Commodity trading guide
Quite a few of the independent stations sell things like Personal Weapons. These items, while legal in one sector are illegal in other areas, as the right to bear arms is not recognized throughout all of the galaxy. Another example of a possible illegal commodity is alcohol. Make sure to check that Bulletin Board every time you empty your Cargo hold at a station. Just like real life, the economy in Elite Dangerous is all about watching your prices, buying low and then finding somewhere to find and sell it high.
Do NOT simply purchase something and run from station to station hoping to sell it. To figure out what to buy, look at the Commodities Market and check the included graphics. If anything ever says LOW beside the product, do not purchase it there. Then you can head to a station that needs that product and sell it for a profit. Be wary of selling your goods to stations that import the item. Always make sure the profit is worth it before letting go of your hard-earned cargo.
Otherwise you risk being fined, your cargo confiscated or even worse, destroyed. If you have a Heatsink onboard, now is a great time to send it flying into the stars. Decide who you want to be with this quick guide to the careers in Elite Dangerous. How to make more money in Elite Dangerous, from mining and bounty hunting to becoming a feared pirate.
Get to know the different internal components of your ship, and learn how to upgrade those systems. Make a living working for others, or take to the stars for long trade missions worth millions. In this case, the futures bid and offer must incorporate sell dates and the price at which the trade will be made in the future.
Certain commodities can only be exchanged in certain exchanges. The top two U. Most exchanges in the U. What are Futures and Options?
To use traditional terminology, futures options are essentially options, and futures contracts are essentially futures. Futures are slightly riskier than options, primarily because futures require an action, whereas options allow for more equivocation and adjustment to current market trends.
Naturally, the greater risk involved, the higher the potential return, or conversely, the greater the potential loss. It should be noted that buying options usually incurs a premium, which is the fee that the trader earns from the transaction. This premium is based on the relative riskiness of the transaction.
Those transactions that will almost certainly prove to be profitable carry a correspondingly high premium; those that are likely to fail will usually have a lower premium. A put option, on the other hand, indicates that the investor feels that the commodity will lower in value over a set period of time. The investor has the choice of closing or converting the option before the set expiration date. Many investors choose to allow their options to close, instead of converting them. They then collect the subsequent profit.
Futures, on the other hand, are less flexible. Both the buyer and the seller must provide the agreed commodity at the pre-agreed price, regardless of market changes or fluctuations.
The short position is held by the provider of the commodity; the long position is held by the receiver of the commodity. A futures contract is valued against the actual performance of the market, and settled in cash at the end of each trading day. At the end of each trading day, each party will either have their account debited or credited depending on the performance of the market until the futures contract expires.
However, the bulk of futures contracts do not involve the actual delivery of tangible items, but rather provide a means of taking a financial position on a potential transaction.
For many commodities, depending on the position that the investor adopts and the subsequent performance of the market, futures contracts are an excellent way of guaranteeing a source of income. Worldwide Energy Trends For several decades, oil and its associated petroleum products have been the dominant source of energy for the globe. However, increasing consumption combined with a finite supply of oil are working together to produce a future where new sources of energy are needed.
Several types of energy, including wind and solar power, have been advocated as being able to make up for the eventual short fall in oil production. Unfortunately, both of these methods of energy production still have a few kinks to work out before they will operate smoothly.
In the case of wind power, the turbines themselves are currently constructed in such a way that they must be placed in areas that have a high occurrence of natural wind. Additionally, wind turbines can be exceptionally noisy, making it difficult to install them near residential areas without bothering the people who live nearby. Solar power is currently in a very crude stage of development.
Unfortunately, solar panels currently are only able to produce a very low percentage of energy compared to their total surface area.
At least a dozen or more solar panels are needed in order to supply power to a single family home. However, photovoltaic technology is constantly evolving. There is no reason that with concerted effort, the photovoltaic conversion will continue to produce higher yields of usable energy.
Many countries, including both the U. By staking out land specifically for each of these energy developments, the countries are boldly stating their intent to refine and hopefully increase the yields of this technology. Meanwhile, nuclear energy has always been controversial. Although the majority of nuclear power plants function without any errors or malfunctions, whenever something does go wrong, it tends to do so on a major scale that ruins the surrounding community for years.
Northeast resulted not only in the loss of life, but also produced devastating political consequences for the technology. As an energy resource, the addition of new nuclear power plants will remain a hard sell for the next several decades at least.
In terms of automobiles, there are several companies including Tesla Motors which are manufacturing all electric vehicles. The idea of electric hybrid vehicles, which use part gas and part electricity to power themselves, has become popular with major automotive manufacturers including Toyota, Chevy, and Nissan. These hybrid vehicles have sold well, but they rely on lithium ion battery technology which has its own energy downsides.
The batteries themselves are energy intensive to manufacture, and currently require recharging on a very frequent basis. However, much in the way of photovoltaic panels, the batteries have shown significant improvement from generation to generation. If the batteries continue to develop, there is no reason to believe that eventually they will be able to replace the need for gasoline altogether. Overall, worldwide energy trends are in a state of flux, and can be a boon for investors who enjoy the uncertainty of trading in an environment with so much promise and so little certainty.
Trading Oil Because oil is now widely regarded as limited resource, there is very little doubt that the price will continue to rise. However, this does not mean that trading oil as a commodity is a foregone conclusion in terms of an individual being able to amass significant profits.
This is partially because no one is certain precisely when the oil will run out, and also because there are so many other energy resources currently competing with oil that it is possible that oil may, at some distant point in the future, begin to become a secondary source of energy. Those who trade in oil should familiarize themselves with the basics.
Oil is sold in 42 gallon barrels. The price of oil refers to the price of an individual barrel, even though oil is sold per gallon on the open market. The Chicago Mercantile exchange now allows individuals to trade in barrel installments, instead of the traditional 1, barrel contracts. Additionally, there are commodities funds and pools that allow fractional investment.
Both Oppenheimer and Pimco are commodities pools that offer this smaller type of investment. Increasing demand from India and China during the last decade has dramatically spiked prices. Both of these nations are currently in the throes of enormous economic growth, and will probably not slow down their consumption any time soon.
The oil supply itself is currently limited to known oil fields, which are tightly controlled by agencies such as OPEC. Undeveloped oil fields are currently not as viable for use as once thought.
Undersea drilling, for example, is exceptionally dangerous. These types of oil spills are harmful not only to the environment, but also do not produce a reliable source of energy, especially when compared to land-based oil drilling operations. The equipment frequently breaks or malfunctions in the deep sea, and repairing and replacing this equipment, as demonstrated by the BP oil spill, is a months-long process that is still poorly understood.
Additionally, the territory itself is not necessarily ideal for drilling, simply because the weather is extreme and the landscape so fragile that any accidents or equipment malfunctions have disastrous effects on their surroundings, much like the BP oil spill. Those who are interested in trading in oil should pay close attention to the behavior of the economies of the developing nations outlined above, in addition to the energy development policies of industrialized nations that are now seeking alternative sources of energy.
While the trend in oil prices appears to be headed upward, each of these factors will influence the percentage growth and rate of change of the price of oil. Additionally, conglomerates such as OPEC often artificially constrain the supply of oil in order to increase their profits. The complexity of these factors, in addition to the relatively recent ability of smaller investors to take part in oil trading, will keep the growth of this particular sector moving forward, but in uneven spurts.
Larger economic pressures from other countries may also force certain developing nations to slow their growth, which could prompt a sudden drop-off in oil consumption, leading to a surprise halt to rising prices. This scenario is highly unlikely, simply because it is very difficult to completely discourage growth, especially when several billion people are already in motion.
It is worth mentioning here primarily because the world is attempting to create a stable global economy. Intriguingly, China has green energy policies which may actually reduce its consumption on oil after it has finished experiencing the tremendous infrastructural growth that is currently fueling its need for so much oil.
Either way, oil will be a heavily desirable commodity for at least the next few decades. Eric Janszen's Peak Cheap Oil is a great read which highlights how oil demand may interlock with economic activity going forward. Trading Natural Gas Natural gas makes up a significant portion of global energy consumption. However, especially when compared to oil, natural gas is a far more volatile commodity. Unlike oil, natural gas has fewer storage facilities, meaning that when the major supplier experiences a short fall, there are far fewer reserves to help ride out the gap.
However, natural gas is generally not impacted by as many complex worldwide forces as oil, making the determination of the price a far simpler affair. Natural gas is produced from both oil fields and natural gas fields, which are located primarily in Western Asia and Eurasia.
Natural gas produced from oil fields is referred to as casing head gas. Natural gas is measured in cubic feet, and generally is referred to in billions of cubic feet. The price of natural gas tends to be determined by how much is in storage, measured against total demand. Generally, when the overall amount of natural gas dips, the price soars; correspondingly, when the overall amount of natural gas in storage rises, the price falls.
The United States releases a report every Thursday afternoon Friday afternoon if the previous Monday was a bank holiday put out by the Energy Information Administration listing the total amount of natural gas in storage. This figure will be in billions of cubic feet. In , two major hedge funds went out of business due to poor decisions on natural gas trades. Both MotherRock Energy Fund and Amaranth hedge funds were destroyed by poor choices in natural gas futures.
The lesson to be learned from these particular disasters is that investing in natural gas requires the formulation of a solid risk management strategy. A diverse portfolio is the best method of guaranteeing investment success. This volatility with trading in natural gas is partially due to the comparison between the total natural gas storage figure that market analysts estimate, and the actual figure released by the Energy Information Administration.
Prior to the release of the official figure, market prices trade based on what analysts say. When the actual figure is released, the difference between the two has a major impact on the actual price.
If, however, the increase is substantially more than traders expect, such as billion cubic feet, then the price will fall because there is far more than expected, making it a bad day for a natural gas trader. In the past, a barrel of oil tended to sell at roughly 8 to 12 times as much as the equivalent amount of natural gas. As of March , this ratio has increased to approximately 23 times as much. This is partially due to natural gas suffering a significant price drop in March due to problems with demand.
Currently, there is so much natural gas that U. However, natural gas is not completely immune to complex international relationships. India and China may begin to utilize more natural gas in the same way that they have already utilized more oil. Additionally, there has long been the potential for something called LNG, or liquefied natural gas, which would require building an entirely new infrastructure for storage, and would impact the supply and demand ratios of natural gas.
No one is entirely certain how this would impact the market, adding yet more volatility to an already highly unpredictable commodity. Trading on Alternative Energy Trends Trading on alternative energy trends is far more difficult than trading either oil or natural gas, simply because so little is known about them.
In fact, many experts are currently arguing whether some alternative energy trends can even qualify as commodities. Part of this difficultly lies in specifically classifying the alternative energy into familiar commodity language. As discussed previously in this guide, solar panels are currently in a growth period where each new generation of photovoltaic panels produces more electricity than its previous generation.
Trying to trade in solar panels as a commodity is therefore complicated by the fact that the technology is still not uniform, or even at its zenith in terms of production. However, because they are still developing, alternative energy trends are best traded in those areas where they already have a strong market presence.
In India, for example, large solar photovoltaic arrays, such as the proposed Jawaharlal Nehru National Solar Mission, make trading in solar panel futures a more realistic venture. Because solar panels can either be bought privately or installed by large governments, the market has yet to find a good stable center. With increased interest from large governments around the globe, solar panels show promise as a viable commodity, as soon as a uniform watt production standard is adopted.
A similar problem confronts wind energy. How does one effectively measure wind energy? The production of watts seems the easiest answer, but as discussed before wind energy has a somewhat scatter shot approach to production.
Certain areas can produce high amounts of wind energy, while other areas can produce very little. The turbine technology itself will undoubtedly undergo more refinement as problems with the technology, such as the amount of noise it produces, motivate the producers to streamline and redesign their equipment. Luckily, wind energy is getting increased attention from major players. This type of development is very promising for interested and adventuresome traders, although it holds virtually no certainty.
The GE center could either produce tremendous amounts of wind energy, or only manage the somewhat lackluster results seen in other countries. As commodities, both wind energy and solar power currently hold enormous potential but very little actual traction. For those investors with long term vision, this could be viewed as a wonderful opportunity to buy into a market which, in a few decades, will produce incredible returns. When viewed from a year to year futures perspective, however, both wind energy and solar power have fairly low returns, simply because they are both still developing their full roster of capabilities.
To make trading in these areas worthwhile, investors should be prepared to stay on top of all developing news stories, and be prepared to champion innovation at the cost of reliable profits or an impressively performing portfolio.
Researching Top Energy Companies Researching the top energy companies in the globe can be an exceptionally interesting affair. This is due to the constant developments in energy use and, in some cases, energy mis-use. In , for example, the top ten energy companies in the world included BP.
Very few investors would have predicted the enormous oil spill a year later which sunk the company into financial turmoil, due in part to the justified but heavy financial penalties placed upon it by the U. While BP is still a major player, it has many hurdles to overcome to realize its full profit potential. In essence, any investor who chooses to research energy companies should take into account how quickly the world situation can change, and how these changes can impact the standing or ranking of a particular energy company.
While oil spills can tarnish the public reputation of a company like BP, these events may or may not ultimately impact its long term performance among the financial community. An excellent example of this is the oil company Exxon Mobil, which despite receiving a deluge of bad press and public opinion after the Exxon Valdez oil spill in Alaska, has continued to prosper as one of the top energy companies in the world.
The emergence of new, powerful markets and nations, such as those of China and India, also has a tremendous impact on what companies qualify as top energy produces.
PetroChina, for example, was ranked as one of the top energy companies in The best way to begin the research is to first identify a specific sector of energy.
Fossil fuels, for example, comprise a slightly different market than alternative fuels, or electricity. Enormous companies that claim world dominance may not be the sort of energy companies that make the best investment or trade for an individual, depending on the expertise and experience of that particular individual. If an investor has an unusual amount of experience with electricity, for example, it will make very little sense for that investor to research BP, which is primarily an oil company.
Whatever direction the research eventually takes, all potential traders should be careful to factor in the issue of timeliness. Any lists compiled will only be as good as the time period in which they are assembled. As natural gas trades demonstrate, power multi-billion dollar companies and firms can be toppled overnight by poor business decisions. While many energy companies have a certain longevity due to years of experience in their fields, there is no such thing as a guarantee of stability in commercial and business affairs.
Any list will undoubtedly expire before long. Therefore, an investor or potential trader would be wise to restrict his research to no more than five energy companies. By delving deeply into the history of these individual companies, the trader will have a better idea of how that company is likely to fare in the future based on previous business decisions.
Naturally, the research should also take into account the current management team, their years of experience on the job, and their overall outlook and direction. In some cases, a long-term management team will be unable to adapt to a more competitive marketplace, while in other cases a company helmed by a relative newcomer will have very little traction in a market dominated by a much older mindset.
Additionally, seemingly small scale changes in trading policies, such as allowing smaller investors access to oil futures, gradually affect the decision making process of the upper tiers of energy companies.
Many corporations attempt to placate or reward their shareholders and stakeholders. When the makeup of this group gradually changes, the policies and decisions of the management team will invariably begin to adapt to the new demographic.
Frequently, the top companies that manage to survive for decades have a tight inner circle of shareholders and stakeholders who share the same mentality.
In times of transition, however, companies do well to incorporate newer modes of thinking and take in new partners. The 21st century has so far been categorized by extremes, and a reaction to constantly shifting trends in technology and energy use.
The top energy companies will likely be those that manage not only to respond to these constantly changing trends, but also provide some kind of guidance or direction for them. Resources for tracking the future of energy: Gold can be traded in futures contracts or as a futures option.
The gold that is traded is in bullion form; i. The history of gold trading is long and storied. It has never lost its intrinsic idea of value, which is to say that every culture that has ever encountered it has always placed some form of worth upon it.
However, in the commodities market, gold has experienced extensive peaks and valleys depending on the overall perceived bear or bull market of the commodities sector in general. Additionally, gold is a valued trading commodity because it is an excellent hedge against inflation. In many ways, gold is the essential commodity, remaining powerful and desirable despite the fluctuations of outside markets and governments.
The increased value of gold on the commodities market in recent years may be due to a feeling of increasing uncertainty among many people in regards to the choice of many governments to use purely paper currency in lieu of a solid standard for their currency.
While the gold standard was previously in place as a way for governments to guarantee the worth of their currency, this standard was abandoned after the amount of debt and corresponding currency actually outstripped the known supplies of gold in the world. Gold, therefore, occupies a unique position. In some ways, it is a kind of bullet-proof form of value should world currencies rapidly deflate. Simultaneously, it can never actually replace currency because it is too rare. Should world currency suddenly develop solidity and the ability to more effectively regulate its peaks and valleys in comparison to other world currencies, the value of gold as a hedge against inflation will not be as valuable as in a time of extreme fluctuation and uncertainty.
However, even in a scenario where paper currency manages to stabilize, gold will always possess a certain unquantifiable allure. Those who are interested in investing in gold futures should take care to monitor financial reports. Because futures contracts are limited, securing a price at which significant profit can be made will require understanding the miniscule fluctuations of the market, and the likelihood of gold managing to either retain its high value at a certain time.
As with all commodities investment, there is no one method of accurate prediction. It is as much an art form as an investment tool. Trading Silver Like gold, silver is traded in troy ounces, and generally has a standard contract size of 5, ounces for most trading exchanges. Unlike gold, silver has a far lower price per ounce, making it eminently more affordable for those metals traders who are new to the market. This is obviously quite substantial, and makes the need for smaller increments more understandable.
Trading silver, as with trading of virtually any commodity, requires opening an account with a broker that is registered with the Commodity Futures Trading Commission. Although it has a much lower value than gold, silver makes for a good, steady earner for those who are willing to invest for a long time. Options may be especially beneficial as opposed to futures contracts for those who are interested in learning how silver performs over time. Because it is not as highly valued as gold, silver tends to have a slightly more predictable trajectory, although, as has been stated numerous times in this guide, nothing is ever absolutely for certain.
It is safe to note that silver will also inevitably have an appeal for centuries to come, and therefore makes an excellent investment for those who are willing to track its progress carefully. Silver futures can also be traded on the Chicago Board of Trade.
These two exchanges are now owned by the Chicago Mercantile Exchange. Traders may be able to buy these e-mini futures on margin.
Again, buying on margin can pose its own difficulties, especially if an unpredictable turn suddenly plunges the trader into enormous, unexpected debt. All traders should be prepared to lose all of their initial investment. Generally, silver futures can be purchased for a maximum of almost 2 years, or 23 months, in advance of their required sell date. Trading Platinum Platinum, a highly refined but gorgeous metal, is one of the most expensive commodities on the market, trumping even gold.
South Africa is currently one of the single largest producers of platinum. Platinum has an exceptional durability. Egyptian funeral coffins have been discovered which bear platinum ornaments with perfect luster and finish after nearly years underground.
Platinum does not tarnish, and is one of the hardest yet aesthetically pleasing metals known to man. Additionally, platinum can be used in numerous industrial processes because it transmits energy exceptionally well. All of this is important to know when attempting to get involved in trading platinum. Each of these factors influences how valuable platinum will potentially become, especially as different sectors of the economy continue to grow at remarkable rates, requiring even more platinum for their various processes.
Where gold has already essentially proven its value, and is a known quantity in terms of both its beauty and industrial, aesthetic, and practical uses, platinum is still displaying incredible versatility and ability in a variety of unexpected applications. This potential for growth makes it an incredibly exciting metal in which to invest and trade, because the market for it is still being defined. In terms of price horizons, no one can honestly say how far platinum will go.
As has been discussed in this guide, shifting energy policies may require the design of entirely different automotive model, which could in turn either place a greater or lesser demand on platinum use in automotive applications. Platinum has also become increasingly popular for use with computers and other technological devices. This particular area is poised to continue to grow in the next few decades, especially as nations such as India and China develop a larger and more affluent consumer class who will be able to afford more personal computing devices.
Because technology has increasingly become more personalized, the demand for platinum could easily outstrip even the most wild and seemingly inflated estimates. However, a general worldwide economic retraction could just as easily cause platinum prices to drastically fall. As has been seen in the last decade alone, major industries, such as the U.
Trading Steel Although steel is a metal, it is not traded in the same way that precious metals are traded. Instead of troy ounces, steel is traded via metric tons. The size of the steel itself can vary from millimeters to millimeters when it is classified in bar form. Generally, steel must be refined from raw iron ore.
The specific recipe and refinement process varies depending on the type of steel: However, the refinement process is labor intensive and requires resources such as water and carbon. Steel futures are traded on six exchanges: India is ranked eighth.
Steel futures have become a reality since , although it was not without some degree of political difficulty. There were numerous objections from producers that increased future contracts would artificially inflate the market. Luckily, the types of price discrepancies and disruptions that can occur as a side effect of rampant speculative futures trading have not yet materialized in the steel futures market.
The London Metal Exchange has been vigilant in guiding steel futures. In , steel futures received additional volume, increasing to roughly 1,, metric tons. The price of steel has stabilized after two major trading contracts, the Mediterranean and the Far East, were merged into one comprehensive, global steel contract. There are also now three delivery points in the United States: Chicago, Detroit and New Orleans.
However, steel is extremely susceptible to swings in industry and construction. Because steel is primarily used in large buildings, when construction grinds to a halt, then the price of steel correspondingly drops.
While new building projects have suffered a downturn with the larger economy in , several countries are still experiencing unprecedented infrastructural growth, fueling their need for increased steel.
As a building material, steel has a long future, and in this way makes a reasonable commodity investment. However, because the steel futures market is still so relatively young and untested, there is no track record for how well it will perform over the next few decades.
While the exchanges have kept the price of steel futures at a steady and improving pace, small fluctuations and dips are beginning to appear which reflect an overall global slowdown. Traders who anticipate a large building surge would be wise to invest in steel futures, although once again the ideal strike price is always something of a mystery.
At this time, no one anticipates that steel would cease to be manufactured. Global warming and climate change issues play an important role in many countries, and can directly influence market behavior. Market behavior, of course, is based on the choice to consume a certain type of metal or resource. If steel is deemed too difficult or environmentally costly to produce, it may experience a drop in value as countries opt to find more ecologically friendly materials.
Trading Aluminum Aluminum is one of the most popular and lightweight industrial metals on earth. Luckily, it is also heavily prevalent; it is the third most abundant element found on the planet.
Aluminum futures contracts are awarded at the beginning of each month of the calendar year. Airplane manufacturer Boeing, for example, is drastically impacted by changes in aluminum prices.
Car manufacturers still tend to prefer steel over aluminum, but aluminum has been making inroads into automotive manufacturing for several years. As car makers attempt to streamline their vehicles and create lighter weight vehicles that use fewer resources, aluminum is poised to gain in popularity as a go-to material.
Aluminum also retains these qualities even at very low temperatures, making it ideal for extreme building conditions. It also conducts electricity and heat with about the same degree of success as copper. Many building projects are currently seeking ways to creatively incorporate materials that emphasize a different approach to shapes and curvature.
Although steel is an excellent structural material, aluminum can be both structural and sculptural, which is a major benefit to intriguing new architectural designs.
Many architects across the world utilize aluminum for this purpose. Aluminum is also used extensively in ordinary doors and roofs. Because of the price limitations on aluminum, it is a fairly steady commodity with low volatility. Generally, people in developed countries consume far more aluminum products than people in developing countries.
Because several large countries are currently experiencing development, the demand for aluminum should remain fairly high for the foreseeable future. Aluminum shares another characteristic with steel in that it takes significant resources to form its final product. Aluminum has to go through three major stages of production and utilize other oxides in order to attain its distinctive blend. In this way, it has many similarities to steel, which requires a relatively extensive refinement process.
This can raise warning flags in terms of a long-term future as a desirable commodity in a world where greener refinement techniques are not only desirable but required. Since there is no currently no global accord on what constitutes good industrial policy, aluminum will undoubtedly continue to prosper as a steady commodity investment for several years to come. Long thinking investors and traders would be wise to factor in the possibility that aluminum may, at some point, have to undergo a different and potentially more costly method of refinement.
Trading Copper Copper, like aluminum, is traded in pounds. The tick rate for copper is 0. Unlike aluminum, copper does not have a daily price limit. Future contracts are awarded at the beginning of each calendar month. Used primarily as electrical wiring, copper has made possible numerous infrastructural expansion projects, in addition to wiring power plants and other large energy producing institutions.
With the emergence of numerous large scale infrastructural projects in Asia, copper shows no signs of experiencing lesser demand any time soon. Its ubiquitous nature as a conductor practically guarantees that it will continue to experience robust growth for several years to come. However, copper is also used in several other industries, including construction and in jewelry making. Copper is also responsible for a great deal of nutrition in the world, as it is essential for plants such as rice and wheat to receive the energy they need to grow.
Humans need copper as part of their daily intake in order to remain healthy. In this sense, copper is one of the most valuable commodities on the market. However, copper is generally traded in the futures market for use in more industrial applications.
While its properties in electrical wiring have already been discussed, copper is also an excellent material for use in an increased telecommunications presence across the globe. Copper wiring in computers and other systems is vital. Copper is also used in applications for equipment that will be used in space and for highly technical medical equipment. As the medical industry becomes increasingly sophisticated and relies more on the internet to connect doctors with different specialties and equipment around the globe, the durability and reliability of copper becomes more important, too.
Old copper wiring can easily be remade and repurposed into new copper wiring. Copper is also a vital component of the newly emerging alternative car market. Depending on how successful the alternative car movement is, copper could become even more popular than it is now as it becomes increasingly integrated into automobile production.
Copper also forms an important component of numerous metal alloys, including the all purpose alloy of brass. In this sense, copper is a metal that is responsible for several other vital metals that help the modern world function.
Copper will always be useful in one form or another, regardless of what specific purpose is found for it. So far, the greatest threats to copper futures trading in terms of price fluctuations have been supply strikes by miners and natural disasters. The leading producers of copper are Australia, Chile, Canada, and Indonesia. Investors and traders should carefully monitor the working conditions in these countries to anticipate possible price fluctuations when making futures contracts.
Researching Top Mining Companies When researching the top mining companies in the world, investors and traders must take into account several factors. Because mines are highly regionally specific, the success and longevity of a mining company will largely be based on how well it is able to maintain its access to a particular site, and how well that particular mine is maintained. Mining accidents can frequently occur, causing delays in production or, in some rare cases, the closure of an entire mine.
Rio Tinto has been thriving due to its relatively expansive mining operations. Most successful mining companies generally do not focus on only one commodity, although it should be noted that a company such as Alcoa concentrates primarily on mining raw aluminum.
Rio Tinto is also a successful mining company because it understands how important the financial market and the corresponding performance of its commodities are to its longer term business strategy.
On its home page, Rio Tinto provides links to financial reports before it provides links to the actual materials it mines. Regularly updated tallies of the worth of the commodities it provides also adorn the front page. Essentially, the Rio Tinto model should be applied to any mining company: BHP Billiton has a similar approach to Rio Tinto, providing quotes and share holder services on its home page. Additionally, BHP Billiton pursues an aggressive strategy of expansion and addition.
Much as this guide advocated investigating the management strategies of top energy companies, the same principal holds true for mining companies. In a sense, the two types of companies have the same goal: Both industries face challenges in terms of environmental supply and consumer demand, although metals and minerals face different obstacles in their acquisition.
Alcoa is unique in being a top mining company without boasting significant product diversification. Alcoa has literally cornered the market on aluminum products, offering a suite of fabricated aluminum products at the ready, in addition to raw aluminum. It is equivalent to a single company controlling most of the fresh water on the earth. Obviously, this company would be enormous without having to offer variations on its product.
These major mining companies are currently trying to acquire each other, or at least broker some kind of agreement that allows them to share profits, as opposed to standing in direct opposition to one another. In the aluminum vein, Chinalco, which is a Chinese mining operation, is trying to work out deals with Rio Tinto.
Chinalco is also trying to expand its operations beyond aluminum into other minerals and metals. Trading Coffee Coffee is traditionally traded in contract sizes of 37, pounds. An individual coffee tree usually requires 3 to 5 years to begin producing coffee beans. Each tree can usually produce roughly enough beans to fill a traditional coffee can during one full growing season. Columbia, Vietnam, Indonesia and Brazil are the primary coffee producers, with an average worldwide production of roughly million kilo bags of coffee a year.
Trading Cocoa Cocoa is traditionally traded in contract sizes of 10 metric tons, which is equivalent to 22, pounds. No usable cocoa can be produced until at least five years after the coca tree has been planted, and then it takes roughly 10 years before the tree can produce at its highest possible level. They need the equivalent of a tropical rain forest either 20 degrees above or below the equator in order to flourish. Because of these environmental requirements, cocoa trees are restricted in their growth patterns.
Each of these countries is not renowned for its peaceable civic affairs. Currently, the best months for harvesting cocoa are between October and January. Trading Sugar Sugar is traditionally traded in contract sizes of 50 long tons, which is equivalent to , pounds. Futures contracts are awarded in March, May, July and October. Unlike cocoa and coffee, sugar itself is facing fairly intense competition from a variety of artificial or modified sweeteners, such as those made from corn syrup.
The artificial sweeteners market has luckily tapered off in terms of popularity due to medical concerns; however, corn products currently are wrecking havoc with sugar prices. The top sugar producing countries include Brazil, India, China and Thailand.
Again, potential investors should carefully watch the political developments of these countries to accurately predict when and how shortfalls in production may occur. Heavy rains can also destroy sugar cane crops. This is of special concern in Brazil, which experiences enormous precipitation each year. However, unlike cocoa, sugar cane can be grown in wider bands of the earth, resulting in higher yields, and an easier supply flow, even when one crop is destroyed by unavoidable weather fluctuations.
Trading Orange Juice Orange Juice is traditionally traded in contract sizes of 15, pounds, and is always classified as frozen concentrated orange juice in order to be deliverable. Brazil and the U. In the United States, Florida is a major producer of orange juice, while in Brazil, the Sao Paulo area is the primary producer. Potential investors and traders should always watch the weather report for the likelihood of freak weather patterns.
Luckily, these two major growing places are opposed geographically, meaning that there is rarely an interruption to the worldwide supply of orange juice. Trading Grains Trading Corn Corn is traditionally traded in contracts of 5, bushels. Corn is grown primarily in the United States, which produces 10 to 12 billion bushels a year during the harvest months of October and November.
These limitations make the futures market for potential investors and traders more predictable than other markets, although as with all organic crops, the incidence of weather, especially excessive heat or flooding, plays a heavy role in final production tallies and corresponding prices.
Corn is used in several different ways, both as a direct food product, as an indirect ingredient in other foodstuffs including corn syrup, and as fuel, in the case of ethanol. In this way, the demand for corn is high, since each sector is far enough apart to guarantee demand year round.
Corn, oddly enough, has become more popular as certain sectors of the economy seek alternative energy sources. The viability of ethanol as an alternative fuel is debatable, but this does not prevent the possibility from temporarily raising demand for corn.
Trading Wheat Wheat is traditionally traded in contracts of 5, bushels. The tick size is one quarter of a cent per bushel.
Wheat futures can occasionally get overheated, resulting in periodic volatility that frequently fools newcomers. Buying in January is advisable, as prices are usually lower than in August. Wheat is a huge contributor to brewing industries and livestock feed. Again, these two industries are far enough apart that demand should remain relatively constant, even if one industry experiences a shortfall.
Trading Soybeans Soybeans are traditionally traded in contracts of 5, bushels. Much like corn and wheat, the tick size is one quarter of a cent per bushel. Soybeans are produced primarily in the United States, and are the central ingredient to a plethora of foodstuffs after they have been crushed and rendered into oil. They are also a highly volatile commodity in terms of pricing, especially during the summer months. As with other foodstuffs, weather plays a huge role in how they are priced.
Certain unscrupulous individuals will attempt to take advantage of newcomers by offering ridiculously high soybean futures. Potential investors would be wise to monitor the market for several months before investing or actively trading. Trading Livestock Livestock is traded in contracts of 40, pounds. The tick size is equivalent to 0. The major cattle market is based in the United States. On the commodities market, cattle are divided into two different categories: Live cattle grow to an average size of to pounds, at which point they are transferred to a feed lot and encouraged to grow to their full slaughter weight, which is usually about pounds for a deceased carcass.
Livestock are one of the most complicated commodities because they are living beings which consume other foodstuffs in order to grow to full commercial weight. The price of soybeans, corns, and wheat can directly impact how many cattle are raised, depending on how extreme the shifts in prices are. Weather and food shortages can also have a direct impact on the growth and survival rate of cattle.
A drought, for example, will wreck havoc on an individual cattle lot, and can potentially affect the industry if it is widespread. Additionally, diseases such as mad cow can afflict significant damage on the overall stock. If the weather is too hot, the cattle will not feel like eating, which will correspondingly reduce their overall weight.
It should be noted that there are several large events that investors or traders should watch. The Top Ways to Invest in Commodities As this guide has rather exhaustively demonstrated, commodities are as complex as the people who trade in them.
Because of this, the top ways to invest in commodities are as follows: Pick a commodity or commodities that are interesting. No successful commodity trader gets there purely because of his understanding of abstract mathematical formulas. Commodities are impacted by real life events. Even the steadiest commodities will experience fluctuations. The only way to have some notion of what is around the bend is to be a full participant in the process.
By choosing a commodity that is interesting, a trader or investor will be able to stay motivated to keep track of developments that are affecting that particular commodity. Register with a licensed and affiliated broker. No matter how well informed any trader is, no one will be able to interact meaningfully unless that trader is registered with a licensed broker. Each exchange house requires that all traders are members, or are affiliated with members of the Commodity Futures Trading Commission.
Be prepared to lose initial investments. For those who are attempting to trade and invest in commodities for the first time, being prepared to lose money while learning how quickly the market can change and shift will save potential heartbreak and help individual investors avoid a personal financial crisis.
Using trailing stop losses can help lock in gains and protect investors from some of the downside risks. It is far more important to be profitable than it is to be right all the time. After experience has been gained, invest in indexes. After an individual investor or trader has learned the ropes of commodities trading, investing in larger financial institutions, such as indexes, can yield surprisingly profitable results. However, this should only be attempted after significant experience has been gained by the individual investor.
Important Market Indicators Commodity bull and bear cycles usually occur over long periods of time. However, some key commodities can frequently provide clues as to what may lie ahead in terms of the direction of the market.
The price of gold and silver is usually taken to be an indicator of the overall health of the commodities market. Additionally, oil prices have a heavy impact on how the commodities market is perceived. If any of these main commodities suddenly experiences a price hike or price drop, investors and traders should take note that the market is probably going to experience a fairly significant change.
Because these are tied into industry and general economic perceptions of fiscal reality, they are considered to be extremely important market indicators. Additional Recommended Resources Each year, innumerable books, blogs, and magazine articles are devoted to the intricacies of trading in the futures market. The internet has played a particularly vital role in the development of the commodities market, and continues to generate enormous amounts of constantly updated information on potential futures positions.
Individuals who wish to seek out additional information and resources about commodities trading are encouraged to explore the resources offered by the Commodity Futures Trading Commission, which regularly publishes texts detailing their studies of trends in energy stocks.
Websites such as Bloomberg. Several major exchanges maintain websites that provide up to the minute information on trades and other financial transactions, including the Chicago Mercantile Exchange at www. Keeping up on changing regulations in terms of how trades are managed is also vital to any investor or trader. These websites post their new rules as they change. The best resources are frequently the people who have experienced the market first hand. By contacting brokerage firms either through the phone or via an online software platform, an interested individual can schedule an interview with a learned broker to truly understand how this incredibly complex and versatile system works.
The key to any informational quest is to enjoy the experience of discovery and be unafraid to ask questions. Most people, when asked an intelligent and informed question, will be happy to give an interesting and fully rounded answer. Arbitrage When a price discrepancy arises in a single commodity in two different markets, arbitrage is a way of capitalizing on this discrepancy by purchasing a commodity in the lower market and selling it in the higher market.
Arbitration A process whereby two parties ask a neutral third party to resolve a dispute for them. In this way, the two parties will respect the decision of the third party as being unbiased and inherently fair. Generally, the NFA handles commodities disputes. At-the-Money Option The incidence of an option having an equal strike price to the current market value of the actual commodity.
B Basis This refers to the difference between the agreed to futures price of a particular commodity and the actual current cash price of the commodity. Frequently, a basis is used to settle cash payouts. Bear Market A market that displays an overall downward trend in pricing. A bear market is always occasion for glum news and lethargic trading action.