By Noble Drakoln
We hope this tutorial has opened your eyes to the exciting and fast-paced world of commodities trading. Let's recap a few important points.
- Commodities offer exciting opportunities for investors to diversify their investment portfolios beyond stocks, bonds and mutual funds.
- Like any other investment, commodities carry some risk. However, what makes them particularly attractive is leverage. You can trade them on very low margin.
- There are more than a dozen major commodity exchanges around the world, reflecting the globalization of the markets.
- Grains include wheat, oats, corn, rice, soybeans and other agricultural products.
- Softs include coffee, cocoa, sugar, oats, cotton and similar products. Frozen concentrated orange juice (FCOJ) has been actively traded since the creation and widespread use of inexpensive refrigeration (post World War II).
- Energies cover a range of products used to provide energy to heat and power homes and businesses. The most common are petroleum and its byproducts: crude oil, heating oil, natural gas and others.
- Meats like live cattle, pork bellies and feeder cattle are traded on various exchanges. Pork belly prices can be dependent on the price of grain, since the pigs are fed mostly corn.
- Each commodity has its own tick and standard contract size, which is the amount covered by a standard futures contract. Some prices, like soybean meal, are listed in dollars per ton, where the standard contract size is 100 tons. By contrast, the amount for wheat is 5,000 bushels. In the case of crude oil, the amount is 1,000 barrels.
Commodities trading has become an increasingly popular way for active investors to profit from global demand.
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