Things You'll Need:
- A margin account at an online broker
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Step 1
The first step is to open a margin account at an online broker. If you are asking the question, "how to buy a commodity stock on margin?" you are probably looking to do-it-yourself. The fees are low and setting up a margin account is relatively easy, if you are approved. When you open a brokerage account, you do not automatically have a margin account. You must apply for a margin account and get approved to have it. Ask your broker to learn about how they handling the application and approval process for opening a margin account.
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Step 2
What is a margin account? A margin account allows an investor to use stock(s) as collateral on a loan, so you can buy an amount of stock greater than the amount of cash in your account...specifically, two times the amount. For example, if you have $5,000 in cash in your margin account, you can purchase $10,000 worth of stock. Your $5,000 cash buys the first half of the stock and the broker lends you the other $5,000 and, of course, charges you interest on that loan. Check the rates with your broker. Of you are a good customer, they may negotiate them down.
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Step 3
Once you have established your margin account, you now need to find a list of commodity stocks from which to choose.
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Step 4
To search for commodity stocks, first you must have an idea of which commodities you think are going up and/or will go up in the future. Examples of commodities are gold, oil, grains (like corn, wheat and soybeans), aluminum, etc. It is easier to find stocks that will benefit from popular commodities like gold and oil because they are on the news often. It is more difficult to find companies that deal in commodities like wheat and uranium.
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Step 5
Select a commodity that you think is going to rise. In this example, let's take Copper. To find all the stocks that are in the copper business go to Yahoo! Finance Stock Screener (the link is located in the Resources section below). On the Yahoo! Stock Screener main page, in the Industry Category section, scroll down and select "Copper (Basic Materials)." I pulled up this search on May 13 and came up with 11 companies in the copper business. Now you have a list of companies in the copper business and can select one that suites your investment goals and risk tolerances (a topic for another article).
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Step 6
As you scroll down the list in the Industry Category section, you will find the phrase (Basic Materials) to indicate companies in the difference areas of commodities businesses, like gold, silver, oil, aluminum, copper, steal/iron, etc. To search for stocks in other commodities businesses, select ones that interest you.
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Step 7
Once you have selected a stock that suits your investment goals and risk tolerances, you enter your order with your broker. You do not need to indicate to your broker that you want to buy on margin, you simply need to buy an amount of stock that is worth more than the available cash in your account, up to a maximum of two times the amount of your cash. Please consider the risks associated with borrowing money to purchase shares. Buying in margin means you are leveraged, which means you can make more money than you would if you did not borrow, but you could also lose more money that you would if you did not borrow.
