Michael C. Thomsett - Killer Commodities: How to Cash in on the Hottest New Trading Trends

Commodities: Investing and Trading Solutions for a New Century

The Birth of the U.S. Commodity Market

Commodity Basics

Establishing Market Values

The Profit Potential of Options on Futures

The Commodity Solution to a Falling Dollar

The Energy Plan: Hot Commodity Plays in the Energy Sector

Precious Metals: The Amazing Ascent of Gold, Silver, and More

A Food Fight: Growing Demand for Food Equals Expansion of Commodity Profits

Luxury Food: More Demand in the Specialized Food Products Market

Trading Strategies: The ETF and Index Solution

The Demands of the Future on an Ever-Growing World

In ancient Sumerian trade, baked clay tokens representing sheep and goats were used as a method of trading one set of goods for another. These tokens were used as a promise to deliver the animals at a fixed price in the future. This early form of currency made markets efficient. The problem with this approach was getting it to a point where everyone could agree on value uniformly. This led to standardization of prices and values in trade.

This was an early form of what is today called the commodity market. The commodity market is where commodities (products exchanged among producers and consumers) are exchanged through standardized contracts; prices in the immediate future are fixed by supply and demand. In modern times, this method of trading is essential to maintain an orderly market. Because agricultural products require an entire season from the planting of crops to harvest and marketing, farmers needed to know in advance what they would be paid. And so the commodity futures contract was created to fix the price of goods. Today, this applies far beyond agriculture and is used for the sale of a broad range of products: energy, precious metals, lumber, and even currency, for example.

Todays commodity market is large, complex and fast-moving. Methods of trade include not only direct purchase or sale of futures contracts, but also the use of options, or diversified trading through exchange-traded funds (ETFs) or commodity-based indexes. This book describes the basics of commodities and how they work, and explains the most prominent classes of commodities. It also provides strategic suggestions for the use of ETFs and index vehicles, as well as trading not through futures contracts, but with options on those contracts.

Essentially, a commodity investment involves an estimate of future values. It contains a specific number of products within each contract, a fixed price, and a future date. If you buy a contract (or buy a fund which in turn invests in a series of such contracts), and the actual market price ends up being much higher, your commodity contract will gain value. If the actual market price is lower, the contract loses value. This is the basic cause and effect of commodities: A contract fixes the price, but that contracts value is ultimately determined by how actual prices change in the future. So commodities bring order and certainty to producers (farmers, miners, and ranchers, for example) but they also have created a market for speculation in future prices based on the purchase and sale of contracts.

In this book, you are introduced to a series of basic facts and details of the market at large, and you will find valuable information about how to better understand the major commodity sectors. This approach provides you with a basic and working knowledge of this exciting and fast-moving market.

If you had some way to know in advance what something will be worth several months from now, you would be able to make a killing in the market. Most investors, not having such knowledge, have to guess where stock prices will move in the future. But when it comes to commodities, the future is what its all about. The commodity market sets prices for the future, and those prices rise and fall based on market forces of supply and demand.

For investors and speculators, trading a commodity futures contract is one way to be a player in this lucrative market. Future prices of commodities are estimated and fixed by price and month, then those contracts rise or fall in value based on actual prevailing prices and how they change. The complexity of the market lies in that you can buy or sell (take a long or short position on) futures contracts, trade them directly or through an index or ETF, or use options to control contracts without actually buying or selling them.