Firstly you have to know the market, which means understanding the commodity you will be dealing with; currency. The Forex market deals with a single activity – the buying and selling of currency for the express purpose of making money. This is done when you do spot buying of currency (or any sort of buying). Your money goes into the country or the countries stakes; which means your money can journey around the world in a matter of seconds and it can be used for any one thing which contain; strengthening of hedge funds, infrastructural support, supporting economic initiatives or even just simply as a developmental initiative. The possibilities are endless but what happens is that you are going to strengthen the countries economic position and thus raise the value of their dollar. Once that happens, you make an instant profit from the PIP (percentage in point) increase. The more positive PIPs you click, the more money you are likely going to make. In a nutshell, a simple nutshell; this is the basic machinery of the Forex trading market.

The Forex market operates 24 hours a day and this means that investing has no rest allocated to it. Be prepared to be woken up by your adviser at some weird hour to tell you of an investment opportunity of the century. Online trading also means that you can door the market from somewhere and everywhere in the world; all through the use of a computer. I reckon the simplest way for a newbie to get started is to sign up for anyone of the known brokerage firms online. They provide comprehensive training for anyone wanting to learn the basics of Forex trading and have even dummy accounts with fake money and simulated situations for you to tinker around with before you dive into the real thing. Also, many of these companies will also any provide or sell you a Forex Trading Systems software, which is basically a platform that makes trading all the more simpler. With a professional layout, callouts and information showed in an ergonomic fashion, these systems are vital for the newbie to find his or her way around the market place. More well ahead systems really advise newbies on their investment moves and right their wrongs on the spot.

The currency Forex online trading for newbies – judge it!

Click Here to claim your Free Forex “Basic Momentum Analysis” report today! Christopher Lee helps thousands of traders learn the proper way to trade currency.

Author: Christopher M Lee
Article Source: EzineArticles.com
Provided by: Guest blogger

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The cycle begins with the slowdown of the aforementioned GDP. Then it becomes a full-blown recession, wherein the value of commodities is at its lowest. Shrewd businessmen use this juncture to purchase goods at very low cost. A transition begins when the recession turns into a period of recovery. By this time, the economy is slowly but surely getting back on its feet. The cycle commences with an expansion wherein business owners could finally breathe easily and employees no longer worried sick about the possible upshots.

The recession effect is supposed to educate people that, by this time, they should already know not to invest their money during the final stages of recession. Contrary to what the public thinks, spending during the period of expansion is in fact a badly-drawn scheme. What most people don’t know is that it is best to put out their investments when the financial system is in a bad shape as the cost of commodities are simply at their lowest.

Ironically, the recovery and expansion phases would outlast the period of recession itself. The government will definitely attempt to salvage the economy by putting money to improve liquidity. Yet, that is something to be avoided as it has notably caused inflation setbacks in the past.

Patterns in businesses are quite evident in the time of recession. Businesses slowly assess each employee, checking on their background and work history, to know who among them would have to be let go in the event that the company needs to cut short some expenses—and that includes salaries. Outsourcing may also be increased—another way of cutting on the expenses, but not on the services.

Now that people are struggling to find ways to make income, jobs that are recession proof are slowly inching their way to the most-wanted in the business field. Not all jobs out there are affected by the economic decline. In addition, recession-proof businesses are also popular turfs. A lot of people are cashing in on the many great opportunities presented despite the time of recession.

People who have been laid off need to somehow enter a self-improvement phase—to make themselves more marketable and able in the business playing field. Going back to school or taking in additional courses might help. Honing and acquiring new skills will also prove to be beneficial as companies out there are looking for people who have the know-how in doing certain things.

Recession will always present itself in many forms. However, that does not mean that there are no more viable ways in making money. The result of all these tell us that no matter what happens, we have to look at things in a more positive way and to do things more proactively.

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Contango is normal for most commodities. This is because most commodities have a cost of carry. Such costs include warehousing fees financing cost, and interest forgone on money tied up, less income from leasing out the commodity if possible.

The contango should not exceed the cost of carry or else arbitrageurs will take advantage of the situation. Say the spot price plus storage is lower than the futures contract price, arbitrageurs can buy the physical and store it, at the same time sell the futures contract. At the delivery date of the contract, the arbitrageurs can deliver the physical to the exchange for a risk-free profit.

If there is a near-term shortage, the price comparison breaks down and contango may be reduced or perhaps even reverse altogether into a state called backwardation. In that state, near prices become higher than far (i.e., future) prices because consumers prefer to have the product sooner rather than later (see convenience yield), and because there are few holders who can make an arbitrage profit by selling the spot and buying back the future.

A market that is steeply backwardated — i.e., one where there is a very steep premium for material available for immediate delivery — often indicates a perception of a current shortage in the underlying commodity. By the same token, a market that is deeply in contango may indicate a perception of a current supply surplus in the commodity.

So why is contango and backwardation important concepts in commodities trading?

1st) It tells the trader if there is tightness or shortage in the physical market. If the market is rather tight, backwardation spread will be widening OR contango spread will be narrowing. Traders must be careful if they decide to short a product that is in shortage, because shortage situation of the product usually resulting in the price going up.

2nd) Commodities futures contracts have expiration date. Traders need to know in the event that the contract expires and a rollover is required, do the traders earn or lose contango spread as a result.

For a contango product, say gold, near term price is lower than far month price; so if the trader has a long position in gold that is expiring, he will lose contango spread when he rollover his current contract to the next month.

On the other hand, if the trader has a short position on gold that is expiring, he will gain contango spread when he rollover his current current to the next month.

Gold contract is an example of a contango product: Near term price is lower than far month price. And copper contract is an example of a backwardation product:
Near term price is higher than far month price. See here for their contract tables: http://allaboutoil.blogspot.com/2008/05/must-know-concept-for-commodities.html

It is complicated to understand? If this is so, then you can simply trade commodities contracts that do not expire. ForexYard is one of the few platform that offers gold, silver and oil contracts that do not have expiration date. To open the account, click here and click on the logo inside. Choose Standard Account for account opening.

For trading ideas on commodities, go to www.CommoditiesTradingPro.com.

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A lot of products that used to trade locally have now expanded into the global market. Thanks to technology, more money can be made by the global expansion. Many countries, including the United States, have become one big melting pot for global trading.

When commodities first evolved, not a lot of people were using them. When people found out that it was better to take a risk on this as opposed to stocks and bonds, more people jumped on board. Now anyone can get involved in commodities trading.

When you’re involved in a commodity transaction, it is set up through futures contracts. Futures contracts are purchased and/or sold on the date specified for the future. A price is put in place and the transaction is completed at a later time.

There are also contracts called spot contracts. These are contracts that are used for transferred commodities. They get shifted when a contract is created then instead of a future date. This type of contract can be used for a future contract after a specific time period. The type of commodities investing can vary.

When you invest in commodities, you don’t have to endure a lot of risks. That’s why people like to invest in them. When you get an increase in commodities, it can offset any losses you may have. The risks in commodities are minimal because you’re investing in different things. When you have contracts for later dates, you don’t encounter a lot of risks.

There is not a problem when you’re watching how your commodities work out. Even when stocks and other stuff aren’t going so good, you can at least count on your commodities to hang tough. Unlike stocks, you can tell how well commodities are going to do. You should never compare stocks and bond with commodities because they are two different entities. Plus, stocks and bonds are more volatile because of their uncertainty in the daily market.

If you’re not familiar with investing in commodities, you should find someone who is knowledgeable in it. Commodity trading advisors can assist you on what to do in the market. They will also let you know when it’s time to get rid of that commodity.

When choosing an advisor, look at what you what to accomplish. After you’ve done that, find someone who would be able to help you with your goals. You don’t necessarily have to go to a brick and mortar facility. Since people are so busy these days, it might be better if you contact them by phone or e-mail first. Then you can set up a time to meet, if necessary.

You can do other things besides trading in commodities. You can also make investments using a diverse package of funds.

With commodities, you are less likely to lose money than you would if you were strictly investing in stocks and bonds. That’s why it’s important to diversify your money if you’re planning on creating a nice financial portfolio.

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First of all, finding a commodities trading advisor is not difficult at all, but locating a skillful commodities trading advisor is where the ultimate challenge lies. After doing some research work (you will need quite some time to do that), you will have access to a number of the best ones in the commodities trading advisor area. Even so, in the end, successful trading depends on your decisions because it is a matter of personal choice (investing in commodities is a risky activity). However, if you choose the assistance of a commodities trading advisor, you will be the beneficiary of his knowledge and experience in this field of expertise.

A commodities trading advisor will make efficient use of his licensed transaction procedures so as to determine trading positions in commodities and other type of futures. Regularly, the latter ones are commodities (either goods or stocks) traded for future delivery. What turns a commodities trading advisor into a reliable expert is his day and night interest in the evolution of the markets. Additionally, unlike newcomers in the sphere of commodities, a commodities trading advisor has a well-established, well-organized trade methodology. It is more likely to get the best out of the assistance of a commodities trading advisor if you are just an amateur.

To what concerns an efficient, or better, guaranteed to be efficient commodities trading system, well, it does not exist. As in the case of a commodities trading advisor, a commodities trading system cannot warrant total success when investing in commodities. Indeed, a commodities trading system is devised with the specific purpose to enable investors – and beneficiaries of the advantages a commodities trading system could display – to become the recipients of high earnings while assuming as few risks as possible. However, there isn’t any investment in commodities which does not carry a degree of risk.

Basically, a commodities trading system is an automatic database (software package) which indicates a user, when the case tells it, the proper moments to buy, sell or hold a commodity. Such a commodities trading system is built as a result of a number of surveys of the market, of responses to certain levels of trading and of considering both the general (worldwide) and particular (limited to a number of specified markets) evolution of market prices. However, such systems do not consider a fundamental examination of the markets, since they typically do not measure the balance demand-supply. The number one benefit is that they can appreciate correctly price connections and price fluctuations, which often prove as key-elements in detecting an accurate description of the current status of the market in terms of expenses.

However, an investor’s favored approach, be it the spot-on piece of advice of a professional or the evaluation of a system, should always consider the high degree of hazard held within investing in a commodity. Such available goods or stocks have indeed their advantageous returns, are and will be a successful domain to invest your money in. All it takes to turn them into profitable tools is given by commonsensical practicality and clever caution. When these have become your rules, your investment will bear the anticipated fruits. One last thing to keep in mind: you can invest in a wide range of commodities, from orange juice, soybeans, cocoa, wheat, pork bellies, crude oil, to silver or gold, to cobalt or silicon. There are as many possibilities of investment as to satisfy any choice-range.

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Commodities Conundrum Surprises Even Hedge Fund Titans

Commodities are down significantly from the highs set in March (Gold, Wheat) and July (Oil).

The outlook for this sector was spectacular until just a few months ago. The greatest impact was seen in the dramatic rise of oil, which soared +70% in just five months only to turn in its tracks during July. But now across the board, hedge funds and investment houses are selling commodities. Even famed hedge fund titan Dwight Anderson has shuttered his Ospraie hedge fund. The $2.8 bln fund enjoyed average annualized returns of +15% from its launch in February 2000 through the end of 2007. But the volatile commodities markets of 2008 saw Ospraie drop -39%, of which -27% was dealt out in August alone.

What is happening to the much talked about “commodities super cycle”? Has sentiment turned against commodities? Is the Dollar the culprit? What is going on with inflation? What is the effect on the global economic downturn on commodities? And how about agriculture and soft commodities – don’t we have a “global food crisis”?

Free Daily Updates In 26 Detailed News Categories

The new Opalesque Commodities Briefing focuses on this increasingly important sector and offers free daily updates covering:

? Agriculture, Bullion/Gold, Energy, Metals and Minerals, Oil
? Price Watch, Market Moves and Trends
? Fund Profiles, ETFs / ETCs, Indices
? Currencies, Commodities Exchanges, Trading Platforms
? People, Regulatory News
? Research Updates, Analysis and Commentaries

Already 2000 Articles Archived

Almost 2000 commodities related articles and research from 26 detailed news categories can be already retrieved from the Opalesque Commodities Briefing website:
http://www.opalesque.com/Commodities_Briefing.

Opalesque’s experienced staff monitors the news and global markets carefully to present investors, commodities experts, and interested parties this essential daily update in the popular Opalesque “Briefing” format. The service can be subscribed as daily email newsletter or by RSS feed.

The Opalesque Commodities Briefing publication is overseen by Laxman Pai, who is part of Opalesque’s Asia team. Laxman has over ten years of professional experience in financial and international journalism and the media industry. He was Executive Editor for India Wealth News and India Investment News and also contributed to global industry publications like Investment & Pensions Asia, The Wealth Net, Financier Worldwide magazine, Global Investing, Asia Risk, International Pension News, Global Pensions etc. His academic credentials include a Bachelor in Science in Physics, Master of Arts in English Literature, Post Graduate Diploma in Journalism and an Honorary Doctorate in Journalism from the Cosmopolitan University, Missouri, USA.

About Opalesque:

In 2003, with the publication of its daily Alternative Market Briefing (AMB), Opalesque successfully launched an information revolution in the hedge fund media space: “Opalesque changed the world by bringing transparency where there was opacity and by delivering an accurate professional reporting service.” – Nigel Blanchard, Culross. This hybrid financial news service, which combines proprietary industry news stories and filtered third party reports, has been credited by many industry insiders with delivering precise, accurate, and vital information to a notoriously guarded audience.

Each week, Opalesque publications are read by more than 400,000 industry professionals in over 100 countries. Opalesque is the only daily hedge fund publisher which is actually read by the elite managers themselves (http://www.opalesque.com/op_testimonials.html).

About Opalesque Publications:

Alternative Market Briefing is a daily newsletter on the global hedge fund industry, highly praised for its completeness and timely delivery of the most important daily news for professionals dealing with hedge funds. Alternative Market Briefing offers both a quick overview and in-depth coverage. Subscribers can also access the industry’s largest news archive (29,000+ articles) on hedge funds and related topics.

A SQUARE is the first web publication, globally, that is dedicated exclusively to alternative investments. A SQUARE’s weekly selections feature unique investment opportunities that bear virtually no correlation to the main stream hedge fund strategies and/or distinguish themselves by virtue of their “alternative” motive – for instance, social or behavioral strategies or those focused on natural resources or sustainable/environment-related investing.

With its “research that reveals” approach, fast facts and investment oriented analysis, A SQUARE offers diversification and complementary ideas for private, high net-worth and institutional investors, pension funds and endowments, portfolio and hedge fund managers.

Technical Research Briefing delivers three times a week a global perspective/overview on all major markets, including equity Indices, fixed Income, currencies, and commodities. Opalesque Technical Research is unique compared to most available research which is fundamental in nature and not technically (chart) oriented.
Commodities Briefing is a free, daily publication covering the global commodities markets. The new Opalesque Commodities Briefings follow the popular Opalesque “Briefing” format and offer a quick and complete oversight on commodities and commodity-related news and research in 26 detailed categories.

Opalesque Roundtable Series:

In an Opalesque Roundtable, some of the leading hedge fund managers (single and multi strategy managers) as well as representatives of the local investor base (institutions, fund of funds, advisers) are united to gain unique insights into the specific idiosyncrasies and developments, as well as the issues and advantages of specific global hedge fund centers.

Through the series, hedge fund investors looking for new talent, a hedge fund interested in diversifying its investor base service providers looking for new clients will all get to know some of the leaders in each hedge fund center and will find invaluable information and intelligence without any travel involved.

For more information, please go to : Hedge Fund News

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Fundamental factors based on simple supply and demand account for much of increased price activity, of course, but other factors are behind these price moves as well – factors you should understand if you are one those investors thinking about putting some of your money into commodities. Although commodities are a hot topic for investors, it is also an area where newcomers can get stung if they are not aware of some pitfalls that can trap the unwary.

So let’s first look at some of the factors promoting this increased interest in commodities and then, if you are interested in trying to tap profit opportunities in this area, at some instruments you can use to exploit this possibility.

Getting ‘real’

You are probably well aware of the “dot.com bubble” that took stock market indexes to record-high levels in the late 1990s into early 2000. The stock market was the place to be for many investors, evident by the growing amount of money that poured into mutual funds, 401(k)s and other investments tied to the value of stocks. Investors enjoyed the run of a bull market since 1982 as they focused on investments in paper instruments rather than physical products.

As with most meteoric rises, however, the accelerated rise in stock prices at the end of the 1990s couldn’t last forever and they began to fade. Then came the Twin Towers disaster on Sept. 11, 2001, the followup U.S. war on terror marked by armed incursions into Afghanistan and Iraq, accounting and other corporate fraud scandals (Enron, Worldcomm, et. al.) and a slowdown in global economies, all of which contributed to a decline in stock indexes, especially those reflecting technology stocks.

Many investors became disenchanted with prospects in stocks and began to look elsewhere to place their funds. Some put their money into housing and other real estate investments, causing a building boom and rapidly escalating property prices. China’s economic growth of more than 9% annually and the rebuilding required after two devastating hurricane seasons in a row along the Gulf Coast added to the huge demand for cement, copper and other building materials of all types (for more on the economic effect of hurricanes, see www.hurricaneomics.com).

Oil’s key role

Adding to the expanding worldwide demand for commodities, the ongoing war on terrorism re-emphasizes U.S. vulnerability to disruptions in oil supplies from the volatile Middle East, and prices skyrocketed above $80 per barrel in 2006. The higher oil prices get, the more attractive alternate energy sources look. The favorite alternative that has emerged from the pack is ethanol, produced primarily from corn.

With a big boost from Congressional mandates for ethanol production and usage, prices for corn began to shoot up last fall to the highest levels in more than 10 years, topping $4 a bushel after years of being closer to $2. Ethanol became the buzz word of the day, reinforced by President Bush’s comments about energy in his State of the Union message. When the government is pushing something, it’s best to trade in line with the government’s wishes, as interest rate traders know from watching actions of the Federal Reserve.

As demand for corn for ethanol grows, the higher corn prices may be driven and the more likely farmers will plant more corn at the expense of crops such as soybeans and wheat as crops compete economically for acreage. Livestock and poultry producers will also feel the effect of higher corn prices as will America’s grocery shoppers when they go to the meat counter.

With what some describe as a “housing bubble” cooling and investments in stocks still not having overwhelming appeal, investors have turned to where the hottest action is – real things like commodities. Commodities have particularly become the darlings of a rapidly proliferating number of hedge funds, which can trade anything, adding further fuel to the general advance in commodity prices.

Ready or not . . .

Some commodities have backed off from their price peaks, leading some to believe that a “commodity bubble” may be breaking just like the bubbles in stocks and housing. Never has an understanding of intermarket relationships been more important to traders as the domino effect of commodity price moves extends throughout a number of commodities.

Where prices of commodities now stand in the overall economic scenario is just one of the issues investors have to face today. With all the media buzz, is there still time to jump on the commodities bandwagon? If so, should you venture into futures or options based on commodities or get into one of the new commodity-based hedge funds or exchange-traded funds (ETFs) or invest only in stocks of companies involved in raw commodities?

Commodity futures trading involves an agreement by an investor to purchase or sell a specific amount of a commodity for delivery at a specific time in the future. The key points are the price at which you initiate a trade and the time that is left until the contract expires, at which time both parties are obligated to fulfill the terms of the contract unless they have offset or liquidated their position. If you think prices will rise before the contract expires, you buy or go long. If you think prices will fall from the current level, you can sell or go short as easily as you can buy.

ETFs are set up to achieve the same general return as an index – for example, the Spyders (SPY) ETF invests in all the stocks contained in the S&P 500 Index to mimic the results of the index. Commodity-based ETFs can invest in commodities directly through futures or in stocks from a sector influenced by what happens in commodities – a gold ETF based on a basket of gold mining stocks, for example. The advantages of ETFs are that they trade like a stock, don’t have the high leverage or risk that futures do and can diversify into a number of commodities or stocks that can dilute the effect of adverse moves in one commodity or stock.

Like any development that capitalizes on the hottest new trend, new ETFs are being offered every day. You have lots of choices so sift through them carefully. Some ETFs may be thinly traded so you need to understand what this investment can do before getting into it.

The commodities-related investment that may be most familiar – and, therefore, most prudent – for many investors involves investing in those companies that are most influenced by prices of commodities. If you think prices of copper will go up, for example, buy those stocks that would benefit most from higher copper prices. Ditto for oil prices or grain prices. Again, you have a number of choices so you will have to do your research to see which prices will mean the most to which companies.

Futures pros and cons

Of the various choices, futures are the most direct play on price movement – and usually carry the most risk. The major lure of trading futures is the ability to make a large amount of money in a short time with a relatively small down payment. For example, to trade a 5,000-bushel contract of corn worth $20,000 with corn priced at $4 a bushel, the Chicago Board of Trade currently requires a minimum margin or good-faith deposit of $1,350 – less than 7% of the value of the contract. If you invest in stocks, you have to put up at least 50% of the value of the shares.

Every 1-cent change in the price of corn amounts to a $50 change in the value of a corn futures contract. If you buy corn futures and the price goes up 20 cents, your profit is $1,000. That’s a gain of nearly 75% on your initial margin of $1,350! And a 20-cent move in corn prices in today’s market conditions is very possible, sometimes in just one day. No wonder futures trading is so attractive to investors looking at commodities compared to other investment areas.

But beware. There is another side of the corn that a newcomer to futures needs to recognize before becoming involved in this type of trading. While the futures market can boost your account quickly, it can also diminish your account just as quickly. Commodities are generally much more volatile than stocks, making them a rough-and-tumble marketplace for the inexperienced.

Timing is a critical factor in trading futures. In fact, you can be right about the direction of prices but wrong about the timing of the move and lose a significant amount of money. That’s true in any market but is compounded in futures due to the larger increments and high leverage involved in futures. Even a relatively small adverse price move against your position can deal a big blow to your trading account.

Still, for those who can tolerate the risk, the possibility of large profits has an obvious appeal for investors seeking more action for their investment money. If you do decide to trade futures, you can improve your odds for success by first learning about and understanding how futures markets operate, then getting reliable information about markets and what is moving them from sources such as www.tradingeducation.com). , a free educational web site.

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A growing number of economists, money managers and analysts have begun issuing warnings that a recession may be hard to avoid in 2008. On top of that, recent data is indicating an increase in inflation that is being fueled by higher prices for commodities such as oil, wheat and corn.

Given the growing concerns of the future of the economy, I thought it would be very helpful to provide readers with some history on how commodities and stocks have performed over various economic cycles.

Performance of Commodities vs. Stocks

To understand how commodities and stocks perform during economic downturns, let’s look at past trends.

In a revolutionary study from the Yale School of Management’s Center for International Finance entitled Facts and Fantasies About Commodity Futures, research revealed very important differences in how commodities and stocks perform over time. The research team analyzed how commodity investments performed compared to stocks and bonds over the last half century.

Below are some key highlights of the research findings over various investment horizons:

* Stocks and bonds are negatively correlated with inflation. In other words, as inflation increases, stocks and bonds tend to move in the opposite direction. Commodities futures, in contrast, are positively correlated with inflation. When inflation rises, commodity futures tend to rise as well.

* Commodity prices can rise even during economic downturns. Commodities can serve as a hedge against stock market and economic risk.

* Commodities and stocks have a negative correlation. In other words, commodities and stock perform tend to perform oppositely over time. When stocks go down, commodities, over time, tend to move up and vice versa. Thus, a portfolio invested in stocks and commodities is likely to experience less volatility than a portfolio that is comprised of only stocks.

* From 1959 to 2004, commodities futures produced comparable annual returns to stocks and greatly outperformed bonds.

* Commodities have had less risk than stocks over time. The volatility (i.e., fluctuations in portfolio returns) of the returns of commodities futures over a 43-year period was less than the volatility of the S&P 500 index over the same period.

While no one can be certain if the looming recession will be global or more or less confined to the developed world, one thing is clear: ignoring commodities in a declining stock market is irrational.

Every investor can benefit by learning how to invest beyond stocks and bonds. A properly diversified portfolio that includes commodities can enhance return and reduce risk. To learn more, visit www.powerpathtomoney.com

In a recent interview with Bloomberg (January 7, 2008), Jim Rogers, known by many as the world’s expert on commodities investing, reaffirmed his positive outlook on commodities. He stated that “All commodities are going to be in much shorter supply for another decade.” Rogers indicated that in the event of a global recession, agricultural commodities may be the best investment among commodities.

The findings of the Yale study and others have triggered huge changes in the financial industry—many which affect you. Investment companies are increasingly creating new investment vehicles to enable individual investors to participate in commodity investing. Today there are easily accessible ways for you to invest in commodities and to find which investment vehicle is right for you. Anyone can now invest in commodities in low-cost and easy ways that were not available during the last commodity bull market.

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Physical Trading

Physical commodities trading is buying and selling the actual commodity itself not some sort of derivative instrument like a futures contract. There are obvious downsides to this method namely storage costs, insurance costs and shipping costs.

The physical market, for our purposes, focuses on those commodities that are easily stored, bought and traded for the average investor. These are such things as Gold, Platinum, Palladium and Silver.

The most popular method of trading such items on a retail basis is in the purchase of coins. There are many companies on the web that provide services for the purchase of coins for collectors and speculators.

The internet, of course, has given investors many options for the purchase, storage and trading of gold coins however, our favourite example of trading gold on the web is Bullion Vault. They allow the purchase and storage of gold in small quantities and have an efficient trading system. They hold $290mn of gold for clients and appear to have a very good reputation.

Leverage

If you didn’t know the term ‘leverage’ before the current financial mess, you do now. For those who need a refresher, here is how it works. Let’s say you buy £100,000 of gold and whomever you buy it off only needs you to put down a 10% deposit, £10,000. Let’s say gold goes up 10%. You now have gold worth £110,000, if you sell it now you pay back the £90,000 you borrowed and you get your original £10k back along with your £10k profit. Basically you have turned a 10% gain in the price to a 100% gain on your investment.

Obviously if the price dropped 10% you lose your money, hence the mess that some are in at the moment.

Physical Commodities on Leverage.

There are still some companies around that provide leverage on physical commodities across a range of products, however, the costs associated with trading, such as interest on loans, storage and insurance fees have made the product less attractive to the active trader. Having filled a gap in the market for some time the product was overtaken by some of the instruments mentioned below.

ETFs (Exchange Traded Funds)

More accurately described as ‘Exchange Traded Commodities’ these instruments  take into account all the fees such as storage etc associated with trading. They trade like shares are liquid.

An Exchange Traded Commodity is an investment vehicle that tracks the performance of an underlying commodity or basket of commodities. ETCs work on exactly the same principle as ETFs – with the ETC tracking the performance of a single underlying commodity or a group of associated commodities. Single commodity ETCs follow the spot-price of a single commodity, whilst ‘index-tracking ETCs’ follow the movement of a group of associated commodities, such as cattle, energy or livestock.

ETCs offer the commodities trader a number of inherent advantages without the associated vagaries of trading an individual stock:

Direct exposure to the commodities markets – the value of your investment will rise and fall in direct proportion to the price of the underlying commodity.

Liquidity – ETCs are ‘open ended’ securities, which are created and redeemed on-demand. This means that the supply of ETCs is unlimited and that price changes will accurately mirror developments in the price of the underlying commodity.

Stamp duty & CGT – ETCs are not shares and so trades are exempt from stamp duty. Furthermore, ETCs can be traded within ISA accounts, allowing you to shelter your profit from Capital Gains Tax.
Low dealing costs – ETCs are traded on the regular stock exchange, making them both accessible and affordable – they can be traded through your share dealing service for a commission.

Portfolio diversification – ETCs give broad representation across entire commodity sectors and different geographic regions.

Futures

A futures contract is an agreement to buy or sell your chosen commodity at a specific date in the future – at today’s prevailing market price. These markets are highly liquid and the contracts can be sold on again at any point before the final delivery date, i.e. the day when the farmer or miner will deliver the raw materials to the person holding the contract.

The producers and end-users are still present in today’s markets, but it is the traders and speculators who are now responsible for most of the volume that keeps the market liquid.
The main benefit of trading futures is that you are making a direct investment into the underlying raw material and your future profit or loss is entirely dependent upon fluctuations in the underlying commodity price.

Going back to leverage, most futures trading is done ‘on margin’, which dramatically increases potential profits (and losses, remember).

Shares

Exposure to the commodities market can be gained from buying and selling companies whose business it is to mine, distribute or trade in commodities that you are interested in.

The shares are, generally, liquid and accessible for trading, the problem, however, is that there are many other factors that could effect the share price that may not have anything to do with the underlying commodity. These could be management issues, cash flow, macro economic issues and geo-political issues.

CFDs and Spread betting.

CFDs and Spread betting are easily accessible trading instruments which are essentially derivatives of many of the above, however spreads and dealing costs can be harsh to investors.

Technical Phrases

You will hear such phrases as ‘contango’ and ‘backwardation’.

Contango is a term used in the futures market to describe an upward sloping forward curve (as in the normal yield curve). One says that such a forward curve is “in contango” (or sometimes “contangoed”).

Formally, it is the situation where, and the amount by which, the price of a commodity for future delivery is higher than the spot price, or a far future delivery price higher than a nearer future delivery.

Backwardation is a futures market term: the situation in which, and the amount by which, the price of a commodity for future delivery is lower than the spot price, or a far future delivery price lower than a nearer future delivery. One says that the forward curve is “in backwardation” (or sometimes: “backwardated”).

Commodities trading has many aspects that set it apart from trading other markets and for those that become learned in the trading of the instruments it can be lucrative. Commodity traders over the last few years have seen huge swigs in price which have lead to large profits (and no doubt some large losses).

Currently the global market in commodities is in a state of flux. Gold, for example, is seen as a safe haven against inflation and uncertain times, hence it recent volatility.

Having worked in commodities for some years it was always noted that volatility is our friend, whether a price is going up or down there is money to be made, when commodities are flat there is not much action and the cost of trading out ways the potential profits.

For the foreseeable future volatility is definitely here to stay. Stock market issues and global recessionary fears on the one side and continued development of emerging markets using vast amounts of the world resources on the other, will see volatility in this market for many years to come. This, therefore, as a market to learn about and trade ,is a very interesting and potentially lucrative proposition.

As with all trading, however, there is a very real possibility that trading commodities, especially on leverage, could lose your portfolio a lot of money and you should be aware that it is highly risky. Do not risk more money than you can afford to lose and make sure you have a system that allows you to use limits and stops to contain this risk.

The online trading system available from HF Markets allows you to trade all of the above with assistance, if required, from a professional regulated broker who can guide your initial trading strategies and help you become familiar with trading this exciting area of investment.

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