Why Are Commodities Futures the Best Investments for High Net Worth People?
Monday, November 3rd, 2008 at
7:41 pm
Captain Kid asked:
I looked at the forbes list today, and the ones that werent internet boom people, in some shape or form traded commodities. Looks like they are a great financial instrument to make big gains, and i guess to also lose big.
I looked at the forbes list today, and the ones that werent internet boom people, in some shape or form traded commodities. Looks like they are a great financial instrument to make big gains, and i guess to also lose big.
Tagged with: Internet Boom • People • Shape
Filed under: Commodity Trading
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They can make big gains, but historically they underperform stocks. Their allure is that they are not correlated with stocks, meaning that they maintain their value when stocks go down, and may even go up when stocks go down, as people sell stocks and buy commodities for inflation protection. Their value is in their diversification benefits, not in their total return.
You can get rich or poor because of the margin; it leverage your investment.
Example: let say the margin requirement for the December delivery of 5,000 bushels of wheat is $700. The price of the commodity is $1.00 a bushel. You bought $5,000 worth of wheat for $700. In a week, the price of wheat goes up to $1.25. You decide to sell and make $1,250 in profit (1.25-1.00 x 5,000). If you decide that you want to receive the wheat in December and make cereal, you pay $5000 minus the $700 that you already paid.