Commodity Trading (Part II)
Learn Commodity Trading. Commodity trading can be fun and profitable if done well. However, commodity trading is never easy. It’s not meant to be. It does not matter whether you are trading gold, soybeans or bonds; a successful speculator has to keep an eye on what is happening in many markets around the world.
We must learn to trade like mercenaries, trading not on the bull side or the bear side but on the right side. Commodity trading is certainly not for everyone. So what is the right vehicle for commodity trading? It depends on what commodity you want to invest in.
Commodity futures: Until 1970s, the futures markets and commodities were synonymous because the futures markets were all about those physical products that you could touch, taste, grow, mine, consume or deliver. Although many new futures products have been introduced but the physical commodities still are the major components of the futures market.Trade Dow Futures.
Commodities can be broken down into several categories like metals, energy, grains, livestock, food and fiber. Metals include copper, gold, palladium, platinum, and silver just like other segments of the futures markets. Learn Candlestick Charting.
The energy futures market has become one of the most important gauges of the world economic and political developments. Until 1978 when the New York Mercantile Exchange (NYMEX) launched trading in heating oil, Futures on Energy did not begin trading. Crude oil futures began trading in 1983. Natural gas futures contracts also get traded on NYMEX.
Similarly you can trade copper, silver, platinum futures contracts on different exchanges. Now gold is a very important precious metal. Gold futures contracts trade on NYMEX! Chicago Board of Trade (CBOT) offers mini gold futures contract with lower margin requirements for retail investors.
Like all commodities markets, meat markets also have a number of futures contracts like the feeder cattle contract, lean hog futures contracts, pork bellies contracts. CME offers milk futures contracts as well as the live cattle contract.
You will also find coffee sugar, orange juice and coca futures contracts traded on various exchanges. Similarly you can find many futures contract that cater to the agricultural markets like soybeans futures contracts, corn futures contracts.
Equity markets also offer access to commodity trading in an indirect manner although the futures markets offer the most direct way to invest in commodity trading. You can invest in companies that specialize in the production, transformation and distribution of these commodities.
For example by investing in the diversified mining companies like BHP BILLITON or electric utilities or the integrated energy companies like EXXON MOBIL will still allow you to profit from the commodities boom.
You can also invest in the Master Limited Partnerships (MLPs) that invest in energy infrastructure like the oil pipelines and natural gas storage facilities. You can also invest in commodities mutual funds and exchange traded funds that deal with the commodities sector.
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