Your Questions About How To Invest In Commodities

Steven asks…

What is the best way to invest in commodities?

Thank you,
Jack Thompson

John answers:

There are various ways to invest in commodities: spot (or cash) commodities, commodities futures and commodities companies (via stock).

Commodities companies are those like oil companies, soybean companies, ethanol companies and the like. What’s important to understand is that when you invest in these companies, you don’t own the commodity itself, but rather a share in the company that utilizes that commodity. Turns in the commodities market may not have a predictible effect on the stock value of those companies, and requires an analysis of the business rather than the market. Even as the market booms, you may not see your stock rise in value.

Cash commodities trading allows you to become an outright owner of an instrument. By putting up an investment amount equal to the full value of the commodity, you may then sell or process it as you are able. This can be a dicey proposition due to the capital requirements demand an overwhelming allocation of your portfolio to an investment whose future value is not guaranteed.

Commodities futures allows you to become a leveraged trader of a commodity, where you put up margin to operate a standardized contract to buy or sell the particular instrument at a specified month for a negotiated price. This can be a more economical way of operating commodities since your capital outlay is much lower than that of the cash market. However, this leverage exposes you to a large amount of risk, since the future value of the instrument is again not guaranteed.

If you’re interested in trading commodities, I would recommend you trade the futures, so that you don’t have to risk taking delivery on what are sizeable amounts of an instrument (would you really be able to handle 1000 barrels of oil or 5000 bushels of corn?), can buy or sell the instrument as the market dictates, and are required to put up only a fraction of the value of the contract (a 10-year note contract requires $1000 to operate $100K worth of those notes, a corn contract requires $1350 to operate roughly $17000 worth of corn, a crude oil contract requires roughly $5K to operate $65K worth of light crude).

For free kits on trading commodities and a free book, email me at, or call Liverpool Trading Company at 1.800.580.8718.

Daniel asks…

how to invest in commodities?

How do you invest in specific commodity stocks? How do I find such stocks? For instance I am interested in corn/soybean/sugar etc. stocks. I am newbie in stock market.


John answers:

Your first question:
how to invest in commodities?
Requires a futures broker.

Your second question:
How do you invest in specific commodity stocks?
Requires a stock broker.

Your third question:
How do I find such stocks?
Have you tried Google? You’ll find hundreds.

Three questions is all they pay me to answer at once.
But just type “how to invest in stocks” and you’ll get lots of answers.
The best way to learn is from a book or three.

Use Investopedia or Wikipedia for definition of financial terms.

Investing Tutorials – Basics…

Helen asks…

Investing in commodities?

What is the best way to invest in commodities (such as gold, silver, and oil) on-line?

John answers:

Well, you could buy futures or ETFs or options on these ETFs. Each has its own advantages and disadvantages…

Here are some commodities ETFs:

COW – Livestock ETF
DBE- Energy fund
RYE– Rydex S&P Equal Weight Energy
DBB– Commodity Metals Fund
UGA- US Gasoline
UNG– United National Gas Fund
USO– U.S. Oil Price Tracker
OIL– U.S. Oil Price Tracker
JJC– Copper
GLD– Gold Bull
DGP- Gold Bull 2X
UGL- Gold Bull 3X
SLV– Silver Bull
AGQ- Silver Bull 2X
DBS- Silver fund
UBS- Bloomberg CMCI Silver tracker
ERX– Russel 1000 Energy Bull 3X
RTM– Rydex S&P Equal Weight Materials
XLB- Materials

DDP- Commodities Bear
DEE- Commodities Bear 2X
BOS- Base Metals Bear
BOM- Base Metals Bear 2X
DUG– Oil & Gas Index Bear 2X
DDG- Oil & Gas Bear
DTO– Crude Oil Bear 2X
SZO- Crude Oil Bear
DGZ– Gold Bear
DZZ– Gold Bear 2X
GLL– Gold Bear 2X (ProShares)
ZSL- Silver Bear 2X
ERY– Russel 1000 Energy Bear 3X
SMN- Basic Materials Bear 2X

Chris asks…

Is it good to invest in commodities?

John answers:

It’s generally never a good time to invest in commodities. With commodities, the commercials, that is the companies who produce and consume a commodity, have traditionally always done better than the non-commercials or speculators.

“The logic is simple: the commercials are the ones who actually deal in the commodity itself, and must have the inside edge as to the true supply and demand of any particular product.”

Commodity trading can be fun, but if you just want to have fun, watch the Trading Places and put your money in something you understand. If you neither raise cattle or sell beef, then cattle probably isn’t something you want to invest in. Same with most other commodities.

John asks…

investing in commodities?

hi, i want to invest in an index that includes at least some of the following agri. commod.:wheat, corn, coffee, sugar. is there an agricultural commodities index i can invest in?

John answers:

There appears to be an index that’s exactly what you’re looking for, symbol $GKX, known as the “Agricultural Commodities Index.” I found that searching with Google. I have no idea how liquid the index is or what its settlement is like. Before trading or investing in it, it would be a good idea to read up on the index and its properties to see if it’s a good buy.

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