1. Commodity Trading
Commodity Trading: Back to the Days of Trading Corn for Peas
The stock market has many confusing terms, with "commodities" and "futures" being two of them. In the simplest definition of the term "commodity," means actual, physical, tangible goods. Whether it refers to corn, soybeans, oil, or even gold, the actual physical item is referred to as a "commodity". Of course, a commodity trader does not take a bushel barrel full of soybeans down to Wall Street looking for the best price for his wares, but the trade does consist of the actual crop. Within commodity trading, there is also "futures" trading, which involves the potential crops usually traded by contract for the following year.
Within the commodity trading market there are three types of investors: commercial investors, large speculators and small speculators. Commercial investors are the large companies that trade in a certain commodity to make a product- say for instance, the myriad products that can be developed from a single crop of corn. A large farm operation will produce corn that will be sold fresh, canned, frozen, as corn oil or used as feedlot food for cattle and other livestock. That single commodity has suddenly become several new products, usually traded as separate stock forms for different parent companies. The commodity-trading expert has a good idea about which crop will have a good year, and which ones might falter based on climate, production and other considerations.
Large speculators pool money to enable themselves the opportunity to buy larger blocks of a certain commodity, and to reduce their individual risks. Large speculator groups use a centralized money manager who actually make the trades, and in most cases, make the financial decisions for the investors as well. If the speculator's money manager decides to diversity into commodity trading, that is what they will do.
The third group is the small speculators. These are individuals who do commodity trading on their own or through a broker. Small speculators or large speculator groups can greatly influence a commodity trading market by buying or selling large blocks of stocks at one time.
As with any other type of trading, commodity trading should only be undertaken after one has a thorough understanding of what is happening in the market. Do a little research about commodities and futures can lead you to valid, sound decisions about commodity trading.