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Success in Trading Commodities?

August 5th, 2010 | | Tags: , | 3 Comments | |

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Is there a lot of in trading commodities? Is it for the individual investor? And is it possibly more solid than ?

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3 Responses to “Success in Trading Commodities?”

  1. educado Says:
     August 5th, 2010 at 2:25 pm

    Hello,

    the answer to your questions is simply no, no, and no. The reason is that commodities, unlike stocks, are bets on the price of a commodity rather than bets on the profitiability of a company. Companies learn new ways to make more money and take advantage of new technologies. However, comodities only benefit from swings in supply and demadn.

    Rather than gambling on commodity prices, you can choose an option that lies somewhere in between but that also involves commodities. Along with other diversified investments, you could also invest part of your money in companies that are greatly affected by the swings in the commodity that you are interested in betting on. That way, you also benefit from a companies organized pursuit of increasing profits by finding ways to cut costs and improve efficiency.

    Best of luck,

  2. Jeff MAD Says:
     August 5th, 2010 at 2:25 pm

    The aforementioned answer is partially correct. You can use fundamental economics (macro) to get an accurate hypothesis, however, only time will tell if you are correct. For instance, OPEC just cut 1.5 M barrels of petroleum, and I have noticed packed gas stations (@ 2.39/ Gal), this tells me that the INCREASE IN demand coupled with the DECREASE in supply will ultimately bring OIL BACK UP TO 70+/BARREL (its current price ~$63). Yet, only time will tell. You can also buy stocks that shadow an underlying commodity (EX: Conoco Phillips or Chevron). Trust me buy COP with a limit of $45 or CVX for $58 and in three weeks from now they will be trading at $55+ and $67+, respectively.

  3. JohnGalt Says:
     August 5th, 2010 at 2:25 pm

    Yes, Maybe, No.

    Commodities entail huge leverage, so you can make/lose money very fast on small capital bankrolls. Generally about 20/1 leverage, but it varies by contract and current exchange requirements.

    They are different than stocks. You have to be completely unbiased in your willingness to be long or short. Most stock investors only go long (buy then sell). Long only is a losing game over long term. The charts are better behaved on longer time frames, trends tend to stay in place for months or even years. You do not have company management risk, or bank credit risk, or lying financials, or many of the risks that a stock can have. The biggest counter-party risk is if your broker goes belly up (rare, but it happens).

    Some markets move very fast, some move slower. Just a lot of things to learn that are different. Some people say riskier, I say LESS risky. Markets are generally open 24 hours a day. Liquidity is often higher than in stocks, but sometimes lower also.

    Finding a mentor can cut years off your learning curve.

    What’s the best way to make a million in commodities? Start with two million.

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