Make Money With Commodities Exchange Traded Funds | ETF Trading Software
Make Money With Commodities Exchange Traded Funds | ETF Trading Software
What are Commodities Exchange Traded Funds?
Before we talk about Commodity ETFs, let’s get into what an ETF is. ETF stands for Exchange Traded Fund. An ETF is registered with the SEC as an investment company, and it shares trade on a stock exchange intraday like any other public company. The ETF is like a mutual fund in that its assets consist of a basket of stocks deposited by institutional investors. Their popularity has increased considerably over the last few years, in large part due to their low expenses and the ease with which you can buy and sell them.
Commodities exchange traded funds, also known as commodity ETFs, are investment vehicles (asset backed bonds, fully collateralized) that track the performance of an underlying commodity index including total return indices based on a single commodity. Commodity ETFs invest in commodities, such as precious metals and futures, and are also sometimes referred to as ETCs, which stands for Exchange Traded Commodities. ETCs trade just like shares, are simple and efficient and provide exposure to an ever-increasing range of commodities and commodity indices, including energy, metals, softs and agriculture.
Commodities exchange traded funds are made up of futures or asset-backed contracts. These contracts represent the commodity and will track the performance of that particular product. However, the actual good is not in the ETF. For example if you buy a Gold ETF, you are not buying an asset full of gold bars. You are buying an ETF consisting of assets backed by gold. Those bars of gold are still locked up in Fort Knox.
They sometimes choose to focus on specific commodity-producing equities. A few examples of such specialization are Agricultural Producers ETFs, Energy Producers ETFs, Industrial Metals Producers ETFs, Precious Metals Producers ETF, Commodity Producers Composite ETFs, and so on.
Commodity ETFs give investors a chance to trade in a new set of assets, which were never traded before on stock exchanges, like silver, gold, oil, corn, etc. Formerly, if an investor desired to speculate in gold, or oil, he or she would be forced to take up shares in gem and jewels industry, and or gold mining industry, which also dabbled in gold trading. However, that investor could not invest in specific activity of gold trading and pricing through stock exchanges, as he is able to do now with the help of Commodity ETFs. With commodities exchange traded funds, an investor can speculate even with a small amount in assets requiring large amount of investment.
How do you make money with Commodities Exchange Traded Funds?
You can make money either by buying or selling commodity ETFs. For example, if you think the price of a particular commodity like corn, oil, or gas is about to go up, or if you spot a new technological development that might boost the usage of a particular commodity, you can purchase a commodity ETF that invests in that product. Such a move has the potential to put you in the right position to make a profit if you’re right.
On the other hand, you might have a portfolio with foreign exposure, where that country’s economy is heavily dependent on a certain staple product like oil. You can hedge your risk by selling that particular commodity ETF. Or you may feel adverse weather will negatively affect a certain commodity. Get on the bear side of that product by shorting the appropriate commodity ETF.
Exchange-traded funds have many strengths, but transaction fees can’t be avoided with ETFs. They must be bought and sold like a stock through a brokerage house, thus the fees. For substantial purchases, this transaction fee is an insignificant percentage, but for small purchases it cuts into the short term profits from ETF trading. As an ETF Investor, you are often best served to invest at least $1,000 per ETF trade.
What are the different types of Exchange Traded Commodities?
ETCs can be broadly divided into four categories; namely
- Bullion. As of date, this category covers Gold Exchange Traded Funds and Silver Exchange Traded Funds. Other metals like Platinum and Copper may soon join the list. Investment companies, banks, or other financial institutions launch such funds. They buy some gold and pool it, taking credit for their respective contributions in form of units of gold, in paper. These units are than sold to retail investors, thereby letting the institution or banker recover their funds with slight profit. The pooled gold is placed in the safe deposit vaults of World Gold Council. Each unit with the investor represents some part of that gold, and investor is assured of his or her rights on that gold.
- Currency and foreign exchange related ETCs, in this type of ETFs, the underlying asset is a chosen currency. Funds generated are invested in the currency, when the currency is low, and liquidated when the currency scales unreasonable heights.
- Basic commodity basket containing edible oils, sugar, wheat, rice, pulses, etc., is another sphere that was excluded from participating in stock market. ETF or ETCs have become a method of investing in these commodities and trading them on stock exchange. Even other metals like Zinc, Tin, and Aluminum, and their ores are valuables.
- Oil, Petroleum and Gas affect all economies. Therefore, their prices are extremely vulnerable to demand and supply in the markets. This is another area that was hitherto untapped by investors. Investors could not invest in purely oil trading activity; they had to settle for industries that extracted, refined and sold to other retailers. Trading in oil as a separate and sole activity has become feasible with Oil Exchange Traded Funds.
What are the risks associated with investing in Commodities Exchange Traded Funds?
ETF investments are subject to market risks. The risks can include, reliance on wrong information like in Enron’s case, or sudden spurt in demand for oil due to some political developments in Middle East, etc. In addition, sudden liquidation by a major shareholder may force the other investors to forgo reasonable market price. If, for any reason, the fund goes into liquidation, the investor may lose his rights on all underlying assets of the fund, despite the fact that his personal finances are nowhere near bankruptcy stage. Market cycles of commodities are another fact that needs to be closely examined, keeping in view different historic trends related to the commodity.
When oil prices rallied to $150 per share and corn prices advanced on ethanol demand, investors looked to grab a slice via ETFs and exchange-traded notes (ETNs). When commodities slid at the start of a major global recession, prices fell as much as 75 and 80 percent. Commodities tend to outperform during the early phases of an economic expansion, when the rising demand outstrips the supply, due to recessionary cutbacks, and during the later stages, when demand again outstrips available supply.
Any decision to invest in commodities should begin with the index funds. If you’re an individual looking for commodity exposure but are a beginner stock market investor, stick with the broad indexes, as for the vast majority of investors, indexing makes the most sense. Exposure isn’t necessary for a portfolio, but the broad indexes also offer inflation protection. The governments of the world can print paper currency on a whim, but they can’t print wheat, oil or copper.
ETF Trading Software to help you along the way
Ask any Commodities ETF trader, producer or general investor what trading tools or types of financial analysis he is using to track ETF trends and you’re probably going to hear a list of different technologies and methods. However, having the right tool for the job is important. Trading software can be used to boost an existing approach by supplying an inter-market perspective. The key to an ETF trading system is its ability to forecast moving averages.
When you start to investigate ETF trading software you will find that there are many options available. It is thus a good idea to take some time to complete research to find the option that’s right for you. Many of these trading programs will include different features and functions, so take a look and decide what function you are really looking for. Most online ETF trading programs will offer a free trial so you can test the features of the software before you commit to buy. You can take advantage of these trials to try a variety of ETF trading software. Check that it includes all the features you will want/use, and make sure that the software is easy to use and is bug free! Lastly, you should always ensure that the software supplier is willing to help out whenever you come across any problems or questions.
Here’s a (partial) list of ETF trading programs that are available to help you succeed in investing in Commodities Exchange Traded Funds
- Dynamic Trader Software And Trading Course
- Fast Track ETF Trading Program
- VantagePoint Trading Software
- ETF Profit Driver
- High Probability ETF Trading Software
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