The global nature of the commodity markets makes them extremely powerful as an investor’s tool. Commodity markets are international markets where a commodity is traded that is related to other commodities, making them very liquid. There is also an enormous inter-bank system that links all commodity markets, facilitating transactions that need to be executed within the markets. Because the commodity markets are so large, they act like a wave, moving money from one part of the world to another at rapid speeds. Because of this feature, they are useful for investors who want to quickly increase their portfolio liquid capital.
Description: A commodity exchange is a commercial marketplace where commodities, including foreign currencies, are traded. Many hard Commodities are traded, including oil and gold. Paper Commodities is not traded on the commodity exchanges, but is instead represented electronically on a stock exchange. Spot Commodities are traded in smaller more intense exchanges. In both cases, commodity exchanges allow traders to purchase commodities and then sell them for a profit. Online commodity exchanges are particularly popular as an investment vehicle because they are usually cheaper than other forms of trading.
Types of Commodity Futures are traded on futures exchanges. They include agricultural products like sugar, malt, wheat, pork bellies, milk and poultry; gold and silver; wheat, barley, oats and rice; pork and beef; copper, steel and gas; natural gas and electricity; and gas and coal. In addition, the aluminum market is also traded on a futures exchange. Commodity futures generally don’t represent physical commodities, but rather financial products. Gold, silver, oil, and gas are the most common physical commodity futures traded on commodity exchanges.
How are commodity markets used for investment? Since they are not traded on commodity exchanges, they are a very flexible way to trade. Traders and investors can speculate on which commodity will increase in value over time and purchase a position once it reaches a specific level. They do not have to wait to trade if they don’t want to; they can buy and sell their positions instantly. This ability to buy and sell quickly allows investors and traders to gain a lot of wealth quickly through the use of commodity trading.
What are some examples of common commodities included on commodity markets? Some of the most traded commodities include corn, wheat, cotton, orange juice, cocoa, fish, and soybeans. These products are typically traded on the New York Stock Exchange, the Chicago Board of Trade, the New York Mercantile Exchange, the London Metal Exchange, and the Tokyo Electric Power Exchange. Not all of these products are traded on exchanges, however. Some are excluded because their prices may not fluctuate as rapidly as those on exchanges.
Investors and traders can use commodities markets to realize any number of returns. Some of these include the following. If the price of oil increases, it is very easy for investors and traders to realize a profit by purchasing oil via a mutual fund and then selling it on an exchange-traded fund for a profit. In addition, if the price of gold increases, investors can benefit from selling gold on an exchange-traded fund and then buying it on a mutual fund. Because both transactions involve borrowing money, investors must be sure that they are prepared to absorb the loss of each investment. The best way to do this is to invest in commodity markets that are open to the public, allowing exchange-traded funds to provide investors with exposure to these commodities prices.