Mark Mobius Likes Commodities
While most of us that know Mark Mobius understand his focus and investment strategy concerning emerging markets, we also need to include his take on the commodity market as well.
For emerging markets, what all of us need to understand is commodities will continue to play a big part in their growth, whether its a large country or not, as for the most part it'll be stuff that generates growth for them majority of them, not high-tech products and services to start off with.
With that as a background, Mobius recently said that "Commodity stocks look good because we expect the global demand for commodities to continue its long-term growth. Consumer stocks are also favoured. With rising per capita income and strong demand for consumer goods, the earnings growth outlook for these stocks is positive."
Mobius added we must be good risk managers during this period of time, as there will continue to be huge fluctuations in all markets, of which commodities are usually always like, even in the best of times.
Some of the things Mobius advises to look out for and the risks he's talking about are:
"Risks such as the inability of governments to control the derivatives markets, loss of confidence, over or poor regulation and abandonment of the market economy philosophy do also exist. Therefore, we must pay attention to valuations and long-term earnings growth prospects in order to avoid buying or holding expensive stocks as a result of dramatic price rises that we have seen."
Mark Mobius Likes Commodities
Showing posts with label Commodties Strategy. Show all posts
Showing posts with label Commodties Strategy. Show all posts
Wednesday, February 10, 2010
Thursday, December 10, 2009
Commodities More Than For Diversification
In the past, commodities as an investment were considered a good way to diversify your portfolio. Those days are quickly leaving us as commodities are now considered a great way to generate real returns, and not just a hedge against losses or way to add balance to an investment portfolio.
One of the ways institutional investors are going about doing that is simply in trading commodities more actively. With the commodity bull market poised to resume, a large number of institutional investors say they're going to increase their commodity holdings over the next year.
A recent survey discovered that investors, like mentioned, aren't looking simply for diversification of portfolios at this time, but are looking for absolute returns. That's a lot different than what they were seeking last year with their commodity investments, which also included commodities investment as a hedge against inflation, which is still true, but no longer the key element in commodity investment decisions.
Another trend seems to be away from commodity index funds into direct investment in commodities, as well as investment in a variety of commodity exchange-traded funds. Many commodity investors are looking for more active positions rather than holding positions going forward.
The potential fallout for commodity prices is there could be a lot more volatility in the commodities market from managed commodity positions than from holding patterns associated with commodity index funds. That may also result in commodity prices having more downward pressure as well.
Estimates are that commodity assets under management at the end of 2009 could be as high as $240 billion.
Most of those that invest and follow commodities continue to believe that we're still in the midst of a commodity bull market and commodity prices overall will continue to rise.
One of the ways institutional investors are going about doing that is simply in trading commodities more actively. With the commodity bull market poised to resume, a large number of institutional investors say they're going to increase their commodity holdings over the next year.
A recent survey discovered that investors, like mentioned, aren't looking simply for diversification of portfolios at this time, but are looking for absolute returns. That's a lot different than what they were seeking last year with their commodity investments, which also included commodities investment as a hedge against inflation, which is still true, but no longer the key element in commodity investment decisions.
Another trend seems to be away from commodity index funds into direct investment in commodities, as well as investment in a variety of commodity exchange-traded funds. Many commodity investors are looking for more active positions rather than holding positions going forward.
The potential fallout for commodity prices is there could be a lot more volatility in the commodities market from managed commodity positions than from holding patterns associated with commodity index funds. That may also result in commodity prices having more downward pressure as well.
Estimates are that commodity assets under management at the end of 2009 could be as high as $240 billion.
Most of those that invest and follow commodities continue to believe that we're still in the midst of a commodity bull market and commodity prices overall will continue to rise.
Wednesday, June 24, 2009
Secrets to Successful Commodity Investing
Commodity Investing
Commodities are sometimes made to look far too complicated for the average investor, and so many stay away from what is one of the most exciting and potentially profitable wealth builders for the next couple decades.
I'm going to simplify it for you, and in reality, there is nothing more to it than what I'm about to explain.
The simplicity of commodity investing? It's completely related to supply and demand. Isn't that simple? It's nothing more than that.
Having said that, I'm talking about investing in raw commodities here, not businesses or mining companies that are dependent on the quality of management, labor issues, and a plethora of other issues.
If it's that simple, than why does it seem so complicated? Most of the complications, or perceived complications are in connection to market timers or day traders, who are attempting to make a quick killing and move out of the market.
A lot of media coverage of commodities is connected to this because if offers up drama that interests viewers, and gives something for the talking heads to communicate.
In reality, market timers don't make much money, and those investing for the short term never make the amount of money those with knowledge and in it for the long term do.
So the illusion is created that commodities are completely unpredictable, and investing in them is like gambling. Now if you're trying to time the market, that's not only true of commodities, but it's true of any investment vehicle. Short term investing is gambling, and those entering into may get a high and rush from it, but they're always scrambling to make their next buck, and waiting to hit the big one.
A long term outlook and investing in a commodity itself is the foundation to success in commodity investing.
The next step is the research you do. It must be done on a continuous basis and the macro picture is the thing to be looked at.
By macro picture I mean the overall existing conditions that will determine whether prices of commodities will go up or down. Remember, you can make money in commodities whether the prices are going up or down. The secret is to look for movement, not what the direction of that movement is.
For example, if you're looking at investing in wheat, there could be drought in some regions of the world but a lot of rain in others. Either one could significantly impact the wheat harvest for any given time.
So in the short term, depending on which direction the weather is going, you could have some significant swing in wheat prices because of that.
But if you're looking at the long term, this won't be that big of a deal, as you're in it because of the demand and the ability to supply that demand.
If the demand is there, someone, somewhere, will find a way to meet that demand. It's as simple as that. You can have shortages because of a peculiar set of circumstances where the weather may disrupte wheat production in more than one important place. If that's the case, demand hasn't changed, but the supply could have. That will affect prices in the short term.
But again, it's the long term we're looking at for investing in commodities, and while those fluctuations will happen all the time, we must stay focused on demand and whether that is changing. If demand isn't changing, we can have a very accurate idea of the direction wheat prices will go in the long term future.
Just take whatever commodity you're thinking of investing in and apply these parameters to them. It takes more work with some commodities to research over others, because of the number of industrial uses they may have: for example silver, which is used in an increasing number of products, and so research must take into account demand across a number of product categories to get accurate information that action can be taken on.
Commodity Investing
Commodities are sometimes made to look far too complicated for the average investor, and so many stay away from what is one of the most exciting and potentially profitable wealth builders for the next couple decades.
I'm going to simplify it for you, and in reality, there is nothing more to it than what I'm about to explain.
The simplicity of commodity investing? It's completely related to supply and demand. Isn't that simple? It's nothing more than that.
Having said that, I'm talking about investing in raw commodities here, not businesses or mining companies that are dependent on the quality of management, labor issues, and a plethora of other issues.
If it's that simple, than why does it seem so complicated? Most of the complications, or perceived complications are in connection to market timers or day traders, who are attempting to make a quick killing and move out of the market.
A lot of media coverage of commodities is connected to this because if offers up drama that interests viewers, and gives something for the talking heads to communicate.
In reality, market timers don't make much money, and those investing for the short term never make the amount of money those with knowledge and in it for the long term do.
So the illusion is created that commodities are completely unpredictable, and investing in them is like gambling. Now if you're trying to time the market, that's not only true of commodities, but it's true of any investment vehicle. Short term investing is gambling, and those entering into may get a high and rush from it, but they're always scrambling to make their next buck, and waiting to hit the big one.
A long term outlook and investing in a commodity itself is the foundation to success in commodity investing.
The next step is the research you do. It must be done on a continuous basis and the macro picture is the thing to be looked at.
By macro picture I mean the overall existing conditions that will determine whether prices of commodities will go up or down. Remember, you can make money in commodities whether the prices are going up or down. The secret is to look for movement, not what the direction of that movement is.
For example, if you're looking at investing in wheat, there could be drought in some regions of the world but a lot of rain in others. Either one could significantly impact the wheat harvest for any given time.
So in the short term, depending on which direction the weather is going, you could have some significant swing in wheat prices because of that.
But if you're looking at the long term, this won't be that big of a deal, as you're in it because of the demand and the ability to supply that demand.
If the demand is there, someone, somewhere, will find a way to meet that demand. It's as simple as that. You can have shortages because of a peculiar set of circumstances where the weather may disrupte wheat production in more than one important place. If that's the case, demand hasn't changed, but the supply could have. That will affect prices in the short term.
But again, it's the long term we're looking at for investing in commodities, and while those fluctuations will happen all the time, we must stay focused on demand and whether that is changing. If demand isn't changing, we can have a very accurate idea of the direction wheat prices will go in the long term future.
Just take whatever commodity you're thinking of investing in and apply these parameters to them. It takes more work with some commodities to research over others, because of the number of industrial uses they may have: for example silver, which is used in an increasing number of products, and so research must take into account demand across a number of product categories to get accurate information that action can be taken on.
Commodity Investing
Saturday, February 7, 2009
Commodities: Peter Schiff on 2009
Peter Schiff has come under fire for exposing the macro-economic weaknesses in the United States, especially the horrid policies of the Federal Reserve and the government bailouts.
Schiff has gained notoriety and confidence from people because he accurately predicted the collaspe of the housing market and credit crunch well before they happened, and is now projecting the collaspe of the U.S. dollar and the collapse of the bond market, which he thinks is already in a bubble that is ready to burst.
Some of criticized Peter Schiff for some of those investing with him losing money because the exact timing of things hasn't come about yet. But that's ridiculous when you really think of it, as there is no investor or financial advisor in the world that hasn't been wacked by the timing of the market, which those like Warren Buffet, Peter Schiff and Jim Rogers all recognize is impossible to do.
So when taking into account the insights of Peter Schiff and also Jim Rogers, we have to realize that the U.S. dollar will collapse. It's impossible for the government to keep the fiat money presses running and offer up trillions in bailouts without having to pay for that money. The only way they can do that is by printing it out, as other countries like China can no longer take on dubious U.S. debt, as they'll lose big time as the dollar falls in value.
What we need to do is plan in a way that takes the reality that the U.S. dollar will plunge in value. It's no longer a matter of if, only a matter of when. Whether it's in 2009 or not doesn't matter, we need to put our money in things that will not be tied to the dollar in any way, as it will be highly diluted.
A few things to keep in mind for 2009 are the surety that gold and silver will perform strongly, as there's very little else that could be considered a haven of safety for people's money. Also the oil contango or super contango provides an excellent opportunity for safe investment, and should be considered going forward, as the predictable oil futures market is extended beyond what it usually is, the reason it's now being called a super contango rather than just a contango.
Silver prices will probably outperform gold in 2009, when you take into account percentages, although gold is more the haven than silver will be, and probably safer.
Platinum prices in 2009 are a toss up to me, as there are market factors that could drive platinum futures up even though its use in the auto industry will decline. Gold prices have caused Indians who usually buy it in large amounts to start looking to platinum as an alternative as gold prices and futures continue to soar. So platinum prices could receive some support depending on how much demand comes from India, and how much platinum they buy in 2009.
Peter Schiff has the overall economic picture accurate, and so investing in the right commodities will be the most profitable over the next five to ten years. Even after the global economy starts to recover, and gold isn't looked to as a place of safety, then the growing middle classed in China and India will resume their buying again, and raw materials demand will soar, and the commodity bull market continue.
How will grains do in 2009? That is also a toss up in my book. The usual factors will have to be watched, as the recent drought in Argentina and also China has people concerned over the near future of wheat, corn and soybeans. The only problem this year is the harvest has been so successful and food so plentiful, that even with the weather challenges there's so much on the market that it's not offering fundamental support to increased prices.
You also have the economic factor to consider, as people continue to cut back on all spending, and are only buying the bare necessities in order to survive. That will change in the long term, but short term it will affect the prices.
So going forward, keep in mind the overall economic situation as mentioned by Peter Schiff. Those who invest in commodities and develop strategies accordingly, will hold onto their money, those that don't believe the economic situation as defined by Schiff will find themselves struggling to survive as the normal way of investing no longer will cut in over the next several years.
Schiff has gained notoriety and confidence from people because he accurately predicted the collaspe of the housing market and credit crunch well before they happened, and is now projecting the collaspe of the U.S. dollar and the collapse of the bond market, which he thinks is already in a bubble that is ready to burst.
Some of criticized Peter Schiff for some of those investing with him losing money because the exact timing of things hasn't come about yet. But that's ridiculous when you really think of it, as there is no investor or financial advisor in the world that hasn't been wacked by the timing of the market, which those like Warren Buffet, Peter Schiff and Jim Rogers all recognize is impossible to do.
So when taking into account the insights of Peter Schiff and also Jim Rogers, we have to realize that the U.S. dollar will collapse. It's impossible for the government to keep the fiat money presses running and offer up trillions in bailouts without having to pay for that money. The only way they can do that is by printing it out, as other countries like China can no longer take on dubious U.S. debt, as they'll lose big time as the dollar falls in value.
What we need to do is plan in a way that takes the reality that the U.S. dollar will plunge in value. It's no longer a matter of if, only a matter of when. Whether it's in 2009 or not doesn't matter, we need to put our money in things that will not be tied to the dollar in any way, as it will be highly diluted.
A few things to keep in mind for 2009 are the surety that gold and silver will perform strongly, as there's very little else that could be considered a haven of safety for people's money. Also the oil contango or super contango provides an excellent opportunity for safe investment, and should be considered going forward, as the predictable oil futures market is extended beyond what it usually is, the reason it's now being called a super contango rather than just a contango.
Silver prices will probably outperform gold in 2009, when you take into account percentages, although gold is more the haven than silver will be, and probably safer.
Platinum prices in 2009 are a toss up to me, as there are market factors that could drive platinum futures up even though its use in the auto industry will decline. Gold prices have caused Indians who usually buy it in large amounts to start looking to platinum as an alternative as gold prices and futures continue to soar. So platinum prices could receive some support depending on how much demand comes from India, and how much platinum they buy in 2009.
Peter Schiff has the overall economic picture accurate, and so investing in the right commodities will be the most profitable over the next five to ten years. Even after the global economy starts to recover, and gold isn't looked to as a place of safety, then the growing middle classed in China and India will resume their buying again, and raw materials demand will soar, and the commodity bull market continue.
How will grains do in 2009? That is also a toss up in my book. The usual factors will have to be watched, as the recent drought in Argentina and also China has people concerned over the near future of wheat, corn and soybeans. The only problem this year is the harvest has been so successful and food so plentiful, that even with the weather challenges there's so much on the market that it's not offering fundamental support to increased prices.
You also have the economic factor to consider, as people continue to cut back on all spending, and are only buying the bare necessities in order to survive. That will change in the long term, but short term it will affect the prices.
So going forward, keep in mind the overall economic situation as mentioned by Peter Schiff. Those who invest in commodities and develop strategies accordingly, will hold onto their money, those that don't believe the economic situation as defined by Schiff will find themselves struggling to survive as the normal way of investing no longer will cut in over the next several years.
Thursday, February 5, 2009
Commodities: Trading Commodities
Just like in trading equities or any other investment, an investor without a long term outlook and time horizon will far underperform those that are in it for the longer term. Trading commodities is no different, as those going in and out of the market find themselves on the loosing end of deals, and wonder why other commodity futures traders are so successful while they linger on the sidelines licking their wounds.
It doesn't matter if it's trading currencies, agriculture futures or precious metals futures, it's all the same. Those measuring success in short term increments will find themselves never making any money, and only looking for someone to balme for their wrong decisions.
Commodities markets are no different than any other investment market, and we need to do our homework and have a solid handle on what commodity or commodities were investing in.
Whether its gold or silver futures, wheat or corn futures, or platinum or palladium futures, it's all the same. Understand what it is that relates to the underlying fundamentals and invest accordingly.
No matter what commodities exchange you're working with, commodities brokerage or broker, if you don't have a long term outlook and investigate the commodity or commodities you're interested in, you're going to fail miserably and not understand why.
Check out the commodity news and commoditey charts, look for patterns and changes in commodity demand and surplus. Look for any information on the commodity you're going to invest in, and make a decision on whether you want to invest in options or futures. You could in the case of ETFs of course go that route.
Commodity futures trading or commodity options trading isn't for the faint of heart, which is why it's even more important not to just throw your money at something hoping it will stick. If you don't have the time or are clueless, research commodity brokerages and individual commodity brokers to see which is the best fit for your desired strategy and risk tolerance. Also don't throw all your money into one commodity trade, as you could lose it all.
Over the long term, gold commodities, silver commodities, oil commodities look good for futures rising, while over the longer term a number of grain like wheat commodities, corn commodities and soybean commodities should perform well as middle classes grow in Asian countries.
Gas as a commodity investment should also do well over the long term.
The U.S. dollar is not a place you want to place your money, as over the long haul it's going to be under tremendous downward pressure, and other currencies would be better to invest in if you're interested in the currency sector.
Commodity funds, commodity investments, commodity indexes, commodity stocks, commodity exchanges, ETFs, commodities prices and so on, are going to rise, and will outperform in general all other investment vehicles and sectors over the next five to ten years. There will obviously be individual commodities that won't partake in that success, which is why learning to be a futures trader or options trader and understanding the overall commodity market in relationship to supply and demand is so important.
Taking a consistent look at gold as a commodity people are looking to park their money safely, as well as the commodity silver is a must going forward. Both of those should do well in the near and long term.
Commodities will continue to be hot, and those who prepare and are ready and willing to take the risk, should experience extraordinary success in commodity options, futures, funds and ETFs in the near and long term.
It doesn't matter if it's trading currencies, agriculture futures or precious metals futures, it's all the same. Those measuring success in short term increments will find themselves never making any money, and only looking for someone to balme for their wrong decisions.
Commodities markets are no different than any other investment market, and we need to do our homework and have a solid handle on what commodity or commodities were investing in.
Whether its gold or silver futures, wheat or corn futures, or platinum or palladium futures, it's all the same. Understand what it is that relates to the underlying fundamentals and invest accordingly.
No matter what commodities exchange you're working with, commodities brokerage or broker, if you don't have a long term outlook and investigate the commodity or commodities you're interested in, you're going to fail miserably and not understand why.
Check out the commodity news and commoditey charts, look for patterns and changes in commodity demand and surplus. Look for any information on the commodity you're going to invest in, and make a decision on whether you want to invest in options or futures. You could in the case of ETFs of course go that route.
Commodity futures trading or commodity options trading isn't for the faint of heart, which is why it's even more important not to just throw your money at something hoping it will stick. If you don't have the time or are clueless, research commodity brokerages and individual commodity brokers to see which is the best fit for your desired strategy and risk tolerance. Also don't throw all your money into one commodity trade, as you could lose it all.
Over the long term, gold commodities, silver commodities, oil commodities look good for futures rising, while over the longer term a number of grain like wheat commodities, corn commodities and soybean commodities should perform well as middle classes grow in Asian countries.
Gas as a commodity investment should also do well over the long term.
The U.S. dollar is not a place you want to place your money, as over the long haul it's going to be under tremendous downward pressure, and other currencies would be better to invest in if you're interested in the currency sector.
Commodity funds, commodity investments, commodity indexes, commodity stocks, commodity exchanges, ETFs, commodities prices and so on, are going to rise, and will outperform in general all other investment vehicles and sectors over the next five to ten years. There will obviously be individual commodities that won't partake in that success, which is why learning to be a futures trader or options trader and understanding the overall commodity market in relationship to supply and demand is so important.
Taking a consistent look at gold as a commodity people are looking to park their money safely, as well as the commodity silver is a must going forward. Both of those should do well in the near and long term.
Commodities will continue to be hot, and those who prepare and are ready and willing to take the risk, should experience extraordinary success in commodity options, futures, funds and ETFs in the near and long term.
Wednesday, February 4, 2009
Commodities: Choosing Commodities Futures Broker
Commodities over the next five to ten years will outperform the majority of other investments by a long shot, and so it's extremely important to understand the sector, how it operates, and the best way to invest in them. To that end, let's look at one key element involved in your successful entry as a commodity trader into the sector: choosing a commodities broker or commodities futures brokers.
Just so you don't get confused, you may hear a commodities broker called a futures broker, commodity futures broker, commodity or commodities broker, or a commodities brokerage. Either way, when you hear those terms and other forms of them, it's referring to those who can help you make decisions and execute the proper trades.
One key thing to keep in mind is you're choosing two things when looking a trading commodity options or futures. You're choosing a commodity futures brokerage company, as well as an individual commodities broker within that firm. Both are important decisions going forward.
Of course if you're experienced to a certain degree and understand the various elements of trading in commodity futures and options already, you could simply trade through an online commodity brokerage at very low prices per trade. But this article assumes you prefer to use a live human commodity broker, not the internet.
So what should be considered in making a decision on choosing a commodities futures broker? Like almost any other type of investing or business, you want to check into the length of time they've been in business, if there are any ethics violations that were substantial (in finance there will always be disgruntled people complaining when they lose money). I'm talking here about real ethics violations that are either criminal or show a lack of concern about the client. Also a commodity brokerage firm needs to be competitive on commissions, unless they've shown they have outperformed their rivals in such a way as to deserve high commissions. And lastly, you need to know what types of services the futures or options brokerage offers.
As far as ethics go concerning choosing a commodities futures brokerage firm, the best thing to do is check with the National Futures Association to see if there have been any disciplinary actions taken against the futures firm.
While this could happen to any brokerage company in general, it is in your best interests to ask your potential commodities broker to explain what brought the complaint and how it was resolved. Many times, as I mentioned, disgruntled commodity traders that lost some money complain simply because they lost some money.
One thing to be careful when checking out a commodities brokerage is the number of years they've been in business. If you check them out and find a clean record, all that may mean is the commodity brokerage hasn't been in business long enough to have the inevitable complaints that come against it.
So if you look for a futures brokerage that has been around for about five years or longer, you can be assured that they at minimum know how to run a business, and should have a track record of arbitration over complaints from clients. It's not that they have complaints that should worry you (as long as they're not in abundance) but how they handled the complaints and how the aritrators ruled.
Because some commodities brokerage firms can settle disputes before they are presented to the NAF, and so their complaint record could look "clean," you should perform due diligence with those you know who may be trading options or futures with the company, or go to industry organizations like the National Introducing Brokers Association to aid you in your search.
As far as commissions charged by a commodity futures broker, that's probably the least factor to consider when trading commodity options or futures. It may be more profitable if you're starting out in trading commodities to use a more experienced, and probably more expensive commissioned commodities brokerage firm.
When you learn the ropes and take care of doing your own homework, you could then trade with discount commodity futures firms which can save you a significant amount of money if you make a lot of options or futures trades.
One thing to be aware of in connection to commissions is in how the commodities brokerage or commodities futures broker handles the way they encourage you to invest or trade commodity options or futures.
There's a practice called churning, where the commodity broker continue to invest your money in options in order to earn commissions, and do little if anything to make you money. If you're charged above $90 for a round-turn, or even above $100, be very cautious of using the firm and trusting your money with them.
In most commodity investment firms you can get by with $85 a round turn or less, so go with them, as they're as reputable as any.
Another thing to look for with these types of companies is their fixation on commodity options, which require your money upfront and not on the backend. This is why these types of firms push you toward options, as they generate more money for them because of the upfront costs, so they don't have to wait for the backend.
You also get no possibility of margin calls or deficits because of the utilization of options. This doesn't mean investing in options is wrong or unethical, just that unethical companies push many people disportionately into the sector, and not much more than separating them from their money happens, as they continue to "churn" or turn over their money, gaining a commission each time the practice is enacted.
Although these types of commodity futures brokerages could be anywhere in the USA, the majority are on the east coast of southern Florida or in the Los Angeles region.
After selecting a commodity brokerage options and futures company, then comes the important part of making a decision on who your individual broker will be.
The two most important aspects here are experience and knowledge of commodities markets, and absolute honesty and integrity.
Because you should be looking at a long term relationship with a commodities futures broker, you should also fell like that individual is able to communicate well with you, so personality could be a secondary element of importance. The reason that's so important with a futures broker is even if you're doing farely well with you investments, you could start to have doubts if open communication isn't one of the strengths of the broker.
From there, make sure you communicate your goals and purpose for investing in futures or options, as they could even change from trade to trade, depending on why you're entering the commodities market.
Finally, in choosing a broker make sure they're knowledgeable about whatever commodities options or futures sector you want to invest in. You don't want him to be good in grains but not know about precious metals. You want him to be good in both if that's part of your commodity investing strategy.
So choose you commodity futures trading firm well, and zero in on the commodity futures broker even more once that is completely. Commodities are going to outperform other investment sectors in the years ahead, and those with a long term strategy and who do their homework will be much more successful than those that don't.
Just so you don't get confused, you may hear a commodities broker called a futures broker, commodity futures broker, commodity or commodities broker, or a commodities brokerage. Either way, when you hear those terms and other forms of them, it's referring to those who can help you make decisions and execute the proper trades.
One key thing to keep in mind is you're choosing two things when looking a trading commodity options or futures. You're choosing a commodity futures brokerage company, as well as an individual commodities broker within that firm. Both are important decisions going forward.
Of course if you're experienced to a certain degree and understand the various elements of trading in commodity futures and options already, you could simply trade through an online commodity brokerage at very low prices per trade. But this article assumes you prefer to use a live human commodity broker, not the internet.
So what should be considered in making a decision on choosing a commodities futures broker? Like almost any other type of investing or business, you want to check into the length of time they've been in business, if there are any ethics violations that were substantial (in finance there will always be disgruntled people complaining when they lose money). I'm talking here about real ethics violations that are either criminal or show a lack of concern about the client. Also a commodity brokerage firm needs to be competitive on commissions, unless they've shown they have outperformed their rivals in such a way as to deserve high commissions. And lastly, you need to know what types of services the futures or options brokerage offers.
As far as ethics go concerning choosing a commodities futures brokerage firm, the best thing to do is check with the National Futures Association to see if there have been any disciplinary actions taken against the futures firm.
While this could happen to any brokerage company in general, it is in your best interests to ask your potential commodities broker to explain what brought the complaint and how it was resolved. Many times, as I mentioned, disgruntled commodity traders that lost some money complain simply because they lost some money.
One thing to be careful when checking out a commodities brokerage is the number of years they've been in business. If you check them out and find a clean record, all that may mean is the commodity brokerage hasn't been in business long enough to have the inevitable complaints that come against it.
So if you look for a futures brokerage that has been around for about five years or longer, you can be assured that they at minimum know how to run a business, and should have a track record of arbitration over complaints from clients. It's not that they have complaints that should worry you (as long as they're not in abundance) but how they handled the complaints and how the aritrators ruled.
Because some commodities brokerage firms can settle disputes before they are presented to the NAF, and so their complaint record could look "clean," you should perform due diligence with those you know who may be trading options or futures with the company, or go to industry organizations like the National Introducing Brokers Association to aid you in your search.
As far as commissions charged by a commodity futures broker, that's probably the least factor to consider when trading commodity options or futures. It may be more profitable if you're starting out in trading commodities to use a more experienced, and probably more expensive commissioned commodities brokerage firm.
When you learn the ropes and take care of doing your own homework, you could then trade with discount commodity futures firms which can save you a significant amount of money if you make a lot of options or futures trades.
One thing to be aware of in connection to commissions is in how the commodities brokerage or commodities futures broker handles the way they encourage you to invest or trade commodity options or futures.
There's a practice called churning, where the commodity broker continue to invest your money in options in order to earn commissions, and do little if anything to make you money. If you're charged above $90 for a round-turn, or even above $100, be very cautious of using the firm and trusting your money with them.
In most commodity investment firms you can get by with $85 a round turn or less, so go with them, as they're as reputable as any.
Another thing to look for with these types of companies is their fixation on commodity options, which require your money upfront and not on the backend. This is why these types of firms push you toward options, as they generate more money for them because of the upfront costs, so they don't have to wait for the backend.
You also get no possibility of margin calls or deficits because of the utilization of options. This doesn't mean investing in options is wrong or unethical, just that unethical companies push many people disportionately into the sector, and not much more than separating them from their money happens, as they continue to "churn" or turn over their money, gaining a commission each time the practice is enacted.
Although these types of commodity futures brokerages could be anywhere in the USA, the majority are on the east coast of southern Florida or in the Los Angeles region.
After selecting a commodity brokerage options and futures company, then comes the important part of making a decision on who your individual broker will be.
The two most important aspects here are experience and knowledge of commodities markets, and absolute honesty and integrity.
Because you should be looking at a long term relationship with a commodities futures broker, you should also fell like that individual is able to communicate well with you, so personality could be a secondary element of importance. The reason that's so important with a futures broker is even if you're doing farely well with you investments, you could start to have doubts if open communication isn't one of the strengths of the broker.
From there, make sure you communicate your goals and purpose for investing in futures or options, as they could even change from trade to trade, depending on why you're entering the commodities market.
Finally, in choosing a broker make sure they're knowledgeable about whatever commodities options or futures sector you want to invest in. You don't want him to be good in grains but not know about precious metals. You want him to be good in both if that's part of your commodity investing strategy.
So choose you commodity futures trading firm well, and zero in on the commodity futures broker even more once that is completely. Commodities are going to outperform other investment sectors in the years ahead, and those with a long term strategy and who do their homework will be much more successful than those that don't.
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