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What is Common Stock?
A common stock is the one you’re most familiar with - having a share of ownership in a company. Owning common stock in a company is a vote of confidence that an investor thinks the company will perform well, and grow. Owning common stock also entitles an investor to equity ownership in a corporation, voting rights, and shared participation in a company’s success through dividends and/or capital appreciation. Continue reading...
What is a commodity?
A commodity is usually a raw material or agricultural good which has an extremely high demand and very little price differentiation between competitors. If a good will not increase or decrease significantly in quality regardless of who brings it to market, and the demand is very high (such as for a good used in the production of many other products) it might be considered a commodity. Examples would be oil, silver, gold, steel and wheat, but a full list would be very extensive. Continue reading...
What is the commodity market?
The commodity market is an international network of exchanges which trade commodity spot contracts, futures contracts, and derivatives. The largest commodities exchange in the world is the CME Group in Chicago. Futures are a large part of commodities trading, and the commodities futures market includes currency futures and swaps, index futures and single-stock futures, and other derivatives based on futures contracts. Continue reading...
What is a Preferred Stock?
Preferred stock are dividend-paying equity shares issued by corporations, which pays a dividend with a higher priority than common stock, but lacks the voting rights that come with common stock. Preferred stock is very similar to a bond, because it will often be issued to raise capital for projects, and dividends (or interest) are expected to be paid regularly by the issuing company, but it still experiences the appreciation (and depreciation) of equity shares. Continue reading...
Should I invest in commodities?
Investing in commodities has lately become accessible to even small retail investors via ETFs. There are now literally hundreds of different commodity ETFs, linked to various individual commodities and baskets (such as agricultural baskets, commodity indices, etc.) These instruments are very complex and sometimes do not reflect the behavior of the underlying commodity. While investing in commodities may significantly diversify your portfolio, it requires profound knowledge of the behavior of the underlying assets. Continue reading...
What is commodity-product spread?
The commodity-product spread is the difference between the price of a commodity and the price of the products at the next level of consumption which is made from the commodity. In the oil industry, this is known as the crack spread, in the soybean industry, it is known as the crush spread. Some pre-packaged long/short futures strategies that trade on this spread are offered on futures exchanges. The commodity-products spread is the difference in prices between a raw material and a product made from it, such as raw crude and gasoline. This difference gives a rough estimate of production costs and profit margin. Continue reading...
What is the difference between Common Stock and Preferred Stock?
A preferred stock is higher up the equity chain than a common stock - preferred stockholders receive dividends first and will be paid out first in the event of liquidation. The primary difference between a preferred stock and a common stock is that preferred stockholders have a greater claim to assets of the company. This can come in two forms: preferred shareholders being paid dividends first, and also having a higher claim to being paid out in the event a company goes bankrupt or liquidate assets. Continue reading...
Why Should I be Extremely Careful with Commodities ETFs?
There are some things to keep in mind when investing in commodities and their ETFs. Most commodities trading revolves around who owns a hard asset and when. ETFs occupy a space in the commodities world that is somewhat unique. An ETF such as the Crude Oil Index does not physically buy millions of barrels of oil and store them. It buys financial instruments which theoretically should reflect the price of oil. Continue reading...
What is the commodity selection index?
The Commodity Selection Index (CSI) is a momentum indicator based on the Directional Movement Indicator and the Average True Range. It helps commodities traders find momentum in commodities futures that seem to be the best candidates to make the trader money in the short term, based on volatility and also the cost of holding the position. This momentum indicator uses multiple other indicators for price, volume, and volatility to find short term trends. It may identify situations where a price movement is likely to persist. This is certainly not a guarantee, and even if a trend is strong there are often retracements and unexpected reversals. Continue reading...
What do I need to know about investing in commodities?
Investing in commodities is a little different than stock market investing. It is primarily done with derivatives, such as futures, and the strategies and lingo used are sometimes unique to the commodities market. Of course, you can always get commodities exposure by investing in ETFs and mutual funds that invest in commodities for you. Investing in commodities can be a complex and volatile business, and, if you are going to invest in them, it is best to do so with the help an a specialized and experienced advisor. Continue reading...
What is a commodities futures contract?
Commodities Futures are one of the most highly traded securities in the world, and it is partially because nothing has to be delivered by the participants as in a spot-trading market. Futures can be purchased on margin, opening up large positions, long or short, and if a trader finds a place to exit before the settlement date of the contract, the trader will buy/sell to close his or her position, and the exchange will regard the trader’s position as flat, and nonexistent for all intents and purposes. Continue reading...
Who is a commodity trader?
Commodity traders must at least pass the FINRA Series 3 exam, which focuses on the commodities market exclusively. The term “trader” is often used in reference to the people at an investment firm who work on the actual trading desk, sometimes executing trade orders from the front office but also trading for the account of the firm and sometimes giving investment advice. Traders often have a role to seek out and engage in trades that will improve the portfolio of the firm at which they are employed and benefit the clients of the firm. Commodity traders could work for a commodity pool or they could be a commodity specialist at a firm focused on a wider variety of investing. Continue reading...
What are Common Questions about Stocks?
People tend to focus on the mystery of the ‘get-rich-quick’ stock market when they start asking questions about stocks, but there are also good questions among them. The question most people have is, “Can I get rich just buying low and selling high?” And the answer, of course, is “Yes, absolutely!” The caveat, however, is knowing when the stock price is low and when it will peak. In stock investing it is often said that hindsight is 20/20, so it is infinitely easier in retrospect to identify times when someone should have bought or sold shares and reaped the maximum possible gains from their investment. Continue reading...
How do I Invest in commodities?
Commodities can be acquired through brokerage services that can access the commodities markets, or you can buy the stocks of companies that bring commodities to market. Investors can also gain exposure to commodities through mutual funds and ETFs that focus on them. There are a few ways to invest in commodities. One simple way is to purchase the stock of companies that produce commodities. You can also invest through futures contracts, which are agreements to buy a certain amount of a commodity at a certain price at some point in the future; this is the primary way that commodities are traded. They can also trade at spot, which means at the current price, or through the use of other derivative instruments, such as options on futures contracts. Continue reading...
What is a commodity pool?
Commodity pools are like the REITs of the commodity world, and some of them can be categorized as hedge funds or managed futures accounts (MFAs). Accredited investors, who meet qualifying requirements regarding income and total net worth, pool their money to be managed by a commodity pool operator (CPO) or commodity trading advisor (CTA) for the purpose of investing in commodities and commodity derivative instruments. Continue reading...
What is a commodity index?
Commodity indexes are also called commodity price indexes, and they are informational services which reflect the price action in a designated commodity or basket of commodities. Indexes are often tracked by mutual funds or ETFs, and these can be confused with the actual index. Indexes are computed and published by market research firms. They can serve as benchmarks against which the performance of a specific asset or an investment portfolio can be compared, or they can serve as the model that index funds seek to emulate. Continue reading...
What is a Bond Coupon?
A bond coupon is the interest rate that a bond issuer agrees to pay to the bondholder, representing the interest earned from owning the bond. Bond coupons are fixed at the time the bond is issued and remain constant throughout the bond's life. The fixed nature of bond coupons makes them an attractive investment for investors seeking predictable income streams. Continue reading...
What is the commodity futures trading commission?
The Commodity Futures Trading Commission (CFTC) is an independent government agency that regulates the futures market. Futures are not considered securities, so the CFTC has jurisdiction over such exchanges while the SEC does not. The CFTC is the regulatory authority for the futures trade. This includes futures on currency, indexes, and stocks. Futures are not technically considered securities, because a security is defined as a contract that depends on the performance of a third party, while futures contracts only depend on two people. Any options that stem from futures are considered securities, however. Continue reading...
What are Alternative Funds?
The idea with Alternative fund investing is to gain exposure to assets which are not highly correlated with the rest of your portfolio, and which use non-traditional approaches to fund management. Alternative Funds are mutual funds that invest in non-traditional asset classes such as commodities (gold, silver, oil, etc.), agricultural products (cocoa futures, orange futures, pork-belly futures), non-publicly traded companies and limited partnerships, and so on. Continue reading...
What do ETFs Invest In?
ETFs invest in a wide array of securities, and which ones depends on the goal, strategy, or index that the ETF is built around. ETFs hold baskets of individual securities, of which investors can purchase an undivided interest in the form of ETF shares. ETFs can be a good option if you want quick diversification, and there is an increasingly diverse selection of ETFs on the market. Many investment companies have issued new ETFs in the last 10 years. One of the biggest issuers is Barclays - one of the largest investment banks in the world — through their ETF brand iShares. Continue reading...