Energy Investing For Dummies
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As an energy investor, to buy stocks, bonds, options, and mutual and exchange-traded funds, you need a brokerage account. This can be a full-service brokerage that offers you investment advice and can fully manage your account, or it can be a discount brokerage that charges you a commission for trades you execute on your own.

To buy commodity futures, like oil, natural gas, uranium, and coal, you need an account with a futures commission merchant (FCM), the entity that solicits and accepts commodity orders based on the futures contract market. Alternatively, you can work with an introducing broker (IB), who works directly with you to make investment decisions but delegates the trade execution to an FCM.

If you’d like a professional to make commodity trading decisions for you, you can select a commodity trading advisor (CTA) to manage the account.

You should open a full-service brokerage or managed brokerage account if

  • You don’t follow the markets on a routine basis

  • You routinely follow the markets but don’t have the confidence or deep knowledge to execute a trading strategy

  • You don’t want to allocate the necessary time to managing your own investments

  • You’re comfortable allowing someone else make investment decisions for you

Know that ultimately, only you have your best interests in mind, so if you choose a managed account, make sure you investigate the firm by asking about its past performance, current clients, investment philosophy, and fees.

No matter which type of account you choose, make sure to read the account agreement and understand which exchanges you’ll have access to, what the commissions are, what research tools the account offers, and whether the account has any minimum capital requirements.

You can also employ leverage by using a margin account, which allows you to invest with borrowed capital. By using leverage, you can control large positions with little upfront capital. You must be qualified to use a margin account, and though it can lead to larger gains, it can also lead to larger losses. Be sure to check the various margin requirements of brokers and exchanges.

Use these external resources to help choose and evaluate full-service and commodity brokers:

If you want to make all the decisions and execute the trades for stocks, bonds, funds, and options, you should go with a discount brokerage. This table shows the top discount brokers of 2012 as ranked by The Wall Street Journal.

2012 Discount Broker Rankings
Rank Broker Commission on Stock Trade
1 Fidelity $7.95
2 Scottrade $7.00
3 TD Ameritrade $9.99
4 E-Trade $9.99
5 Charles Schwab $8.95
6 TradeKing $4.95
7 Zecco $4.95
8 Merrill Edge $6.95
9 ShareBuilder $8.95
10 WellsTrade $8.95

About This Article

This article is from the book:

About the book authors:

Nick Hodge is the founder of the Outsider Club, a community of retail investors looking to take personal control of their finances, and managing editor of Early Advantage, an investment advisory service that focuses on energy and resources. Jeff Siegel is an analyst and writer specializing in energy investing, with a focus on alternative and renewable energy. Christian DeHaemer is managing editor of the investment newsletter Crisis & Opportunity, and publishes a weekly column in Energy & Capital. Keith Kohl is the analyst and chief investment strategist for the investment advisories Energy Investor and Oil & Gas Trader.

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