Traders can buy commodities and store them. For commodities that perish (eg, corn, wheat, and soybeans) or require special handling (natural gas or uranium) this method is impractical. But some commodities such as precious metals lend themselves to physical storage.
Options on Futures
In other words, an option buyer can exercise a right to take a position in the futures market at or before expiration. If the option is a call, the trader can exercise the right to go long. If the option is a put, the investor can exercise the right to go short. An option will be profitable only if the price of the future exceeds the strike price (in the case of a call) by an amount greater than the premium paid for the contract.
ETFs (exchange-traded funds) are financial instruments that trade as shares on exchanges in the same way that stocks do. Some ETFs invest in commodity futures or options on futures. Other ETFs invest in shares of companies that produce a commodity. Still, others invest in physical commodities such as bullion. While ETFs may seem like perfect proxies for investing in commodities, traders should be aware of their risks and costs. ETFs that invest in physical commodities, futures or options on futures come with the same risks and rewards that individual investments in these products do (see above).
Commodity shares are a way to make a leveraged bet on commodity prices. Producers often have large initial costs to develop, explore, and produce resources. Later in their development, they have fixed costs such as salaries, rent, and debt service. However, commodity producers always have variable revenues that depend on the price of the commodity they are selling. In theory, then, investing in these companies is a way to make a leveraged bet on the price of the commodity. As the commodity’s price rises, more money should flow to the bottom line in the form of profits.
Multiple Contraction or Expansion: The market assigns multiples to companies based on perceptions of future earnings. Changes to these can change share prices.
Contracts for Difference Contracts for Difference (CFDs) are derivative instruments that can be used to trade in commodities markets. A CFD is a contract between a trader and a brokerage firm. At the end of the contract, the two parties exchange the difference between the price of the asset at the time of the contract and the end of the contract.
Read more at: https://commodity.com/trading/
By: Frank Moraes
