The whole population is a consumer public. You buy almost everything and anything that you need and want especially commodities. Commodities are raw materials that are essential in creating products that people need in their daily lives. These include food, agricultural products, gas and oil and even gold and silver.
Since not all people are capable of storing and processing these products themselves, investors found a great opportunity to make money out of the trade and commerce of these goods. By having contracts of ownership which can be sold in the future, it paved ways on reasons why to invest in commodities.
If you have a lump sum of cash and don’t intend to use it immediately or you have a target date in the future that you intend using it or better yet, if you are into commerce and you want to ensure that you get a certain product in a fixed price sometime in the future; then one of the best way to prevent depreciation of your money and to a larger extent increase the value is to invest in the Commodity Futures Market.
Although the commodity futures market is considered to be a complex, unstable and highly volatile market, because of uncertainties and the risk involved, its profit potential is unparalleled when you conduct your research and invest rightly. You may want to ask, what ‘is Commodity Futures’?
In simple terms, the Commodity Futures is a contract agreement to buy a certain commodity at a certain price, and then sell the commodity at an agreed price within an agreed date in the future. In some cases, the commodity you purchase can be delivered to you on the agreed date or you will be paid the agreed cash value of the commodity your purchased at an agreed date. Whichever contract you choose will determine the mode of settlement you will get.
You can become a player in the commodity future market either as a consumer or a commercial or institutional commodities producer. And you can do this by participating as a speculator or a hedger. Just make sure you know what will pay-off for you. If you are game and truly prepared to invest in the commodity futures market, the following pointer should guide you to invest right:
Why invest in commodities?
You see, commodities continue to surpass the value of stocks and even bonds. This is because of the growing demand in different countries especially those that are still developing. Developing countries demand more food than ever because of the continuous growth in population. Because of this, there is also a growing demand in steel to be used in building infrastructures and highways to meet the needs for shelter and transportation. Due to the increasing transportation and automobile use, there is also a growing demand for gas and oil. Likewise, they are also used in factories and other sources of living that makes them more essential.
- Ever growing needs, which lead to scarcity
It is wise to invest in commodities because when there is a shortage in stock, you can make sure that the prices go up. Food is also a very good example. Since food is a need, no matter how high the prices go, people need to purchase food in order to survive. Same is true with the agricultural products that are processed for food and various basic needs like clothing. Shortage in gas makes the price of gas soar high. Since it is a commodity, people who are used to using their vehicles and companies who uses machines need to purchase it despite of the hike in price.
- Most commodities are resistant to economic changes
Unlike stocks and bonds, commodities do not react to the changing economic conditions. Prices increase alongside inflation. They also gain value in times of catastrophes and wars. Since a shortage in stocks is often a result of these unwanted events, the price of the products will definitely go up which means higher income. Other people intend to invest in gold rather than buy stocks. This is because of the fact that gold can never be devalued. And since you are investing in commodities, you are assured that you do not have to spend extra amount to preserve the volatility of the products.
So whether you are planning to export your products or you are safeguarding it for your own country, demand continues to grow. It even grows rapidly to the point that demand grows faster than the raw materials own growth. That is why to invest in commodities is really a great idea if you want a positive return of investment.
How to Invest In the Commodity Futures Market Online
1. Build Your Cash base and Set Your Goal
No doubt, capital is the oil that greases the engine that runs businesses or investments. Before attempting to invest in the commodity future market, you are expected to have built your cash to a required level, and then set your goal on how far you can invest and at what duration you intend investing the cash before getting your returns.
2. Register with a Commodity Futures Trading Body
In the of America, the CFTC is an independent agency set up by the United States government that helps regulates the activities in futures and option markets. In the same vein, you would need to register with a similar body in your country. Before you trade in the commodity futures market, you will be required to register and get the necessary certification. So go all the way to contact the authorities involved and get the requirements before approaching them for registration.
3. Study the Market
As a matter of emphasis, the commodity futures market is a complex, highly volatile and a risky market to invest in as pointed out earlier, but the consolation is that if you get it right, you would have huge returns on your investment and avoid depreciation of the worth of your money. To invest right in the commodity futures market, it is advisable to stay on the sideline and watch the trends and how the market runs. If you do this, you will be well informed and you will be able to make the right decision on the choice of commodity to buy if you are a buyer or consumer and the right commodity to sell if you are a producer.
4. Choose a Broker
Because of the complex nature of the commodity futures market, you are expected to choose an experienced broker that can aid you to invest wisely. There are loads of options, but no matter how tempting the service charge you might get from a broker, never deal with a broker that is not experienced in the commodity futures market. Much more than choosing an experienced broker make sure you check their past records and make sure they are registered with the National Futures Association (NFA).
5. Review the Risk Involved
Let us get it straight here, the volatile nature of the commodity futures market means that you can lose the whole of your investment to the last cent if things go wrong. It is always advisable that investor start with investing only the kind of money that if they lose, their life could still go on. That is the reason why you must set a goal to the limit of cash you can commit in the commodity future market. In most cases, people would rather choose to go into the commodity futures market as a group of investors rather than go in as an individual so as to spread the risk.
6. Review Your Options
Becoming successful as an investor in the commodity futures market to a large extent depends on the choices you make with the options available to you. You could choose to buy a commodity that can be delivered to you at an agreed date in the future, or choose to get the agreed money value of the commodity paid into your account. You could choose to go in as an individual accredited investor or through your hedge funds manager. You could also choose to go in as a consumer investor or as a commercial commodities producer. The bottom line is that you should make it a point of duty to review your options and make the right choice that is convenient for you.
7. Make Your Investment
If you have taken your time to build your cash, review the risks and the options before you and are well informed, the next step would be to choose the commodity that you want to buy or the commodity you want to sell in case you are a commercial producer. When you make your purchase as a consumer, the amount of purchase you made will be deducted from your account before your certificate of purchase will be mailed to you.
The commodity futures market would keep evolving and as such you must keep updating yourself with the happenings there. And the best way to keep your investment safe is to constantly review the risk in the market and the performances of the commodities up for sale.
There you have it! The 7 quick guides that should help you invest wisely and become a player in the commodity futures market.