Free Tips on Investing in a Commodity Bull Market
Learn how to buy in on the inevitable price declines in the long term commodity bull market.
Port St. Lucie, FL (PRWEB) January 8, 2007
Anyone that has invested in a stock bull market or a real estate bull market knows that during the four or five year duration of a typical bull market there are many inevitable price corrections along the way. Commodity trading is no different yet commodity bull markets can last for 10 or even 15 years. Many experts agree that the current commodity bull market began in 2001 and its most recent price high was in April of 2006.
The best way to track the commodity markets is by tracking the Reuters/Jeffries Commodity Research Bureau Index (CRB) which consists of 19 different futures contracts in various sectors of commodities. Metals, energies, grains, meats and softs are all weighted and used to find an average. The CRB is to commodities what the Dow Jones Industrial Average is to stocks. The symbol for the CRB is CR and it trades on the New York Board of Trade (NYBOT).
How should one invest in the exchange traded commodity markets? There are two methods to buy and sell the commodity markets. There are the futures market and the options on the futures market. There are pros and cons to each which should be considered before investing in either. The advantages of futures trading are increased liquidity and tick for tick movement in the futures contract. The main disadvantage is the increased risk of capital loss. If a futures contract moves against the investor there is the possibility of a margin call. A margin call means the commodity trader must send in more capital to hold the position. In other words, the theoretical loss on a short futures contract can be unlimited.
Visit www. tkfutures. com/risk_disclosure. htm (http://www. tkfutures. com/risk_disclosure. htm) to learn more. The advantages of buying commodity options are capital risks are limited to the total purchase price of the option and there is still the theoretical potential for unlimited profit position of a call option. The disadvantages are the option only receives a percentage of the futures move and options are a wasting asset. Visit www. tkfutures. com/basics. htm (http://www. tkfutures. com/basics. htm) to learn more.
Whether the decision is future trading or future option trading an investor must also have a trading strategy in order to succeed. The author's suggestions are: Never go against the trend. Do not buy puts or short futures in a bull market. Always use stop orders to limit capital loss. Diversify in different sectors of the commodity market. At any given time one sector should be outperforming the others therefore it is prudent not to have all of your eggs in one basket. Visit www. tkfutures. com/education. htm (http://www. tkfutures. com/education. htm) to learn about the various commodity sectors and the futures contracts within each sector.
Commodity traders who choose future options as their investment vehicle may enjoy the free eBook about commodity option trading by visiting www. tkfutures. com and downloading this informative investment resource. The author of the commodity trading eBook and this article is a 13 year veteran of commodity trading and is the owner and CEO of T & K Futures and Options Inc. Passing on the knowledge gleaned from making commodity trading mistakes in both commodity bull and bear markets is the motivation behind writing the eBook and this article. Educated investors make the relationship with a commodity broker much better for both parties.
Futures and options trading are risky and only risk capital should be used. There is substantial risk of loss in commodity trading.
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