Before jumping into investing in commodities, you need to know what commodities are. Commodities are the raw materials from which semi-finished and finished products are manufactured. Examples of commodities include crude oil, iron ore, precious metals, coal, natural gas, and agricultural products. These are physical goods, unlike bonds and stocks, which are only financial contracts.
You can buy physical goods and sell them. Prices of commodities are influenced by global factors as well. However, commodity prices depend on demand and supply. Investors can estimate the supply and demand trends, diversify their investments, and reduce their trading risks. The trade of commodities protects investors like you from inflation.
Maximize your fund’s value through commodities trading.
Futures contracts are based on underlying physical commodity prices. Investors can engage in the sale or purchase of future contracts by anticipating the future value of a commodity. Brokerages such as Joseph Scott Audia will help you open a specialty trading account and start commodities trading. They also have software tools to estimate price trends and give valuable advice to investors like you on how to maximize the fund’s value.
The brokerage houses allow traders to trade commodities futures on a futures exchange. You will sign an accord with another investor considering the commodity’s future price. For instance, you can agree to purchase a future contract for 10,000 barrels of oil in 30 days at $45 per barrel. You can close the contract by opting for an opposite position via spot trading instead of transferring the physical goods at the end of 30 days. It means you will enter into a contract for the sale of 10,000 barrels at the current market price.
You will make a profit if the spot price of oil moves higher than the purchase price of $45 per barrel. You will make a loss if the spot price goes below the buy price. On the other way around, if you signed a sell contract for oil and if the spot price goes down, you will make a profit. You can also close your contract before the expiration date at any time. The brokerage house charges a commission on your trade every time.
No direct purchase of physical commodities
You are not selling or buying physical commodities when entering into future contracts for trade. The traders do not take full delivery of several million barrels of oil or other livestock. It is only betting. It is a different scenario for precious metals like silver and gold. Investors can buy futures contracts for gold and silver and can even take physical delivery of silver and gold in the form of jewelry, coins, and bars. You can get all the necessary help in trading commodities from Joseph Scott Audia. Compared to normal commodities, transaction costs are higher for the trade of precious metals (platinum, gold, and silver).
Those who do not have time to trade commodities directly can invest in commodities through ETFs (exchange-traded funds), mutual funds, and ETNs (exchange-traded notes), which are based on commodities. They amass a large fund by gathering money from small investors and investing in commodities trading.