Commodity trading for beginners

Examples of commonly traded commodities:

  • Agricultural commodities, such as cotton, sugar, coffee, cocoa, corn, wheat, and soybeans.
  • Livestock and meat commodities, such as pork bellies, lean hogs, live cattle, and feeder cattle.
  • Metals, such as gold, silver, platinum and palladium.
  • Energy, such as crude oil, natural gas, heating oil and gasoline.

Commodities are traded both on and off exchanges. Exchange trading will often require a high degree of standardization, both when it comes to parcel sizes and the standard of the commodity. Traders must have enough confidence in the commodities to be willing to buy them without doing their own inspection. While many stock exchanges have several hundred listed stocks, commodity exchanges tend to only contain one or a few commodities.

Commodities can be purchased both as an investment by an investor that predicts that the commodity price will go up and by producers who want to hedge themselves against future price fluctuations. Investing in commodities can be very profitable for an investor, and it can be absolutely vital for a company to be able to hedge themselves against unexpected price fluctuations.

Prices

Commodity prices largely depend on supply and demand, but speculation can sometimes cause sudden and unpredictable price changes.

When it comes to supply, many commodities are sensitive to factors such as weather and logistics. The political situation and stability in the producing region will also be of importance. For livestock and produce, disease and health scares can have a huge impact on both supply and demand.

Global developments and technological advances can impact both the supply and demand of commodities. Increased building in China did, for instance, create a higher demand for steel that was noticeable worldwide.

Futures & Hedging

Futures contracts (commonly referred to as futures) is a standardized forward contract. The standardization makes it suitable for trading between other parties than the two initial parties to the contract. The two initial parties agree to buy and sell, respectively, an asset for a price agreed upon when the contract is created (the forward price) with delivery and payment occurring not now but at a certain point in the future (delivery date).

Futures contracts are derivative products, and the very first futures contracts were created with commodities as their underlying assets. The first futures contracts had agricultural commodities as underlyings, and then natural resources such as crude oil followed in suit. It wasn’t until the 1970s that futures contracts with stocks, currency and interest rates were invented.

Using futures contracts for hedging (a type of risk management) is very common among companies that rely on commodities for their business. An airline can for instance use futures contracts with airline fuel as the underlying to lock-in the price of future fuel purchase. Futures contracts make it easier for companies to plan their expenses and their bottom line becomes less exposed to price volatility on the commodity market.

On the seller-side, futures contracts can also be beneficial for those who want to achieve a higher degree of economic predictability. A farmer can for instance use futures contracts to lock in a future profit, instead of having to wait and see what the commodity market will be willing to pay at harvest time.

Background

Commodity markets have existed for thousands of years and historic findings suggest that tradeable rice futures contracts existed in China 4,000 B.C. In Japan, the Dōjima Rice Exchange was founded in the 1730s – a thriving futures exchange where the underlying commodity was rice. The exchange was promoted by the samurai, who received their payments in rice.

The name futures contracts were coined in 1864, when The Chicago Board of Trade (CBOT) listed standardized forward contracts. These early futures contracts had grain as underlyings.

Investing in online casino gambling

Commodity trading can be a good way to make a profit but it is in most cases not a suitable long term investment  (unless we are talking about gold).  Stock is usually a better long term investment.  This is especially true if you invest in blue-chip stocks that pay a high dividend.  Large stable companies that are likely to be around in a 100 year. Blue-chip stocks can, however, be a little boring.  They are low risk, low return.  If you are looking for something a little more exciting, then it can be worth looking at online gambling stocks.  The United States is finally starting to open their market for online casino gambling. New Jersey opened up for online gambling this spring, and Pensylvania will do the same during July 2019.  More states are set to follow.

This creates exciting opportunities for online gambling operators to expand into these markets and increase their profits.  This is something you can benefit from by investing in these companies.  You can either choose to invest in casino game operators such as Leo Vegas,  BetHard,  Casino Saga, Unibet, or WilliamHill.  Investing in individual casinos is high risk, and it is hard to know if they will be able to expand into the US market.  A better option is to invest in casino software developers.  Casino software developers license their game to a lot of different casinos, and large game developers are almost guaranteed to expand into the new markets and get a piece of the pie.  All casinos need software, and there are only a low number of developers that develops the game you find in all of the hundreds of online casinos operating today.  Investing in software developers is lower risk than investing directly in casinos.