Between 2008 and 2009, the world economic bubble that was looking so nice and shiny burst, and what a mess it was! And it was all tied to financial markets. For most people, it’s always been a technical and foreign area, best left to your stock broker to deal with. In fact, all they could understand was that it had something to do with banks, mortgages and stocks. Nest-eggs disappeared overnight. If we are to learn from our failures, then this is the best time for a re-education when it comes to investment. To go back and learn the basics, because whichever way we look at it, there is no other option to putting our money than in good investments. Only now, we have to re-orient, re-educate and understand the basics so we can know when to make timely entries and exits.
Let’s start with commodities trading, an investment option that is not so common. It is otherwise referred to as futures trading, and there is a school of thought that deems it highly risky, but like with anything else, knowledge is key to whether you win or lose.
A commodities contract is a contract for speculating on the delivery of a commodity at a certain price in the future. An investor chooses a commodity, speculates on a price that they predict it will sell at on some future date, and based on their speculation, they will either make a profit or a loss.
Commodities are traditionally agricultural products and they come in bulk – wheat, corn, rice, or even fruit. The ideal is that they be commodities that are consumed in bulk. In modern day, commodities trading has expanded and has you’ll find commodities like crude oil, foreign exchange and even financial instruments.
As a commodities trader, you will buy a contract on a given commodity at a given price. Your hope, as you are buying the contract is that the price of the commodity will rise. Assume you are speculating on the price of corn. If you think the price of will rise, you buy a commodities contract on it. If the price goes up, you sell your contract and net a profit. Should you speculate a drop in price, you sell the contract and exit to avoid making a loss.
Much like any market where the laws of demand and supply are allowed to operate freely, there are always willing buyers and willing sellers. If you want to buy, there’ll be a willing seller and if you want to sell, there’ll be a willing buyer.
As mentioned earlier, some consider it high risk. But remember, the higher the risk the higher the returns. Get yourself a good broker, get yourself in the loop with information and get good software that can track trends and give you instant alerts. The only other cash you will need is an amount that your broker will hang on to should you make a loss and you have to pay.
The best thing you can do for yourself now is to diversify investment options. And the best way to do this is to be as knowledgeable as possible on whatever options you decide to take. Like the great investor George Soros likes to say, it’s all about knowing about when to make and entry and when to make an exit. You can invest literally in anything; just have your facts and trends at hand.
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