Commodity Future

Written by Erin Jones
Bookmark and Share

In addition to E-minis, traders can also enter into commodity futures. Just like any other trade, you'll be on the long or short end of the commodity trade. Commodities trading involves speculating about real goods, like the future prices of sugar, what, or precious metals.

Trading Commodities Futures

Commodities brokers are different than stockbrokers. Many stockbrokers can't trade commodities because it requires a separate license. If you're interested in exploring commodities, therefore, you'll need to find a firm that specializes in futures trading. Many of these firms are located online.

Most experienced investors deal in commodities because of the diversification advantages it provides a portfolio. Commodities have zero correlation to both stocks and bonds, meaning that they don't move in the same direction as either the stock or bond market. As a completely separate trading vehicle, commodities can even out the returns in a properly allocated portfolio.

Commodity investments can also act as a hedge against inflation in the United States. This is due to the fact that as prices of real goods (inflation) rises, the underlying commodities themselves will rise. In 2005, the commodity index hit a 20-year high as concerns over rising interest rates and inflation plagued the U.S. stock market. Leveraged commodity investments offer the potential to make a lot of money. Commodities, however, are fairly risky investments. You'll want to make sure that you're seeking the advice of a professional and trading a commodities index when it comes to these types of investments.

Bookmark and Share