Forex Trading

How Do People Trade In Commodities? Is There Big Bucks To Be Made?

Remember the old TV show, WKRP in Cincinnati, in which the dorky Les Nessman would always give the pork bellies report?

Or how about the 1980′s movie, Trading Places, in which Eddie Murphy and Dan Akroyd corner the orange juice market? These are both examples of commodity trading in the popular media.

Commodity trading is one of the fastest growing sectors of the financial markets, and for good reason – in 2006, commodity prices have gone through the roof. If you haven’t heard anything about the prices of pork bellies or orange juice skyrocketing, that’s because there is much more to commodity trading than just these two items.

Corn, oats, soybeans, wheat, soy meal, bean oil, cattle, coffee, sugar, cotton, steel, copper, silver, gold, platinum, natural gas, crude oil, and gasoline are just a few of the dozens of commodity trading options. Metals – steel and gold, in particular – and petroleum-related products, have seen major price movements in the past year.

Commodity Trading – Buy Low, Sell High; Or Sell High, Buy Low

If you remember back to Trading Places, the classic commodity trading comedy, Eddie Murphy and Dan Akryod entered the trading pit and immediately started selling orange juice contracts.

They didn’t own any orange juice, but they were able to sell it anyway. This is how commodity trading works – you either hope to buy low, sell high; or sell high (first), and then buy low.

Commodity Trading Hedgers

This aspect of commodity trading can best be understood by taking a look at the market participants. On one hand, you have the hedger. Hedgers want to guarantee commodity prices in order to lock in profits or avoid excessive losses.

For example, imagine a jewelry maker who needs 1000 ounces of gold to make a collection of necklaces. He needs the gold in six months, but the way gold prices have been going up, he’s worried that he won’t be able to afford it.

To hedge in the current price of $500 per ounce, the jewelry maker could buy ten 100 ounce futures contracts on a commodity trading exchange. Then six months later, if the price has gone to $700, the value of his contracts will have gone up by $20,000 each.

He can sell the contracts for a profit and use the proceeds to buy the actual gold, which will result in a net price of $500 per ounce.

If, in the above example, the value of gold had actually fallen to $400 per ounce, the jewelry maker would have lost money. He’d be locked in to paying $500 per ounce for gold when the actual market value was only $400.

Still, if the jewelry maker’s primary concern was to not end up paying $700 per ounce, this will have been a valuable commodity trading experience. In this way, hedgers use commodities contracts like insurance.

Commodity Trading Speculators

On the other side of commodity trading is the speculator. This is someone who has no business interest in wheat, crude oil, or copper, but essentially gambles on the price of each commodity going up or down.

Commodity trading is very popular with speculators because it requires very little margin. This means that commodity trading speculators can control thousands of dollars worth of commodities for just a few hundred bucks.

The downside of leverage in commodity trading is that it can lead to very big losses that you might not be prepared for.

For this reason, your credit history will be more important when applying for a commodity trading account than an account to trade in almost any other financial market.

How Do People Trade In Commodities? Is There Big Bucks To Be Made? / William Smith

William Smith the author provides additional financial information on many subjects as well as the secret to his success in the market along with 5 Free power stock picks emailed daily so grab your Free subscription on his website at Commodity Trading (All is Free)

Stock Research – What You Need To Know and Where You Need To Go

For more than 100 years, Wall Street was the exclusive domain of the rich. Not only were stock trading commissions prohibitively high, but research was almost impossible for the average person to find.

You might be able to find some out-of-date stock research information at your local library, but up-to-date, real-time research data was something that cost thousands of dollars.

This was the paradigm on Wall Street for decades, but then came the internet. Not only did the web provide discounted commissions through online brokers, but also a plethora of informative stock research.

While reading books on the market, watching CNBC, and following the business press are all vital elements of any new investor’s education, the most important thing to do before buying your first stock is research it thoroughly.

Thanks to the internet, research has never been easier to come by, or less expensive to access. In fact, most stock research is completely free of charge!

Stock Research – What To Look For

There are two basic elements of research – fundamental and technical.

Fundamental stock research involves examining a company’s published financial documents. These include the income statement, the balance sheet, and the statement of cash flows.

Several web sites make this data available free of charge. Most have all three financial statements dating back three to five years for literally thousands of publicly traded companies. The best sites for fundamental research are Yahoo! Finance and MSN Money.

Technical stock research examines the price movements of the stock. Most technical analysis involves studying patterns in the charts of a stock’s daily pricings. This form of research has certainly been made easier by modern technology, as in the past, technical analysts used to plot charts by hand.

Now you can find great charts for stock research on Yahoo! Finance, and Smartmoney.com. If you’re willing to pay for your technical research, consider investors.com, which has a great service called Daily Graphs.

Other Sources of Stock Research – Newspapers and Magazines

SmartMoney is probably the best monthly magazine for research purposes. They frequently profile stocks and mutual funds in easy to understand terminology, and therefore, it’s great for the novice investor.

Forbes is another great magazine for stock research. It is published bi-weekly, with about 1/3 of its pages devoted to the stock market. The politically sensitive should be forewarned, however, that Forbes has a very pronounced conservative bent. If you like your journalism free of partisanship, consider Fortune, which is also published every other week.

The Wall Street Journal is a daily newspaper, and probably the most famous source of research. It can be purchased on most newsstands for only $1.00 an issue, and it normally has promotions running that allow you to subscribe for much less than that. Despite the paper’s New York City headquarters, daily delivery is available in all but the most remote U.S. locations.

But in all honesty, The Wall Street Journal pales in comparison to Investor’s Business Daily (IBD), which is almost uniformly recognized as the best source of stock research for serious investors.

Although the paper’s editorial pages are aggressively Republican, its reporting is geared towards the individual investor – whereas The Wall Street Journal’s target audience is business executives.

Best of all, IBD publishes a special Monday edition (actually released on Saturday) that features detailed charts of its top 100 rated stocks.

Subscription Web Sites – Morningstar.com

As far as subscription web sites go, MorningStar (morningstar.com) is probably the most respected of all. It offers detailed research reports on over 1000 companies, in a simple, concise format.

Although MorningStar is best known for its mutual funds research, it is also a great source for research information. However, at $13.95 per month, it is a bit pricey – you could subscribe to SmartMoney magazine for an entire year at that price.

The good news is that there are a bevy of sources from which you can get your stock research. The bad news is that there might be a little too much of it. Whenever conducting research, be sure to consult at least two sources.

There are a lot of opinions out there, and in cyberspace especially, some investment opinions aren’t worth the paper that they’re not printed on.

Stock Research – What You Need To Know and Where You Need To Go / William Smith

William Smith the author provides additional financial information on many subjects as well as the secret to his success in the market along with 5 Free power stock picks emailed daily so grab your Free subscription on his website at Stock Research (All is Free)

Is Buying Stocks Only For Winners?

When you tell people that you’re about to start buying stocks, you’re likely to encounter some latent hostility.

Most people wish that they too were buying stocks, but they’re afraid to get started or ashamed that they don’t understand the markets.

Therefore, they try to discourage others from purchasing stocks – it’s the crabs in a bucket parable come to life. Often, these naysayers will dispense popular (but untrue) myths about buying stocks. In this article, those myths are dispelled, one-by-one.

#1 – Buying Stocks is Only for Rich People

Sadly, there was a time when this was mostly true. Way back when, the commission charged for purchasing stocks was more than $100. Thanks to discount stock brokers like Charles Schwab and the advent of the internet, buying stocks has never been less expensive.

For one, technology has reduced the spread between the bid and ask prices. This means that the prices you see scrolling across the TV screen are very close to the prices you will pay when purchasing stocks – off by only a few cents or so.

Secondly, commissions are way down. Buying stocks now costs as little as $7 per trade through online brokers like FirstTrade and ScottTrade. Purchasing stocks through E-Trade and Ameritrade costs less than $10.

But if you’re really on a budget, you should be buying stocks through Sharebuilder, which allows you to pool your money with other investors, and add fractional shares to your account for as little as $1 per investment!

#2 – You Need a Broker to Begin Buying Stocks

For this myth, the naysayers exploit the popular understanding of what a “broker” is. Yes, you do need a broker in order to begin purchasing stocks.

But if you think a stock broker is a grey-bearded know-it-all that you pay to make you feel bad about yourself , then you’re in for good news, because you don’t need one! The type of broker that you need isn’t a human being at all – Ameritrade is a broker, for example.

All you need to begin buying stocks is an account with an online broker. Don’t listen to the naysayers or the Edward Jones commercials – you can do this on your own!

#3 – Buying Stocks is for Suckers

This is one of the pettiest, most inaccurate myths of all, but in the wake of Enron and other Wall Street scandals, it’s also one of the most pervasive. It’s based on the absurd notion that stocks are nothing more than pieces of paper.

Stocks are not just pieces of paper. They represent actual ownership in a real, live business. When you own stock, you own a fractional share of every penny that the company earns and every dollar that’s in its bank account.

You even own its property, plant, and equipment! Of course, you are just one of many owners, and your share is undoubtedly very small – but you are an owner, and this does matter.

Even if the stock falls on hard times, a bigger company might come in and buy the company in full – usually at a healthy premium. When they buy the company, who do they buy it from? From you, and all the other shareholders like you.

The Truth – Purchasing Stocks is Inexpensive, Easy, and It’s for Winners

Don’t listen to the naysayers. You know that buying stocks is in your best interests, and you’ve probably been putting it off for far too long already. Give yourself a basic education by reviewing articles at informative websites like this one, and then get out there and start purchasing stocks.

After all, there’s no better education than the one you’ll receive when your real money is on the line.

Is Buying Stocks Only For Winners? / William Smith

William Smith the author provides additional financial information on many subjects as well as the secret to his success in the market along with 5 Free power stock picks emailed daily so grab your Free subscription on his website at Stocks (All is Free)