Metals Investing & Commodity Trading Information
Metals and commodities are two areas that many investors should look into. Not only do these investments allow you to diversify, they also present opportunities for big returns. You can invest in metals and other commodities through a futures broker.
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Time Frame
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The time frame for investing in commodities ranges from a few days to a few months. The length of a commodity futures contract is generally two to three months. However, positions can be held for longer than the life of a single contract by rolling over the position into the next contract month. Metals and other commodities are traded via these futures contracts.
Size
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Contracts are traded in standard sizes as well as mini sizes. A standard silver futures contract represents 5,000 troy ounces of silver, but the mini contract only represents 1,000 troy ounces. Note that the use of leverage in the futures markets allows investors to control contracts for a fraction of their actual value.
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Benefits
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As mentioned, most investors use significant leverage when investing in metals and commodities. You can trade many metal and commodity futures markets with a margin of only $1,500 to $2,500 while the full value of a contract is often $20,000 to $30,000 or more. This means that any movement in the futures price will be relatively large compared to your initial investment and this can permit you to achieve a significant ROI in a short time.
Warning
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Leverage in commodities and metals trading works both ways. If you do not actively manage your trades and cut losses, you could wipe out your trading account. Also, because metal and commodity futures contracts expire, trading volume often thins out during the last few days of a contract. If you want to keep a position open, you should roll it over into the next contract month before trading liquidity drops off.
Theories/Speculation
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Metals such as gold are used by many investors as a hedge against currency inflation. Also, many investors feel that there are large general trends within each sector of commodity futures, and that one commodity in the sector often leads another. For example, if a grain trader feels that wheat is leading soybeans and wheat makes a bull move, that trader would expect a bull move in soybeans.
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References
- Photo Credit stocks and shares image by Andrew Brown from Fotolia.com
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