Quick Bucks

Many people become very rich in the commodity markets . It is one of a few investment areas where an individual with limited capital can make an extraordinary profits in a relatively short period of time .
Nevertheless because most people lose money , commodity trading has a bad reputation as being too risky for the average individual . The truth is that commodity trading is only as risky as u want to make it .
Those who treat trading as a get-rich-quick scheme are likely to lose because they have to take big risks . If you act prudently , treat your trading like your business instead of a giant casino gambling and are willing to settle for a reasonable return , the risks are acceptable . The probability of success is excellent . The process of trading commodities is also known as futures trading . Unlike other kinds of investments , such as stocks and bonds , when you trade futures , you do not actually buy anything or own anything . You are speculating on the future direction of the price in the commodity you are trading . This is like a bet on future price direction . The terms “ buy “ and “ sell “ merely indicate the direction you expect future prices will take .
If for instance , you were speculating in corn , you would buy futures contract if you thought the price would be going up in the future . You would sell a futures contract if you thought the price would go down . For every trade , there is always a buyer and a seller . Neither person has to own a corn to participate . He must only deposit sufficient capital with a brokerage firm to insure that he will be able to pay the losses if his trade lose money . In addition to speculators , both the commodity’s commercial producers and commercial consumers also participate . The principal economic purpose of the future markets is for these commercial participants to eliminate their risks from changing prices .
On one side of a transaction may be a producer like a farmer . He has a field full of corn growing on his farm . It won’t be ready for harvest for another three months . If he is worried about the price going down during that time , he can sell future contracts equivalent to the size of his crop and deliver his corn to fulfil his obligation under the contract . Regardless of how the price of the corn changes in the three months until his crop will be ready for delivery , he is guaranteed to be paid the current price . On the other side of the transaction might be a producer such as a cereal manufacturer who needs to buy lots of corn . The manufacturer such as Kellogg g, may be concerned that in the next three months the price of corn will go up , and it will have to pay more than the current price . To protect against this , Kellogg can buy future contracts at the current price . In three months Kellogg can fulfil its obligations under the contracts by taking delivery of the corn . This guarantees the regardless of how the price moves in the next three months , Kellogg will pay no more than the current price for its corn .
In addition to agricultural commodities , there are futures for financial instruments and intangibles such as currencies , bonds and stock market indexes . Each future market has producers and consumers who need to hedge their risk from the future price changes . The speculators , who did not actually deal in the physical commodities , are there to provide liquidity . This maintains an orderly market where price changes from one trade to the next are small . Rather than taking delivery or making delivery , the speculator merely offsets his position at some time before the date set for future delivery . If the price has moved in the right direction , he will profit . If not , he will lose .
In addition to reducing the costs of production , marketing and processing , future markets provide continuos , accurate , well-publicized price information and continuos liquid markets . Futures trading is beneficial to the public which ultimately consumes the goods traded in the future markets . Without the speculator futures markets could not function .Since the speculators perform the valuable functions of providing liquidity and assuming the risk of the price fluctuation , they can earn substantial returns . The potentially large profits are available precisely because there is also a risk of substantial loss .

As An Investment Vehicle :

There are many inherent advantages of commodity futures as an investment vehicle investment over other alternatives such as savings account , stocks , bonds , options , real estate and collectibles . The primary attraction , of course , is the potential for the large profits in a short period of time . The reason that future trading can be so profitable is leverage . While profits can be large in commodity trading , it is not easy to make consistently correct decisions about what and when to buy and sell .Commodity speculation offers an important advantage over such illiquid vehicles as real estate and collectibles . The balance in your account is always available If you maintain sufficient margin , you can even spend your current profit on a trade without closing out the position . With stocks , bonds and real estate , you can’t spend your gains until you actually sell the investment .
As you will see , commodity trading is not particularly complicated . Unlike the stock market where there are over ten thousand potential stocks and mutual funds , there are only about forty viable future markets to trade . Those markets cover the gamut of market sectors , however o you can diversify throughout important segments of the world economy . In futures trading , it is as easy to sell as it is to buy . By choosing correctly , you can make money whether prices go up or down . Therefore , trading a diversified portfolio of the futures markets offers the opportunity to profit from any potential economic scenario . Regardless of whether we have inflation or deflation , boom or depression , hurricanes droughts, famines or freezes, there is always the potential for profit trading commodities.
There are even tax advantages to making your money from futures trading. Regardless of the actual holding period , commodity profits are automatically taxed as sixty percent long-term capital gains and forty percent short-term capital gains . The current maximum capital gains rate is thirty-three percent , somewhat less than maximum rate of ordinary income . To extent that capital gains tax rates are reduced in the future , commodity traders will benefit . If the distinction is re-establishes so that the taxes on long-term gains are lower than on short-term gains , commodity traders will benefit .