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Part of Prentice Hall’s Connection: Key Themes in World History series. Written based on the author’s annual course on slave trade, Captives as Commodities examines three key themes: 1) the African context surrounding the Atlantic slave trade, 2) the history of the slave trade itself, and 3) the changing meaning of race and racism. The author draws recent scholarship to provide students with an understanding of Atlantic slave trade…. More >>
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This fascinating book is loaded with practical information designed to help you in the commodity market. The author’s method…proven by his million dollar success…does not involve complicated math or subjective evaluation. There are two completely systematic methods; %R and Momentum. The essence fo these methods is that they tell you if the super powers are long or short; when the super powers expect a major move to start; what commodities are in true bull or … More >>
How I Made One Million Dollars … Last Year … Trading Commodities
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Praise for Gold Trading Boot Camp “If speculate you must, read Weldon first.”
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Confused about commodities? Consult this essential resource Oil, rice, corn, the Euro–commodities these days are hot, and they’re getting hotter. This engaging and thorough guide covers all the basics you’ll need to profit from today’s most active investment classes. Commodities Demystified takes you straight to the heart of the subject, beginning with a discussion on the basic elements of the commodities market. It then introduces you to th… More >>
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There are several different types of commodities. Commodities are categorized so that it’s easier to price compare, do research, and to make other trade tasks convenient. If you’re an investor who wants to get involved in commodities trading, you need to know the basics. This is indeed one of the riskiest areas to invest in, but it can also be among the most profitable if you know what you’re doing.
Energies
This area has been one of the most active in commodities trading recently. This category is comprised of products that are used to provide energy that will heat and power businesses and homes. The most common of these is petroleum and its byproducts, among them crude and heating oil, propane, natural gas, coal and some others, including subtypes or derivatives.
Each commodity has its own defined “tick” or price change; these are set by the exchanges. Each commodity also has a standard contract size. The standard contract size is the amount covered by a standard futures contract. For crude oil, for example, the amount is 1000 barrels. For wheat, it is 5000 barrels.
Grains
Wheat, oats, corn, rice and soybeans (although soybeans are not technically a grain) are agricultural products traded on various exchanges, including the well-respected Chicago Board of Trade, or CBOT for short. The exchanges trade the product as well as the futures and options contracts on these and other derivative products, such as bean oil.
Each of these products has its own tick or price change, standard contract size and unit. Some prices are listed in dollars per ton, such as with soybean meal. In this case, the standard contract size is 100 tons. It should be noted that most traders never see the actual commodity they trade in; you can see by the amount quoted here that there’s a reason why.
Softs
Orange juice, cotton, sugar, cocoa and coffee are all what are called “soft” commodities. Many of these are traded on the Coffee, Sugar and Cocoa Exchange, or CSCE. It should be noted that 80% of the oranges grown in the United States are turned into frozen orange juice concentrate, and that it is the juice itself traded as the commodity, not the orange.
There’s a relative newcomer on the New York Cotton Exchange, Frozen Concentrated Orange Juice, or FCOJ. This has been actively traded since the creation and widespread use and integration of inexpensive refrigeration, beginning after WWII.
Meats
Pork bellies, lean hogs and live cattle are traded on various exchanges, as are some derivatives. One of these exchanges is the Kansas City Board of Trade, or KCBT, which is the United States’ livestock trading historical center.
One very unique commodity here is pork bellies, because the bacon that comes from pork bellies can’t be substituted with a similar product. Their prices also usually interdependent with the price of grain, because hogs are fed a diet of corn and other grains. These prices are generally less volatile than they are within many other commodities.
Financials
Most traders invest in commodities futures or options rather than the good itself. Because of this, financial products are often listed on the same exchanges.
U.S. Treasury bonds futures are traded on the CBOT, as well as other places. A few indexes track stocks. The S&P index futures contract is one popularly-traded item.
It should be noted that some sites will list abbreviations showing the expiration month of the futures contract within the prices quoted. For example, these are shown are as follows, listed by quarter:
January – F, February -G, March – H
April – J, May – K, June – M
July – N, August – Q, September – U
October – V, November – X, December – Z
For example, you might see an item listed as PBH07; this is a pork belly contract that is due to expire in March of 2007.
If ever there was a time to invest in commodities it would be now. For those of you who are not familiar with investing, the best definition of a commodity is something from the earth. This could be metals, gases and oils, or even foods. People buy and sell these items on contract with much speculation.
An example of a commodity which is on the rise and has been for quite some time, is gold. Surprisingly enough, silver is also on the rise. By investing in the gold or silver market, a person can build a nice portfolio showing good gains. When the market starts to level off or even decline, the investor will sell. There are signs to tell when the market may increase or decrease to better alert the investor.
For example, much of the orange juice commodities increased greatly when the cold snap hit California. With the fruit being ruined, orange juice began to become in demand. This drove the price up drastically. The smart investor sold during the peak of this demand. As the new crops were starting to produce more juice, the price dropped. Thus anyone holding on to the juice commodities may have lost money.
There is always a great risk when you choose to invest in commodities. Many investors thrive on this risk factor. They are constantly speculating how a certain market may or may not do. There is much research which goes into investing in commodities. Even the weather has much to do with what a commodity will do. The last thing anyone wants to do is get caught holding a worthless investment because a drought took out the wheat fields in the mid west.
One such incident occurred with precious stones. There was a mine which was closed do to dangerous conditions. This led everyone to believe the garnet would increase dramatically in price. However, another mine had been opened previously. Although the mine had not produced a significant amount of gems, speculation was abounding as to what it could produce. Many investors bought the garnets thinking the mine had not produced so far and probably would continue to do poorly. This was not to be the case. The miners struck pay dirt, and the garnet was no longer the hot commodity everyone had hoped it would become.
When you invest in commodities, you are taking a chance. It is not like the standard stock market where you hold onto the investment for years. The commodities market is constantly changing from month to month. It is a way to make some money quickly. It is also a way to lose money just as fast. By investing in commodities, your chances can be as good as the next person’s. You can gain a fortune in a split second with a storm hitting the coffee plantations of Latin America. There is no rhyme or reason as to what your commodity investment may do. You can only go on speculation. Yet the experience can be exhilarating.
The economic downturn has many people worried about recession, and inflation rates seem to be rising every other week. In light of such uncertain times, have you ever wondered if investing your hard earned dollars into the stock market is the prudent thing to do? Or are you already considering alternative forms of investment? If so, consider online commodity trading, because depending on your knowledge, risk appetite, and the commodities you choose, you have the potential to earn big returns on your investment.
But if you’re a greenhorn at the commodity market, or even at trading for that matter, you might be wondering what commodities trading is all about. Commodities trading is where traders trade contracts for goods, and not for the goods themselves; goods such as food like corn or malt, or metals like gold and silver. The traders don’t have to deliver the goods to some end-consumer at the end of the day, because they don’t have the goods to begin with, and most likely never will have them. A trader would instead buy a contract if he thought that the price for a commodity would be going up in the future. He would then sell the contract if he thought the price would depreciate. Think of it as a kind of insurance plan for the traders and investors; regardless of price fluctuations, both the buyer and the seller are guaranteed the price stated in the contract at the time of trade. Just like any business transaction, there is always a buyer and seller in every trade made, but neither the buyer or the seller is required to own a particular commodity in order for the trade to happen. The only thing that a trader has to do is to deposit enough capital with a brokerage firm to ensure that he would be able to pay for his losses if his trade loses money. This is known as commodity futures trading.
So now that the concept of commodities trading is out of the way, why trade online?
Online commodities trading involves the transmission of orders by customers to either buy or sell a commodity to a commodity exchange via an electronic marketplace. Unlike the traditional offline method of trading, no brokers are required to represent customers. However, having an online broker would cost you less commissions-wise than if you were to have a full-service broker. As such, you stand to be more profitable on your trades than if you were to trade offline.
Trading commodities online also provides you with almost everything you need the moment you log into your trading account. Most online brokers are equipped with real time information, ranging from futures news, price quotes, charts, technical analysis programs, and other research material that are made available for their clients. As such, those who wish to embark on online trading on their own are able to make more informed decisions when trading because the same tools have been made available for them online.
However, despite the apparent advantages of trading commodities online, one would also have to be aware of the pitfalls that are associated with online commodities trading.
For one thing, because you have the freedom to make your own trades online, there is no one watching over your shoulder to guide you along with your trades. Inexperienced traders usually lose money this way, because they think that the tools made available to them through trading online make great substitutes for experience. The fact is that nothing can substitute experience, and having an experienced broker by your side would most likely help you avoid such losses. Treat the broker as a mentor if you’re just starting out; learn by asking questions and having them answered within minutes instead of spending hours or days researching on your own.
Another issue to take note of is over trading. The temptation to be swayed from one’s original plan of holding trades for a period of time rather than ‘capitalizing’ on small breaks in the market trend are usually the cause of traders losing a sum of money, most often the considerable portion of it is by way of commissions. Even though commissions on every trade may be cheap, every commission compounds to every trade made; worse still if the trade results in a loss. So while it might be a good idea to seize a good opportunity when you see one, make sure you have a plan tailored for every trade you intend on making, instead of changing your strategies blindly just because you’re lured by the possibility of making a quick buck.
While online commodities trading may seem like a prudent investment option in these uncertain times, it requires discipline, the right mindset, and a sound trading plan in order for you to succeed in it. For beginners, the best way to trade commodities is through an online broker.
Remember the old TV show, WKRP in Cincinnati, in which the dorky Les Nessman would always give the pork bellies report?
Or how about the 1980’s movie, Trading Places, in which Eddie Murphy and Dan Akroyd corner the orange juice market? These are both examples of commodity trading in the popular media.
Commodity trading is one of the fastest growing sectors of the financial markets, and for good reason – in 2006, commodity prices have gone through the roof. If you haven’t heard anything about the prices of pork bellies or orange juice skyrocketing, that’s because there is much more to commodity trading than just these two items.
Corn, oats, soybeans, wheat, soy meal, bean oil, cattle, coffee, sugar, cotton, steel, copper, silver, gold, platinum, natural gas, crude oil, and gasoline are just a few of the dozens of commodity trading options. Metals – steel and gold, in particular – and petroleum-related products, have seen major price movements in the past year.
Commodity Trading – Buy Low, Sell High; Or Sell High, Buy Low
If you remember back to Trading Places, the classic commodity trading comedy, Eddie Murphy and Dan Akryod entered the trading pit and immediately started selling orange juice contracts.
They didn’t own any orange juice, but they were able to sell it anyway. This is how commodity trading works – you either hope to buy low, sell high; or sell high (first), and then buy low.
Commodity Trading Hedgers
This aspect of commodity trading can best be understood by taking a look at the market participants. On one hand, you have the hedger. Hedgers want to guarantee commodity prices in order to lock in profits or avoid excessive losses.
For example, imagine a jewelry maker who needs 1000 ounces of gold to make a collection of necklaces. He needs the gold in six months, but the way gold prices have been going up, he’s worried that he won’t be able to afford it.
To hedge in the current price of $500 per ounce, the jewelry maker could buy ten 100 ounce futures contracts on a commodity trading exchange. Then six months later, if the price has gone to $700, the value of his contracts will have gone up by $20,000 each.
He can sell the contracts for a profit and use the proceeds to buy the actual gold, which will result in a net price of $500 per ounce.
If, in the above example, the value of gold had actually fallen to $400 per ounce, the jewelry maker would have lost money. He’d be locked in to paying $500 per ounce for gold when the actual market value was only $400.
Still, if the jewelry maker’s primary concern was to not end up paying $700 per ounce, this will have been a valuable commodity trading experience. In this way, hedgers use commodities contracts like insurance.
Commodity Trading Speculators
On the other side of commodity trading is the speculator. This is someone who has no business interest in wheat, crude oil, or copper, but essentially gambles on the price of each commodity going up or down.
Commodity trading is very popular with speculators because it requires very little margin. This means that commodity trading speculators can control thousands of dollars worth of commodities for just a few hundred bucks.
The downside of leverage in commodity trading is that it can lead to very big losses that you might not be prepared for.
For this reason, your credit history will be more important when applying for a commodity trading account than an account to trade in almost any other financial market.
