Examining High-End Investment and Speculation Vehicles
In some ways, higher-end investments aren’t much different than traditional investments: You invest your money and make all the same decisions that an average investor does. The difference is the amount of capital in play (typically a lot) or the risk exposure (typically high).
In other ways, high-end investing is an almost completely different beast. It’s not so much investing (buying and holding on) as it is trading or speculating — assuming a business risk with the hope of profiting from market fluctuations.
Basically, high-end investing means you have to chuck all your preconceptions about buy-and-hold investing and asset allocation, and essentially all the strategies that stock brokerages put out for public consumption.
The following sections outline some of the high-end investment vehicles available to you.
Futures and options
Futures and options, by their very nature, are complex financial instruments. If you invest in futures and options contracts, you need to monitor your positions daily, often even hourly. You have to keep track of the expiration date, the premium paid, the strike price, margin requirements, and a number of other shifting variables.
That said, understanding futures and options can be very beneficial because they are powerful tools. They provide leverage and risk management opportunities that your average financial instruments don’t offer. If you can harness the power of these instruments, you can dramatically increase your leverage and performance in the markets.
Commodities are the raw materials humans use to create a livable world: the agricultural products, mineral ore, and energy that are the essential building blocks of the global economy, like crude oil, sugar, frozen concentrated orange juice, and feeder cattle.
A lot of folks incorrectly equate commodities exclusively with the futures markets. There is no doubt that the two are inextricably linked: The futures markets offer a way for commercial users to hedge against commodity price risks and a means for investors and traders to profit from this price risk. But equity markets are also deeply involved in commodities, as are a number of investment vehicles, such as master limited partnerships (MLPs), exchange-traded funds (ETFs), and commodity mutual funds.
Foreign currency trading
When you get involved in foreign currency (forex) trading, you’re essentially speculating on the value of one currency versus another. You “buy” a currency just as you’d buy an individual stock, or any other financial security, in the hope that it will make a profitable return. But the value of your security is particularly volatile because of the many factors that can affect a currency’s value and the amazingly quick timeframe in which these values can change. Nevertheless, if you’re an active trader looking for alternatives to trading stocks or futures, the forex market is hard to beat.
Trading foreign currencies is a challenging and potentially profitable opportunity for educated and experienced investors. Before deciding to participate in the forex market, carefully consider your investment objectives, level of experience, and risk appetite. Most important, don’t invest money you can’t afford to lose.