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An Overview Of Commodities Trading August 12 2013| Filed Under » Alternative Investments, Commodities, Commodity Futu res, Energy, Futures

, Hedging, Precious Metals Commodities markets, both historically and in modern times, have had tremendous economic impact on nations and people. The impact of commodity markets throughou t history is still not fully known, but it has been suggested that rice futures may have been traded in China as long ago as 6,000 years. Shortages on critical commodities have sparked wars throughout history (such as in World War II, when Japan ventured into foreign lands to secure oil and rubber), while oversupply ca n have a devastating impact on a region by devaluing the prices of core commodit ies. Energy commodities such as crude are closely watched by countries, corporations and consumers alike. The average Western consumer can become significantly impa cted by high crude prices. Alternatively, oil-producing countries in the Middle East (that are largely dependent on petrodollars as their source of income) can become adversely affected by low crude prices. Unusual disruptions caused by wea ther or natural disasters can not only be an impetus for price volatility, but c an also cause regional food shortages. Read on to find out about the role that v arious commodities play in the global economy and how investors can turn economi c events into opportunities. Commodities 101 The four categories of trading commodities include: Energy (including crude oil, heating oil, natural gas and gasoline) Metals (including gold, silver, platinum and copper) Livestock and Meat (including lean hogs, pork bellies, live cattle and feeder ca ttle) Agricultural (including corn, soybeans, wheat, rice, cocoa, coffee, cotton and s ugar) Ancient civilizations traded a wide array of commodities, including livestock, s eashells, spices and gold. Although the quality of product, date of delivery and transportation methods were often unreliable, commodity trading was an essentia l business. The might of empires can be viewed as somewhat proportionate to thei r ability to create and manage complex trading systems and facilitate commodity trades, as these served as the wheels of commerce, economic development and taxa tion for the kingdom's treasuries. Reputation and reliability were critical unde rpinnings to secure the trust of ancient investors, traders and suppliers. Investment Characteristics Commodity trading in the exchanges can require agreed-upon standards so that tra des can be executed (without visual inspection). You don't want to buy 100 units of cattle only to find out that the cattle are sick, or discover that the sugar purchased is of inferior or unacceptable quality. There are other ways in which trading and investing in commodities can be very d ifferent from investing in traditional securities such as stocks and bonds. Glob al economic development, technological advances and market demands for commoditi es influence the prices of staples such as oil, aluminum, copper, sugar and corn . For instance, the emergence of China and India as significant economic players has contributed to the declining availability of industrial metals, such as ste el, for the rest of the world. Basic economic principles typically follow the commodities markets: lower suppl y equals higher prices. For instance, investors can follow livestock patterns an d statistics. Major disruptions in supply, such as widespread health scares and diseases, can lead to investing plays, given that the long-term demand for lives

if not downright speculative without the requisite dil igence and rationale involved. forward contracts and hedging are a prevalent practice with commodities . natural disasters. grains have a very active trading market and can be vola tile during summer months or periods of weather transitions. there are multitudes of commodity and futures exchanges around the world. dependable metal with conveyable value. The airline sector is an example of a large industry that must secure massive amounts of fuel at stable prices for planning purposes. For example. For instance.tock is generally stable and predictable. volatility i n commodities could cause bankruptcies for businesses that require predictabilit y in managing their expenses. Farming coo peratives also utilize this mechanism. However. commodity exchanges are used by manufacturer s and service providers as part of their budgeting process and the ability to no rmalize expenses through the use of forward contracts reduces a lot of cash flow -related headaches. Energizing the Market Energy plays are also common for commodities. Therefore. which resulted after the Chica go Mercantile Exchange and Chicago Board of Trade merged in 2006. as investing directly in specific commodities ca n be a risky proposition. The Bottom Line . which has historically been viewed as a reliable. Volatile or bearish markets typically find scared investors scrambling to tra nsfer money to precious metals such as gold. solar and biofuel) that aim to supplant (or co mplement) crude oil as an energy purveyor should also be considered. The most popular exchanges include the CME Group. if not impossible. Futures E xchange is an important exchange that only carries energy commodities. as investors weigh and assess limited oil supplies with ever-increasing energy demands. Investors losing money in the stock market can create nice returns by trading precious metals. which would make their financial statements more volatile and riskier for investors. Exchanges With commodities playing a major and critical role in the global economic market s and affecting the lives of most people on the planet. it may b e a good idea to not allocate more than 10% of a portfolio to commodities (unles s genuine insights indicate specific trends or events). Because of this need. Thus. Want to make 2100% gains? We'll show you how The Gold Standard There is some call for caution. ai rline companies engage in hedging and purchase fuel at fixed rates (for a period of time) to avoid the market volatility of crude and gasoline. Global economic developments and r educed oil outputs from wells around the world can lead to upward surges in oil prices. Risky Business Commodities can quickly become risky investment propositions because they can be affected by eventualities that are difficult. Futures and Hedging Futures. to predict. Precious m etals can also be used as a hedge against high inflation or periods of currency devaluation. Intercontinent al Exchange. Economic downturns. epidemics and man-made disasters.S. Kansas City Board of Trade and the London Metal Exchange. optimistic outlooks regarding the price of oil should b e tempered with certain considerations. Each exchange carries a few co mmodities or specializes in a single commodity. production changes b y the Organization of the Petroleum Exporting Countries (OPEC) and emerging tech nological advances (such as wind. the U. Without futures and hedging. Some plays are more popular and sensible in natur e. Th ese include unusual weather patterns.

When markets are unusually volatile or bearish. However. can provide o pportunities to ride agricultural price increases.Investing in commodities can quickly degenerate into gambling or speculation whe n a trader makes uninformed decisions. by using commodity futures or he dging. Demands for industrial metals can also lead to opportunities to make money by betting on future price increas es. combined with limited agricultural supply. investors and business planners can secure insurance against volatile pri ces. commodities can also increas e in price and become a (temporary) place to park cash. . Population growth.