of commodities in the market.

There are several professional commodity traders now who make use of this online trading system. The most important factor of online Commodity Trading system is that trading is devoid of any kind of emotion. This makes it possible for traders to only trade in commodities based on strategies that will help make it a successful trade. Implementing trading strategies that are successful will help you follow a disciplined strategy of trading in the commodities market. It also leaves behind the headache of reworking a trading strategy just so that you are successful as a trader in the commodity market. It will also prevent the trader from making wrong trading decisions and most important the ones that do not fit your style of trading

Commodity Trading systems are generally built over technical indicators and these could be either stochastic, moving averages, breakouts of 20 day highs or lows and even RSI . There are a lot of trading variables that traders use to trade in the commodities market, and any of these variables can be used to make the system robust. However if you are looking for a good Commodity Trading system you need to make sure that you choose one that is built from simple programs. Even pro traders will agree that using a Commodity Trading system that is simple is much more beneficial and easy to use than the complicated ones.

The two types of trading systems that form the basis of every Commodity Trading system is the Trend following and the range following systems. The one makes the best use of markets which are established in either downtrend or uptrend is the trend based system. The range based system on the other hand assumes that since most of the markets are not trend markets, it makes it easier to buy when the commodity is at a low range and sell when it is at a higher range.

When it comes to business of trading, taking profits in commodities is one of the more important aspects. In most of the times, it has been observed that new commodity traders are often conflicted with the emotions of fear and greed when it comes to taking profits. A successful commodity trader will ignore both emotions and use a more structured means of taking profits.

However, the commodity traders should know where they plan on taking profits on a trade and how much they plan on risking on a trade before the trade is even placed. This does not always mean a trader knows the exact prices on the risk and profit levels. A trader could have a set of rules where he or she plans to exit a trade. If certain conditions are met, the trader will take profits on a trade.

Moreover, some of the traders who are following trend will often let profits run until the market reverses. For example, a commodity trader could buy gold futures and hold on until the market breaks down below the 20 period moving averages. Once the market moves below the 20 period moving, the trader must exit the positions, whether it is a win, loss or draw. And some of the traders like to use a fixed dollar amount to take profits on all their trades. It is a very simple way to trade without trying to think too much about exit levels. Sometimes I will adjust these levels if volatility significant increases or decreases.

Taking profits at a major support or resistance level is one of the most logical types of exit to use. Support and resistance points eventually break, but the odds are that they will hold. Therefore, many commodity traders will take their profits before the market tests these levels.

The most important thing to realize about taking profits is that it is best to have a plan before the trades are placed. A lack of a profit objective will leave a trader with uncertainty and stress. This will often lead to poor decision making and constant second guessing. Finally, there are some well established and experienced stock market agents are providing these commodity tips and commodity trading tips and services to their clients. For more information and details, please do not hesitate to visit their valuable website.

Exchange Traded Funds, commonly known as ETF’s, have taken center stage in the financial arena for the past few years. ETFs give investors a chance to diversify their portfolios with less volatility within a certain market. Commodities ETFs are exactly what the same suggests, a fund populated with components from the commodities sector.

An important note is that commodities EFFs track the actual producers or distributors of commodities rather than commodity ETFs, which track the actual underlying commodity, which firms may hold the actual commodity in storage or via futures contracts. Beyond that, there’s a variety of choices.

Precious metals, for example, might have their own ETF, such as Power Shares’ Precious Metals ETF (DBP). Or investors might want to get more specific and find an ETF that specializes in gold, silver, or platinum. On the other end of the spectrum, Goldman Sachs’ Commodity Index (GSCI) tracks 24 commodities across a variety of sectors.

The strategy on ETFs can vary, too- one ETF in gold might have platforms from a long only strategy to a double short strategy. Agricultural commodities, industrial commodities, and oil are other popular sectors that have commodity ETFs established.

ETFs are a separate asset class from regular stocks and bonds, so including them in your portfolio allows for diversification. In addition, if an investor feels strongly that, say, energy costs will rise this quarter, purchasing oil ETF provides a way to capture a gain on that assumption. It’s important to investigate the tax implications of the ETF you choose, as well as conduct a thorough historical analysis of prices for the specific commodity.

Owning a commodities ETF is a pure lesson in supply and demand; a bet on whether or not an investor thinks a commodity will be more or less profitable in a given amount of time. And commodities ETFs can prove to be volatile, given the sharp flux a commodity can experience in value at a moment’s notice. That being said, investors can capture some great returns, especially in sectors where there’s a good chance the commodity will be in demand for the long term.

Some investors also use ETFs to hedge against other investments or inflation; iShares’ GLD, a popular gold ETF, is often used to combat the declining value of the dollar in a portfolio. Commodities ETFs also allow investors to get broad exposure to a commodities market in their portfolio without physically purchasing the commodity (previously, this was how it would have worked). While not for everyone, for those looking to add a new asset class and element of diversification to their portfolios, Commodities ETFs can be a great fit.

Author: Shaun Connell
Article Source: EzineArticles.com
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This book presents a major breakthrough in successful commodity trading, featuring a systematic trading program with documented proof that 7 winners out of every 8 seasonal tendency commodity trades achieved an outstanding $687,942 gain…. More >>

Sure Thing Commodity Trading: How Seasonal Factors Influence Commodity Prices

What is commodity futures day-trading? Day-trading strategies are unique mechanical methods for entering a liquid commodity market early in the trading day, and exiting some time later in the same day for a profit. Keith Fitschen has developed a family of day-trading strategies for the commodity markets that use the same basic market principle to gain systematic profits. The basic methodology uses multiple timeframe analysis to determine the likely trend for each market early in the trading day. When the likely trend is determined, entry is made in the direction of the trend. Trade exit is made in one of three ways: a stop loss point is hit (and the trade is a loss), a profit target point is hit (and the trade is a windfall profit), or the exit is made at the end of the trading day, usually for a profit.

Keith Fitschen’s commodity futures day-trading methods are used in the most liquid commodities in each group: for the grains, wheat and soybeans can be traded; for the softs, coffee can be traded; for the currencies, the yen and euro-currency can be traded; for the metals, copper, gold, and silver can be traded; for the energies, crude oil, heating oil, and reformulated gas can be traded; for the financials, 10-year notes can be traded;, and for the stock indices, the S&P 500, the Russell 2000, and the German DAX can be traded.

Traditionally, the problem with futures day-trading strategies has been transaction costs: slippage and commission. These costs severely ate into the profit that could be made on a day-trade. But with the advent of deep discount brokers, and electronic trading, commission for a trade can be less than $10, and slippage for a trade can be as low as one or two ticks. This evolution has caused a number of successful trading system designers to promote day-trading strategies. Keith Fitschen’s strategies are unique because they use the same market approach across all the groups, and because the strategy “works” on all the liquid commodities. This type of day-trading leads to an average profit-per-trade of about $150 across all the commodities, and a winning percentage of about 55 percent.

Normally, successful day-trading strategies have been sold to the public for $3,000, or more. This high bar to entry reduces the funds available for trading for a typical trader. Keith Fitschen’s day-trading strategies are offered for a monthly lease fee. This allows a trader to avoid the large upfront expense and spread it over a long period of time, while retaining the right to stop at any time. This means of gaining access to the trading signals is certainly an advantage over the traditional approach.

If you talk to your financial advisor about whether or not you should become a trader in the commodity market, chances are that they will steer you away from this idea and instead recommend that you maybe put your money into stocks or bonds in order to achieve decent growth. Is this because you cannot achieve decent growth on your money by buying commodities? No, rather this is because of the inherent risk and volatility when trading in the commodity market, as well as the fact that smaller investors do not have as much direct access to commodities as they do to stocks and bonds.

However if you have decided that you would like to commit at least some of your money to the commodity market, the vehicle that most people would be familiar with is a futures contract. This type of commodity trading is called direct exposure, and it is risky because most futures contracts are traded on margin as well as the fact that betting on any one single commodity can be risky due to the volatile nature of how rapid price changes can occur.

Minimizing Risk With Indirect Commodity Exposure

While there is nothing inherently wrong with trading commodity futures contracts, and indeed if you really know what you are doing you can reap great rewards from trading on margin in this fashion, for a large percentage of people they are looking for a way to get consistent returns without the risk of losing their initial investment. The answer to this is to enter into the commodity market with indirect exposure using mutual funds, which can be a smarter and safer way to access the gains associated with these markets while minimizing as much risk as possible.

There are dozens of mutual funds that buy and sell futures contracts linked to individual commodities, and very often these funds will trade across a basket of different related commodities which is much safer than trading a single individual commodity. Putting your money into these funds instead of directly into the futures contract can help to give you consistent growth without any sharp decline in value. Another even more indirect way to trade is to find the mutual funds that buy and sell the shares of different companies that are directly involved with the production of certain commodities. While this is the least risky approach, it is also true that you will not benefit from the full upswing in value if the market moves favorably in your direction.

Gold, Silver and Precious Metals: Betting Against The Economy

Gold and other precious metals are unique commodities because they fly in the face of traditional logic when it comes to deciding which commodities to buy. If you consider the example of corn, timber, or steel, you would buy each of these commodities when the economy is in full gear and all of these commodities are being used heavily, so the price will stay high or go higher. However gold and silver are the commodities you would buy when you think that the economy is going to slow down, because these are where there are the biggest price increases during economic downturn, which means that when you purchase these commodities you are literally betting against the economy.

Author: Ricky Weber
Article Source: EzineArticles.com
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