Your Questions About How To Invest In Commodities

Linda asks…

How can I invest in commodities directly?

How can I invest in commodities beside buying stocks of say Exxon or Shell. Say I believe bushel of corn or barrel of oil are going to rise? How do I invest? I do not want to buy the commodities per se, but just invest and sell it on paper. NOT INVESTING IN STOCKS, MUTUAL FUNDS etc, ideas? Where can I go thanks.

John answers:

“Investing in commodities” is not easy and requires a good amount of capital and research/knowledge. You are investing in futures or options. There are a lot of resources available to someone who wants to “invest” in futures or options. But it is not something you want to jump into without some knowledge and money.

Linn Waldock and Alaron are decent futures/options brokers. Chicago Board of Trade and Chicago Merchantile Exchange and New York Board of Trade have a lot of information.

Good luck and be patient.

Richard asks…

How to invest in commodities in the UK?

How does the average man in the street invest in commodities in the UK? I mean if I wanted to invest in gold or oil or exchange how do i go about it? do i have to go to a financial advisor? if so what fees do they charge and at what point? are there any other ways especially no fee options?

John answers:

Firstly, I would recommend reading a good introduction to investment to see what type of investment ‘vehicle’ you think best – whether in shares, funds, investment trusts etc. E.g. The FT Guide to Investment.

Shares in specific companies are an option, but you’d have to do quite a bit of background research. Unit Trusts & Investment Trusts are an option. Exchange Traded Funds (ETFs) have lower charges than trusts/funds, and give more transparency. Take a look at www.trustnet.com for the commodities investment options. IShares (www.ishares.co.uk) are a popular supplier of ETFs in UK. Also, get a copy of the FT and look for the listing of ETFs.

Buying these is relatively easy – shares/trusts/ETFs can be bought directly from an online broker, funds directly from the company, or through a financial advisor. You pay fees and management costs for the funds, brokers fees and possibly tax on the ‘share-like’ investment. Tax is payable on the winnings, though they can all usually be put in an Individual Savings Account (ISA). See a financial advisor for more advice.

Paul asks…

Would it be possible for me to invest in commodities contracts?

I have a little extra money (Like $2000-1000 or so). Would it be possible for me to invest in commodities contracts or futures? Or do I need more money?

If I can, how do I go about doing it?

PS: Don’t talk to me about the risk. I fully aware of them. I want high returns for my money.

John answers:

NinjaTrader is perfect for the underfunded futures trader. The platform is free and the data feeds for futures and forex are free also. You’ll not find lower margin rates at $500/contract for index futures like the emini, and $500/contract for forex. Oil is about $4,000.

The minimum amount to open an account is $500. Anything below that in the account and they turn it off.

Download the program and give it a try using their built-in simulator. All the features and most indicators are all there. I don’t know how they do it for free, except through the brokerage. Brokerage fees are also competitive at $6 per round-trip trade.

Http://www.ampfutures.com/index.php

George asks…

If I want to invest in commodities, for example, Gold, where do I go? Is there any website for that?

I know that If you want to buy stocks, you can go to Scottrade or some websites like that, but, websites like Scottrade, they don’t offer commodities products.
How does the whole commodities investments work?

John answers:

Actually, they do after a fashion. In recent years there has been a deluge of index funds based on commodities that you buy like stocks. GLD for gold, SLV for silver. Buying those two is the equivalent of buying the commodities themselves. There are also some like OIL that is similar to buying futures. IPath offers several different ones based on various commodity sectors such as JJG a grain index fund.

There are on line brokers that will also let you trade commodities furture. Doing so is a great deal more risky than buying stocks because you do it on 10% margin.

Here is a link to a broker that allows you to do so.
Http://www.interactivebrokers.com/ibg/main.php

Carol asks…

What do you have to do and how do you invest in commodities?

Is there a place on line or any good books or publications that explain the in‘s and out’s of commodity trading?

John answers:

One does not invest in commodities. One speculates in commodities. The margin requirements are considerably less than in stocks so you have a lot of leverage. That of course and work two ways. Amatures like you and I do not do too well in general because we are betting against the professionals such as ADM for example. They know a whole lot more about commodities than you and I do. Sometimes if you are lucking or smart you can make a bet on the right side of the trade and make a lot of money. I had a friend once who make over $25,000 on soy beans back in the 70s. He had a farmer friend who told him that soybeans were going to take off because of the deal Nixon made with the Russians. I managed to drop $4000 later on a supposedly safe soybean spread. Ha ha. I learned my lesson. Kind of an expensive lesson but well learned.

There is a trick that you do need to know if you think you might want to speculate thussly. Your margin requirement can be t-bills. That way you earn 5% while you are loosing your shirt.

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