COMMODITIES EXCHANGE – AN ALTERNATIVE INVESTMENT WINDOW
The investment culture of the investing segment of the Americans is basically centered on the conventional stock market. They are grossly concentrated on the investing their money on buying stock on the New York Stock Exchange.This article is looking at a very viable and different investment window. The article is not talking about the unawareness of the Americans of this wonderful investment.
Yes, investors of all kinds are looking at other areas of investment. They are coming into Commodity investment right on the floor of the exchange for commodity trading.
It will interest you to know that these investors are coming into commodity investment, and not sparing any financial instruments in order to gain exposure.
Haven made the above preambles, then what possibly is your thinking may be what then is Commodity Exchange?
Here two issues are involved, the words “Commodity” and “Exchange”. I will define these two and then go ahead to talk about the process of trading on the floor of the commodity exchange.
COMMODITY
These are tangible items that can be felt physical when you touch them. These usually produce items, like cocoa, gold, silver, bronze, maize, petroleum products such as crude oil etc.
EXCHANGE
This is the trading platform created specifically for the purpose of trading tangible items as mentioned in (a) above. It is similar to that of Stock Exchange where equity shares are traded in.
It is no longer news that commodity market has been in existence for ages. It is not a new discovery or a novel transaction, which one can conclude that is the reason why there is an influx of interested investors. It can be said that the sudden appeal of investors which it has attracted can be adduced to the following factors
1. Recent media coverage of the appealing and attractive prices of a commodity is on a daily increase. This, therefore, has awakened the consciousness of investors in this direction.
2. Some specific commodities, as a result of their geopolitical location and coupled with their exposure to high level of risk, has consistently opened them to news coverage. The attendant benefit, of course, is an increase in the price of the given commodity.
3. The desire of an average investor is centered on diversification of their investment. To this end, investing in commodity market will be a veritable avenue for such valued decision.
4. Improvement in technology also contributed to the patronage commodity market is experiencing. This is so due to the availability of various data to the investing public. It is natural that humans will act rationally when there is appealing information, which if acted upon will bring in unquantifiable returns.
5. The Brokerages receivable from each successfully traded commodity is yet another factor. Commodity Brokers on the floor of the exchange will ensure that commodities are well promoted and will equally strive to get more patronages. The more participant they get, the more increased brokerages that will be earned by them.
6. The desire of expansion by online brokerage company, are now offering reduced commission with a view of attracting interested investors. Prospective investors are therefore responding to these series of offers.
WHAT IS THE CONSIDERATION?
Investors are becoming more adventurous almost on a daily basis. They are fired by the fear of the future and they will want to take decisions that will secure their tomorrow. It is to this end, they will invest the money earned today to provide security for the future. Notwithstanding, there has been barriers to the effective participation of investors in commodity trading. The barriers are a lack of understanding, a hindrance to or inefficient access to the commodity market.
These were the factors, which hitherto made potential investors in commodity market to look for other easier avenues. However, presently such barriers and inequalities have been removed. Investing in commodity market now is seemingly looking to be the mainstream of any investment decision any investor can take.
Financial media outlets have contributed so immensely to the growth in patronage that commodity market is daily experiencing. This they do through their reportage of currents events and happenings in the market. The coverage has always been such that cannot be ignored, not only this; they are quite appealing and inviting
HOW DO WE MEASURE DEMAND?
Yeah, it is understandable if or when you begin to conjecture how to measure the demand in commodity market? I tell you, do not worry yourself, the demand for the commodity has greatly become very easy than what it used to be in the days of old.
Demand is now exhibited through the success of proxy products. When you are talking about proxy products, you begin to think of mutual funds, equity index funds, equity index options, and commodity futures. These are reliable measurement standard for demand in the commodity market.
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It is noteworthy to say that this article is not entirely a training document, and such full details of how these proxy products are calculated will not be disclosed here. However, I will not fail to mention some popular investment instruments in the United States of America. There are instruments such as; PIMCO Commodity RealReturn Strategy Fund, denoted by this symbol (PCRDX), Energy Select Sector SPDR also denoted by this symbol (XLE). StreetTRACKS Gold Shares, also denoted by this symbol (GLD), and the recently introduced United States Oil Fund (USO).
Now to talk about the commodity market Supporting High Volume Profitable Traders, you have the dozens of derivates such as traditional commodity future contracts to options on equity indexes that tracks the performance of certain commodity sectors. This is just to mention a few of them.
From the above, it glaring that, commodity trading is no longer what people used to think. It has gone to the class of what I will call “inevitable”.
