Invest in Commodities – Investment Guru Commodity Tips
2017 came with a changing wind on the economic landscape. And for those who are investing and those who are starting their journey into investment strategy, a solid recommendation is to either keep investing in commodities or to start doing so. Here’s how and why:
While the stock market moves in a highly unpredictable manner and is susceptible to volatile changes, the commodities trade is a more foreseeable, safe, and sound market where those cautious eyes and good trading abilities can reap stable and consistent benefits. Let`s cover some tactical commodity tips to get you on the right track.
Refresh the Basics
First of all, let’s keep in mind that commodities make reference to the physical products that can be traded on a qualified exchange within the U.S. by the purchase and/or sale of futures contracts.
Secondly, trading commodities is a lot more manageable due to the fact that there are only few dozen markets that are worth looking into, taking into account their volume and liquidity. Thanks to this it is a lot easier to track seasonal tendencies as well as the market’s behavior.
Thirdly, commodities are broken down into basic sectors that cover a wide range of products in the same category such as:
Agricultural or Softs: Wheat, corn, and soybean–basically traditional U.S. crops, as well as imported crops such as coffee, sugar, and cocoa.
Energies: Crude oil, natural gas.
Livestock and Meats: Lean hog and meat such as pork belly, live cattle and feeder cattle, etc.
Metals: Both industrial metals and precious metals are covered, from gold to zinc and copper.
Next, commodities move in a more predictable pattern than stocks, they have fewer interruptions in between the year (quarterly reports or company mergers), and there are no CEOs. Therefore, it is more likely to predict a profitable physical commodity.
Lastly, commodities behave more or less similarly to stocks but we have to take into consideration different indicators such as weather, seasonal tendencies, and crop growth patterns.
Now that we’ve refreshed some of the basics of commodities, let’s jump right into the tips you need to excel at commodity investment.
Before investing in any physical commodity, it is a common tactic to assess your investment range and to set your goals. This means what amount of money you are willing to risk—yes, commodity markets are often also unpredictable and volatile, especially with inflation—remember these are susceptible to likely unplanned events such as natural disasters or manmade disruptions such as wars. A good example of how investors can be affected by these interferences is the conflict surrounding both natural gas and crude oil.
It’s wise to choose and study the commodity market sector you want to take part in, so you can analyze its behavior in the stock market and anticipate the likely changes a season might have, so as to avoid substantial loss and to ensure a solid gain. Remember that with the poor understanding of your chosen commodity, you are at worse odds than entering a back alley, bad neighborhood casino. Knowledge is truly the best investment strategy.
Another key aspect to regard is that of the broker, which ranges from full-service brokers offering constant advice and observation to discount brokers that merely offer the means to get your trades going and no more. Carefully decide whether it’s worth the risk to choose a discount broker, caution advises any brokers should be thoroughly investigated, and wisdom tells us that a full-service broker is often worth the investment.
Now that you have a trusty broker it’s time to open a commodity trading account, which is no different to opening a stock trading account and commodities are traded in very much the same way.
Once you are ready to start, Lee Lowell’s expert advice is to invest with futures options contracts over the common futures contracts. The main reason is that a futures contract is a set contract with open-ended risks and that a futures options contract is a lot safer because it keeps the risk at a minimum and the gains in a high.
Additionally, with futures options contract you have less need to predict every commodity trend or pattern to ensure profit; therefore, giving you a more stable and safe investment with more than likely returns.
It’s also safer if you have second thoughts on your possible investments because a futures contract binds you legally to buy or sell a commodity at the established time, whereas a futures options contract give you the right to buy or sell at a particular price.
Stick with the tips and your investments will surely reap the benefits. As with any investment, be patient as investments are long-term commitments and commodity future trading is no different in this respect.
Now it’s all a matter of investing in the right commodities to ensure your rollercoaster ride goes only up—which is no easy task—for that we need to assess the VGM score (Value Growth Momentum) of the commodities stocks we are investing in. The VGM score will enable you to eliminate the negative aspects of stocks and select the profitable ones. Here’s a list of the Top 4 commodity stocks to buy for 2017.
Expert commodity investment traders advise that you stick with a low number of commodities to trade, the logic is to trade with those commodities you are familiar with and to settle within a comfort zone for risk tolerance and margin values.
On the other hand, some professional traders like Chuck Kowalski advise on the variety of your trades with the careful analysis of the trade setups you wish to take on. For example, agricultural and gold commodities are his preference for short- or long-term trades. He also chooses coffee trades for what he calls “quick hits” since that market can turn quickly.
It largely depends on your personal preferences and the amount of money you are willing to risk in each trade and how you would choose to engage in these trades, whether with futures contract or options.
To conclude, commodities’ trades are indeed highly leveraged since relatively small investments can control a contract that covers a huge amount of goods, but there is still the risk of losing money overnight with quick turnarounds and unforeseen situations.
Caution is advised when starting to trade, avoid overtrading so that you do not lose track of your gain and losses and cover all the aspects mentioned above and you will be good to go on your way to reap profits and high rewards.