As this guide has rather exhaustively demonstrated, commodities are as complex as the people who trade in them. Because of this, the top ways to invest in commodities are as follows:
1. Pick a commodity or commodities that are interesting.
No successful commodity trader gets there purely because of his understanding of abstract mathematical formulas. Commodities are impacted by real life events. Even the steadiest commodities will experience fluctuations. The only way to have some notion of what is around the bend is to be a full participant in the process. By choosing a commodity that is interesting, a trader or investor will be able to stay motivated to keep track of developments that are affecting that particular commodity.
2. Register with a licensed and affiliated broker.
No matter how well informed any trader is, no one will be able to interact meaningfully unless that trader is registered with a licensed broker. Each exchange house requires that all traders are members, or are affiliated with members of the Commodity Futures Trading Commission.
3. Be prepared to lose initial investments.
For those who are attempting to trade and invest in commodities for the first time, being prepared to lose money while learning how quickly the market can change and shift will save potential heartbreak and help individual investors avoid a personal financial crisis. Using trailing stop losses can help lock in gains and protect investors from some of the downside risks. It is far more important to be profitable than it is to be right all the time.
4. After experience has been gained, invest in indexes.
After an individual investor or trader has learned the ropes of commodities trading, investing in larger financial institutions, such as indexes, can yield surprisingly profitable results. However, this should only be attempted after significant experience has been gained by the individual investor.
Important Market Indicators
Commodity bull and bear cycles usually occur over long periods of time. However, some key commodities can frequently provide clues as to what may lie ahead in terms of the direction of the market. The price of gold and silver is usually taken to be an indicator of the overall health of the commodities market. Additionally, oil prices have a heavy impact on how the commodities market is perceived.
If any of these main commodities suddenly experiences a price hike or price drop, investors and traders should take note that the market is probably going to experience a fairly significant change. Because these are tied into industry and general economic perceptions of fiscal reality, they are considered to be extremely important market indicators.
Additional Recommended Resources
Each year, innumerable books, blogs, and magazine articles are devoted to the intricacies of trading in the futures market. The internet has played a particularly vital role in the development of the commodities market, and continues to generate enormous amounts of constantly updated information on potential futures positions.
Individuals who wish to seek out additional information and resources about commodities trading are encouraged to explore the resources offered by the Commodity Futures Trading Commission, which regularly publishes texts detailing their studies of trends in energy stocks. Websites such as Bloomberg.com frequently have intelligent, highly informed web articles that can help investors seek out the information they need to make crucial decisions.
Several major exchanges maintain websites that provide up to the minute information on trades and other financial transactions. Keeping up on changing regulations in terms of how trades are managed is also vital to any investor or trader. These websites post their new rules as they change.
The best resources are frequently the people who have experienced the market first hand. By contacting brokerage firms either through the phone or via an online software platform, an interested individual can schedule an interview with a learned broker to truly understand how this incredibly complex and versatile system works. The key to any informational quest is to enjoy the experience of discovery and be unafraid to ask questions. Most people, when asked an intelligent and informed question, will be happy to give an interesting and fully rounded answer.
How do you trade the news in forex trading?
A lot of people have been asking on how to trade the news. Although i strongly do not recommend just trading based on news only, but here’s some pointer.
1. News are categorised into the level of impact. low, medium, high just like the word high, high impact news can change the trend of the market. Changing a downtrend into an uptrend and vice versa.some medium impact news do have such capability too.
2. Watch out for the upcoming important news weekly and daily. And note which pair will the news affect.
3. If you are in a position and there will be an upcoming high impact news in 2hrs time.
Take either half your profits first as the market will start going frenzy usually 2hrs before the news. Shift your stoploss to breakeven. This way, if you are going long and the news impact reversed the market, you still got half your profits and broke even on the other half.
4. if you are not already in position before the news. wait for 10 mins after the news is out before entering. as in the first 10 mins, you will see price go spiking around and it happens alot of time when once the news is out, price goes spiking up real fast. you will be there thinking if you don’t catch the boat now, you are going to miss a hell lots of pips. and when you got in at the high, price went spiking even faster downwards. what the..?!
Did this happen before to you? Don’t worry,it happens to every one.
This is how the market works.
One reason is that when the news is out, major players throw in a sum of money enough to move the market up. when people sees the market moving up, they jump in to push it even higher as they went in with the ‘fake’ movement. The major players then wait for price to go up high enough and then they step in to throw in large influx of money to short it. gaining great amount of pips in a short period of time. I know this happens, and it happens a lot of times.
The other reason is that, the market is based on sentiments. Even though the news is positive, and people start buying it long. making the market move up. But if the general market feel that the news is not as good as expected or for some other reason. The big players and professional traders will start shorting it. Leaving the losses to those who just traded on positive news.
Therefore, one way to go around it is to wait for 10 mins after the news is out to evaluate the REAL market movement before entering.but as always, i highly recommend adding price action confirmation to it. Then you have a high probability winner.
There are a number of ways that a company can be evaluated when an investor or trader is deciding whether to buy or sell its shares.
Much of the information needed to make such a judgement can be found in a company's financial statement, which contains a vast amount of information pertaining to its performance.
This blog will give you an introduction to what is contained within a financial statement. The subsequent lessons will show you how to use it to analyse a company and decide if its shares are worth buying or selling.
A financial statement contains performance indicators
A financial statement allows you to examine a company's financial health, revealing how able it is to cover its debts and other obligations.
You can also look at its financial performance, which shows how efficient management is at turning assets into profit.
And you can look at how high or low its current share price is compared to its historical average and the company's "real" or fundamental value.
What is a financial statement?
A financial statement is a bit like a company's report card. It shows investors how it has performed over the past year or financial quarter, what levels of debt or assets it has on its books and how much profit or loss it has generated.
The main components of a financial statement are the:
- Balance sheet
- Profit and loss statement
They are usually filed in January, April, July and October.
As well as giving a detailed breakdown of the company's profit, sales, debt and other important figures like its price to earnings ratio and any dividends it plans to pay, a financial statement will compare these with those of previous periods (usually a year earlier) and provide a prediction for the coming quarter and year.
Reports include comments from a company's management on why its results were as good or bad as they were and what the company plans to do to rectify or further improve its performance.
They also discuss market risks that the company is currently facing and any legal proceedings it may be involved in.
The balance sheet
A balance sheet provides a snapshot of a company at a specific point in time, detailing everything that it owns (its assets), everything that it owes (its liabilities) and how much shareholders have invested in it (its shareholder equity).
Company assets
Assets include physical property like equipment, inventory and production facilities. They also include intangible assets like trademarks and a company's brand. Also included as assets are any investments the company has made as well as any cash it is holding.
Assets are usually listed according to how quickly they could be converted into cash.
The term current assets is used to refer to assets that the company expects to sell and convert into cash within one year.
Non-current assets are those that would take longer than a year to convert to cash – these include fixed assets like office fittings that the company needs to run its business and does not intend to sell.
Company liabilities
Liabilities include any money that the company owes to banks, landlords, suppliers and employees. They also include tax owed to the government and future obligations to provide goods or services to customers.
Liabilities are usually listed according to their due dates. Current liabilities are those that a company expects to pay off within one year. Long-term liabilities are those that it expects to pay off more than one year later.
Shareholder equity is the money that could be returned to shareholders if the company sold all of its assets and paid off all its liabilities.
Profit and loss statement
The profit and loss statement (called the income statement in the US) details the revenues, costs and expenses that a company has generated.
Subtracting expenses from revenues shows how much profit or loss it has generated – the "bottom line".
Unlike the balance sheet, which zooms in on one point in time, the profit and loss statement provides figures for a period of time – usually a financial quarter or a year.
The statement includes any money that the company has received from selling its products or services to customers. Revenue is sometimes referred to as "net sales" or "operating revenue".
The statement includes within expenses its selling, general and administrative costs, any taxes it must pay and any depreciation of the value of its assets.
If the company's earnings exceed its expenses it has made a profit. If its expenses exceed its earnings it has made a loss.
The profit and loss statement also tells you how many of a company's shares are outstanding and presents useful measurements like the company's earnings per share and its diluted earnings per share.
The profit and loss statement gives shares investors useful information on how well the company is managing its costs and converting sales into income that it can invest in future growth.
Ratios
There are different ways of interpreting a company's health and performance but one common way is by calculating a variety of ratios.
Ratios show the relationship between two different pieces of information in a company's financial statement – for example what proportion of debt and equity the company relies on for funding – and give you a rule-of-thumb way of measuring everything from how efficiently it uses its assets to how well it can cope with its current debt load.
Ratios are particularly useful in that they give you a concrete figure that you can use to compare different companies when you are deciding which to invest in.
What is a Market Maker?
You probably take for granted that you can buy or sell a stock at a moment's notice. Place an order with your broker, and within seconds, it is executed. Have you ever stopped to wonder how this is possible? Whenever an investment is bought or sold, there must be someone on the other end of the transaction.
A market maker is a bank or brokerage company that stands ready every second of the trading day with a firm ask and bid price. This is good for you, because when you place an order to sell your thousand shares of Disney, the market maker will actually purchase the stock from you, even if he doesn't have a seller lined up. In doing so, they are literally "making a market" for the stock.If you wanted to buy 1,000 shares of Disney, you must find a willing seller, and visa versa. It's very unlikely you are always going to find someone who is interested in buying or selling the exact number of shares of the same company at the exact same time. This begs the question, how is it that you can buy or sell anytime? This is where a market maker comes in.
How do Market Makers make their Money?
Market Makers must be compensated for the risk they take; what if he buys your shares in IBM then IBM's stock price begins to fall before a willing buyer has purchased the shares? To prevent this, the market maker maintains a spread on each stock he covers. Using our previous example, the market maker may purchase your shares of IBM from you for $100 each (the ask price) and then offer to sell them to a buyer at $100.05 (bid). The difference between the ask and bid price is only $.05, but by trading millions of shares a day, he's managed to pocket a significant chunk of change to offset his risk.
