Commodities For Dummies book cover

Commodities For Dummies

By: Amine Bouchentouf Published: 06-07-2011

Get more bang for your buck in the commodities market and start trading today

While Wall Street has been troubled, commodity markets have been soaring. Since 2002, commodities have outperformed every other asset class including stocks, mutual funds, and real estate. This hands-on, friendly guide gives you the basics on breaking into the market, dispels common myths, and shows you how to implement a wide range of trading and investing strategies. It also helps you diversify your portfolio, measure risk, and apply market analysis techniques.

  • Expanded coverage of the types of commodities available to investors
  • Advice on how to manage the risks and rewards of commodities
  • Updated examples and information on SEC rules and regulations (and tax laws)

Featuring time-tested rules for investment success Commodities For Dummies helps you minimize risk, maximize profit, and find the shortest route to Easy Street.

Articles From Commodities For Dummies

page 1
page 2
page 3
page 4
page 5
page 6
page 7
page 8
page 9
page 10
page 11
page 12
page 13
page 14
page 15
page 16
page 17
page 18
page 19
188 results
188 results
Commodities For Dummies Cheat Sheet

Cheat Sheet / Updated 05-03-2022

The major commodities exchanges trade specific commodities worldwide, and the main regulatory organizations provide information and enforce codes to protect commodities investors. When investing in commodities, use guidelines and advice from the experts to lower your risks.

View Cheat Sheet
The 2008 Government Bailouts and the Effect on Commodities and Investment Markets

Article / Updated 04-21-2020

Because banks provide the necessary liquidity and credit availability for the global economy to function, the disruption in the banking system disrupted commodities markets, capital markets, and the real economy. What started as several delinquent accounts in a subsection of the real estate market ended up disrupting the world economy — and, with it, prices for everything from crude oil and aluminum to corn and soybeans. As the darkest days of the crisis began to subside, the U.S. government (followed by governments around the globe) took unprecedented steps to try to stabilize the financial system. These actions included nationalizing the banks, a step so foreign in America and so incompatible with American values that many were abhorred by the government’s intervention in the private sector. Source: Federal Reserve Bank Other governments also took steps to contain the crisis around the world. Iceland opted for nationalization by having the government own the banks, and Ireland, Spain, Greece, and Germany guaranteed deposits. Russia chose extra government funding, whereas Australia cut interest rates. You need to be familiar with the events of the 2008 global financial crisis (GFC) because they’ve had a major impact on the economy in general and commodities in particular. If you’re interested in researching the root causes of the crisis, and for more information on the GFC and its aftermath, check out the following books: The Big Short: Inside the Doomsday Machine, by Michael Lewis (W. W. Norton & Company) Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System — and Themselves, by Andrew Ross Sorkin (Viking Adult) The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History, by Gregory Zuckerman (Crown Business) Sometimes even the greatest risk-management techniques can’t replace common sense. Many industry practitioners claim that 2008 was an unforeseeable event, one that occurs only every generation or century. However, many industry insiders who followed the markets closely applied common sense and saw that the real estate sector was in a bubble. Investors shrewd enough saw that this housing bubble was going to have a ripple effect across asset classes because many assets were now interlinked through complex derivative instruments. Those astute investors were able to appropriately manage this risk and position their portfolios to actually benefit from this event. John Paulson, the hedge fund manager of Paulson & Co., was able to manage the housing bubble risk and handsomely benefit from the downturn, returning more than 570 percent in 2008 while most other financial institutions were hemorrhaging billions of dollars in losses. Therefore, with the right judgment, analysis, and approach (and, yes, a little bit of luck), the astute and wise investor can still successfully navigate even this large-scale risk.

View Article
How to Invest in Corn Commodities

Article / Updated 04-03-2017

Corn, like other commodities such as crude oil and coffee, comes in different qualities. The most important types of corn you should be familiar with are high-grade number 2 and number 3 yellow corn, which are both traded in the futures markets. The most direct way of investing in corn is by going through the futures markets. A corn contract exists, courtesy of the Chicago Mercantile Exchange (CME), helps farmers, consumers, and investors manage and profit from the underlying market opportunities. Here are the contract specs: Contract Ticker Symbol: C Electronic Ticker: ZC Contract Size: 5000 Bushels Underlying Commodity: High grade No. 2 or No. 3 Yellow Corn Price Fluctuation: $0.0025/bushel ($12.50 per contract) Trading Hours: 9:05 a.m. to 1:00 p.m. Open Outcry, 6:30 p.m. to 6:00 a.m. Electronic (CST) It’s important to know the trading hours for corn and other commodities that trade both on the open outcry and through electronic trading. Open outcry hours are a legacy from the pre-Internet age, when people traded all contracts on the trading floor; you can still participate in this trading method during the hours noted. The electronic trading system is the latest addition and is much quicker, so you can be sure to get your orders placed quickly and efficiently. The open outcry system is slowly being phased out; eventually, electronic trading will permanently replace it. Trading Months: March, May, July, September, December Corn futures contracts are usually measured in bushels (such as the corn contract offered by the CBOT). Large scale corn production and consumption is generally measured in metric tons. Historically, the United States has dominated the corn markets, and still does due to abundant land and helpful governmental subsidies. China is also a major player and exhibits a lot of potential for being a market leader in the coming years. Other notable producers include Brazil, Mexico, Argentina, and France. Country Corn Production (Millions of Tons) United States 307 China 165 Brazil 51 Mexico 25 India 18.5 South Africa 12.7 Argentina 12.6 Ukraine 11.4 Canada 10.5 Source: U.S. Department of Agriculture Like other agricultural commodities, corn is subject to seasonal and cyclical factors that have a direct, and often powerful, effect on prices. Prices for corn can go through roller coaster rides, with wild swings in short periods of time. Price of corn futures on the CBOT from 2003-2010. For more information on the corn markets, check out the following sources: Corn Refiners Association National Corn Growers Association Department of Agriculture Corn Research Service

View Article
Types of Crude Oil Available for Investment on the Commodities Market

Article / Updated 01-25-2017

Crude oil by itself isn’t very useful; it derives its value as a commodity from its products. Only after it’s processed and refined into consumable products such as gasoline, propane, and jet fuel does it become so valuable. Crude oil was formed over millions of years from the remains of dead animals and other organisms whose bodies decayed in the earth. Because of a number of geological factors such as sedimentation, these remains were eventually transformed into crude oil deposits. Therefore, crude oil is literally a fossil fuel — a fuel derived from fossils. Not all crudes are created equal. If you invest in crude oil, you need to realize right off the bat that crude oil comes in different qualities with different characteristics. You’d be surprised by how different that “black stuff” can be from region to region. Generally, crude oil is classified into two broad categories: light and sweet, and heavy and sour. Other classifications are used, but these are the two major ones. The two criteria most widely used to determine the quality of crude oil are density and sulfur content. Density usually refers to how much a crude oil yields in terms of products, such as heating oil and jet fuel. For instance, a crude oil with lower density, known as a light crude, tends to yield higher levels of products. On the other hand, a crude oil with high density, commonly referred to as a heavy crude, has lower product yields. Sulfur content is another key determinant of crude oil quality. Sulfur is a corrosive material that decreases the purity of a crude oil. Therefore, a crude oil with high sulfur content, which is known as sour, is much less desirable than a crude oil with low sulfur content, known as sweet crude. How is this criteria important to you as an investor? First, if you want to invest in the oil industry, you need to know what kind of oil you’re going to get for your money. If you’re going to invest in an oil company, you need to be able to determine which type of crude it’s processing. You can find this information in the company’s annual or quarterly reports. A company involved in producing light, sweet crude will generate more revenue from this premium crude than one involved in processing heavy, sour crude. This distinction doesn’t mean that you shouldn’t invest in companies with exposure to heavy, sour crude; you just have to factor the type into your investment strategy. Crude Oil Type Density (API) Sulfur Content North West Shelf (Australia) 60.0 0.01 Arab Super Light (Saudi Arabia) 50.0 0.06 Bonny Light (Nigeria) 35.4 0.14 Duri (Indonesia) 21.5 0.14 As you can see, you can choose from a wide variety of crude oil products as investments. If you’re interested in investing in a specific country, you need to find out what kind of crude oil it produces. Ideally, you want a crude oil with low sulfur content and a high API number as a density benchmark.

View Article
Profit from Urbanization through Commodities Investment

Article / Updated 01-25-2017

Perhaps even more significant than population growth for the growth in commodity markets is the fact that it’s accompanied by the largest urbanization movement the world has ever seen. In the early 20th century, according to the United Nations (UN), less than 15 percent of the world’s population lived in cities; by 2005, that number jumped to 50 percent — and shows no sign of decreasing. As a matter of fact, 60 percent of the world’s population is expected to live in urban areas by the year 2030. The number of large metropolitan areas with 5 million or more people (mega cities) is skyrocketing and will continue to climb for much of the century. The number of cities expected to have 5 million inhabitants by 2015. When you compare that with the growth in the number of cities with 5 million people from 1950 to 2000, you quickly realize how staggering this growth really is. Urbanization is highly significant for commodities because people who live in urban centers consume a lot more natural resources than those who live in rural areas. In addition, more natural resources are required to expand the size of cities as more people move to them (rural to urban migration) and have more kids (indigenous urban population growth). More natural resources are required for the roads, cars, and personal appliances that are staples of city life. Industrial metals such as copper, steel, and aluminum are going to be in high demand to construct apartment buildings, schools, hospitals, cars, and so on. So investing in industrial metals is one possible way to play the urbanization card. As you can see, the largest urbanization is taking place in the developing world, particularly in Asia. As more Asians move from the countryside to large urban areas, expect to see huge demand from that part of the world for raw materials to fuel this growth.

View Article
Home Use Contributes to the Demand for Natural Gas Commodities

Article / Updated 01-25-2017

Residential use of natural gas accounts for almost a quarter of total consumption of the commodity. A large portion of homes in the United States, as well as other countries, use natural gas for both their cooking and heating needs — the two largest applications of natural gas in the home. About 70 percent of households in the United States have natural gas ovens in the kitchen. The use of natural gas for cooking purposes has steadily increased as technological developments have allowed for an efficient and safe use of natural gas. How does this affect you as an investor? As long as folks need to cook, you can bet that natural gas will be there to fill this important need. This essential usage ensures that demand from the residential sector for natural gas will remain strong — a bullish sign for natural gas. More than 50 percent of homes in the United States use natural gas for heating purposes. One way to benefit from this particular application is to identify peak periods of natural gas consumption. Specifically, demand for natural gas for heating increases in the Northern Hemisphere during the winter seasons. Therefore, one way to profit in the natural gas markets is to calibrate your strategy to this cyclical, weather-related trend. In other words, all things constant, natural gas prices should go up during the winters as folks seek to stay warm. Natural gas is one of the cheapest energy forms, as measured by dollars per unit of energy generated. You get more energy from natural gas per dollar (as measured in British thermal units, the standard energy measurement unit) than from almost any other source. Using natural gas may save you some money during the winters — which you can then use to bulk up your commodities investments! Credit: Source: U.S. Department of Energy

View Article
Matching Commodities with Commodity Exchanges

Article / Updated 03-26-2016

The 20th century saw a proliferation of commodity exchanges around the world, with many based in the money centers of New York and Chicago. In the first decade of the 21st century, the industry experienced a major consolidation period — partly driven by electronic-based trading platforms — that dramatically reduced the number of players in the space and increased the product offerings of the remaining exchanges. Here are some of the important exchanges in today's new environment. Chicago Mercantile Exchange (CME): Crude oil, natural gas, ethanol; gold, silver, copper, platinum, palladium; corn, wheat, soybeans, live cattle, lean hogs Intercontinental Exchange (ICE): Crude oil, gas oil, natural gas; cocoa, coffee, cotton, sugar Shanghai Futures Exchange (SHFE): Fuel oil; gold, copper, aluminum, zinc; rubber

View Article
Growing Interest in Agricultural Commodities

Article / Updated 03-26-2016

Agricultural commodities are usually overshadowed by energy and metal commodities. Recently, however, investors have been eyeing agricultural commodities as traders become aware of the enormous importance of these commodities from both a market and investment perspective. Wheat shortages in 2009–2010 and the subsequent food riots they caused globally shone a spotlight on this segment of the market. The following are some important agricultural commodities, along with their corresponding exchanges: Grains/cereals: Corn, oats, soybeans, wheat (Chicago Mercantile Exchange) Meat products: Feeder cattle, lean hogs, live cattle, frozen pork bellies (Chicago Mercantile Exchange) Tropical products: Coffee, cocoa, orange juice, sugar (Intercontinental Exchange)

View Article
Generating Risk-Adjusted Returns

Article / Updated 03-26-2016

Investing is all about managing risk, and here are two ways to approach risk management: (1) According to uber-investor Warren Buffet, Rule #1 of investing: Never lose money. Rule #2 of investing: Never forget rule #1; (2) If you focus on protecting your downside, the upside will take care of itself. Here are a few key risk variables you should be monitoring constantly: Volatility: Volatility is the way that investors measure price variation and fluctuation of a given security over time. The higher the variation, the more volatility. For example, if a security trades at $5 on Monday, $15 on Tuesday, and $7 on Wednesday, it's exhibiting extreme volatility. If you're a novice investor, you should trade these types of securities with extreme care. Standard deviation: Standard deviation is a statistical measure of the amount of volatility inherent in a security. The standard deviation formula is a complex one, but it's extremely powerful and practical. With one number, you can determine just how volatile a security or asset is. The higher the standard deviation, the riskier the asset; conversely a low standard deviation number means the security is more stable from a pricing perspective. A stable Fortune 500 company tends to have a lower standard deviation than a startup tech company. Use this powerful metric to help make better trading decisions.

View Article
Commodities and Emerging Markets

Article / Updated 03-26-2016

One of the driving forces behind the dynamic commodities markets are emerging markets, both from the demand side and also in terms of supply. Keep an eye on Brazil and China, two countries that tend to move markets. Brazil: A powerhouse in the commodities markets, Brazil has been blessed with an abundance of natural resources. It's one of the top agricultural countries in the world, with leading positions in coffee, cocoa, corn, wheat, eucalyptus, and sugar cane production. In energy, it has large reserves of crude oil in the offshore basins off the Atlantic Ocean. It also has sizable mining reserves with abundant iron ore resources. Since Brazil holds such a dominant position in the supply and production of key commodities, it's important to monitor this country very closely. China: China has been the miracle story of the beginning of the 21st century. Many analysts compare its rise to the emergence of the United States as an economic powerhouse in the late 19th and early 20th centuries. Home to more than 1.3 billion citizens, China is a truly gigantic market. In many instances, it has been the main driving force behind demand increases for important commodities, including steel, copper, wheat, and crude oil. As the Chinese economy continues to expand at eye-popping rates (averaging 9 percent annually during the first decade of the 21st century), expect it to push demand for commodities at even more important levels.

View Article
page 1
page 2
page 3
page 4
page 5
page 6
page 7
page 8
page 9
page 10
page 11
page 12
page 13
page 14
page 15
page 16
page 17
page 18
page 19