Now, in the aftermath of Hurricane Katrina, and the resulting disruptions of shipping for many different commodities — from raw materials to building supplies to metals to lumber to wiring to foodstuffs to grains, etc. Money is rolling into the commodity futures markets, hoping to cash in on some big trends which almost certainly will unfold in the next year or so in the aftermath of Hurricane Katrina and possibly Rita.
For the commodity brokerage community, it is yet another windfall, which they are celebrating read: Yet let us not forget the facts when it comes to investing in commodities. The truth is, the vast majority of investors who try to trade the commodity futures markets lose money, usually big money, and sometimes more than they invested.
For most of you, the answer is — just say no. This is my advice based on almost 30 years of continuous involvement with commodities and the futures markets. In this issue, we will briefly revisit that history, and I will offer you my best advice as to how you should proceed if you want to or are being solicited to invest in the commodities markets, as so many are recommending now.
Immediately after receiving my Masters Degree in international business inI was hired by Continental Grain Company, one of the largest international grain companies in the world. I started as a grain merchandiser in Ft. On a daily basis, I dealt with grain elevator firms, feed processors, cattle feedlots, cotton gins and others in the agriculture industry.
I bought and sold large quantities of wheat, corn, soybeans, grain sorghum and other commodities across a five state region on a daily basis. I quickly became the youngest Vice President in this international company.
It demystifies the complex process of using the futures markets to hedge risk and protect profit margins. In the mids, in addition to my hedging business, I began to expand into helping investors who wanted to participate in the futures markets.
How To Make A Small Fortune In Commodities
InI launched a multi-Advisor futures fund that is still in operation today. In the years since then, I have started several other such funds that also continue to operate today. There is an old saying that goes: The best way to make a small fortune in the commodity futures markets is to start with a large one. While this might sound amusing, it is absolutely true in most cases.
Any discussion of investing in the futures markets should start with the following caveats: In the pages that follow, I will explain why most investors lose money in the futures markets. Yet I will also tell you about the approaches to the futures markets that I believe offer the best chances for success. But first a little basic information about the futures markets. When I first started in latethe futures markets were largely made up of agricultural commodities corn, wheat, soybeans, cotton, etc.
Futures markets in foreign currencies had just been introduced shortly before I got into the business. Today, however, there are futures markets in just about anything you can imagine.
The T-bond futures market is the single largest market in the world today. Since then, we have seen new futures markets in just about every type of financial market: T-notes, T-bills, Fed funds, muni-bonds, CDs, etc.
There are also futures contracts in equity market indices around the world. Today, there are literally hundreds of futures markets in everything from the exotic to the mundane. When I got into the business infutures were mainly traded only in Chicago, New York and London. Yet today there are thriving futures markets all across the world.
Most of the successful professional money managers in futures trading are active in both the US futures markets and foreign markets — 24 hours a day. The futures markets are highly leveraged, often as high as 20 or 30 to one.
Let me use an example. Yet an investor can buy a gold futures contract with apprx. The fact that futures contracts are so highly leveraged means that these markets are inherently volatile. Wide and erratic price swings are commonplace. The smallest piece of news or lack thereof or even rumors can cause markets to swing wildly up or down or both, often within a single day.
While supply and demand factors are inherent in determining prices, many, many other factors influence these highly leveraged markets, such as: There are two parties to every futures contract.
For the first brokers for mutual funds years I was in how to make money in commodities pdf business, I worked almost exclusively with commercial agricultural firms who used the futures markets as a way to reduce the risk of adverse price fluctuations on their inventories of physical commodities.
The other brokers worked with investors who were trying to make money. Hundreds of brokers from all around the meatwad make the money see lyrics were in attendance, as was I.
He seemed to be proud of that number!
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I would later learn that if those numbers were true, they may actually have been impressive. At another conference a couple of years later, myself and a small group of brokers sat how to make money in commodities pdf listened to a speaker who must remain unnamed.
He had recently retired from one of the largest investment firms in the world. According to him, otsuka stock market one-out-of investors made money on average trading their own accounts in the futures markets. I was stunned, both at the numbers and that he admitted it! They either get a phone call from a broker, or they see an ad in a newspaper or magazine, or they get something in the mail, or more recently, on the Internet.
In almost every case, the promoter or broker talks about or writes about the enormous potential for profit in the futures markets. Never mind the enormous risks I mentioned above. Never mind that the promoter or broker may have a long history of his clients losing money.
So the first way many investors go wrong is that they believe they can be successful, usually because they are encouraged to believe this by the promoter or broker.
As noted above, there are hundreds of variables that can affect the already highly leveraged and volatile futures markets. Most investors learn painfully that they cannot correctly predict which way the markets will go.
At some point, most investors decide, I need a system to be successful. They come in all shapes and sizes and prices, but almost all of them have two things in common: People often ask me about such systems, and I always have the same response: Likewise, there are dozens and dozens of books on the subject of futures trading. Some are actually quite good, some are mediocre fps ea forex some are awful.
But all are DATED material. Ditto for newsletters and telephone hotlines that offer futures trading advice.
There are many inherent problems with trying to trade futures based on advice given in a newsletter, a hotline or even an Internet service. Even if the advice is generally good which is raretiming is a big problem.
My experience has been that for every one investor who gujarati data entry work at home in ahmedabad told me he was making consistent money following any of the services above, at least 10 told me they lost money and gave it up. Most of the trading systems and services are very expensive. They hit you hard on the front end because they know you are unlikely to buy anything else or re-subscribe.
The odds are heavily stacked against you! You can lose a lot of money — including more than you invest — very quickly. The futures markets are just too tough, too volatile, too complicated and too risky for investors to venture into on their own, in my opinion. I tell you this as a year veteran of the futures markets: Also, if you receive an unsolicited phone call from someone trying to sell you a trading system or trying to get you to open an individual futures trading account, consider this bad news.
There are ways to greatly increase your odds for success in the futures markets. Just as with stocks or bonds or other investments, there are registered professional futures Trading Advisors that can manage your money in the futures markets. If carefully selected, these professionals can significantly increase your odds for investing successfully in the futures markets.
As usual, there are good futures Trading Advisors, and there are bad ones. There are some with documented performance records going back 20 years or longer. Various studies over the years have shown that the performance of futures Trading Advisors as a group is not only attractive, but it also has a low correlation to the returns in stocks and bonds — commodities dance to a different drummer.
Keep in mind, however, that hiring a professional Trading Advisor does not eliminate the risks in the futures markets. Hiring a professional Trading Advisor also does not eliminate the risk that you can lose more than you invest. There are also hundreds of futures funds and pools you can invest in that are managed by one or more of these professional Trading Advisors. Most futures funds are structured in such a way that the investors have limited liability and cannot lose more than they invest.
As with mutual funds, there are good futures funds and there are bad ones.
There are services that track the performance of futures funds, and these can be used to identify funds with good performance records. As should be obvious by now, I do NOT recommend that anyone reading this E-Letter attempt to trade in the futures markets on your own unless you are an industry professional.
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The odds are highly stacked against you. The only way I recommend investing in the futures markets is with carefully selected Trading Advisors or in carefully selected futures funds, and this is only if you are financially suitable for such an investment.
With stocks and bonds delivering disappointing returns, with real estate looking for a top, and with the hurricane holding out the potential for some big moves in many commodities, it is alluring to look at investing in the futures markets. Just keep in mind, that the commodities futures markets are very risky. Most people who invest in them on their own lose money, often far more than they invested.
Only a tiny percentage of those who invest in commodity futures on their own make money. Fortunately, there are some ways to increase your odds for success. Carefully selected futures Trading Advisors can significantly improve your odds.How to make money in falling markets - Profit from Shares, FX, Commodities
In my opinion, the best way is to invest in professionally managed futures funds and pools. Professionally managed futures funds offer several potential benefits. First, as noted above, these funds have limited liability for the investors. Second, these funds allow investors to pool their assets, with the potential to access more successful managers whose minimum investment requirements are too large for most individuals.
And third, most futures funds can negotiate lower commission rates than individual investors. While I believe that futures funds are the best way for most investors to go, there are good ones and bad ones. Be sure to read the prospectus or offering memorandum carefully. Past results are not necessarily indicative of future results.
Finally, in the spirit of full disclosure, you should know that my company, ProFutures, Inc. Contact Us OR Toll Free: