How do you buy commodities?

bloodninja

Oil, gold, wheat etc. How does one go about investing in commodities?

All thoughts welcome!

A Random Walk

Terminology is different in commodities, so be careful & do your research or you could lose a lot of money if you don't get the basics right.

Main way is through options/futures - see if your broker offers this.
There's a couple of commodity funds.
There's a couple of commodity ETFs. Be very careful with these, because the way some are structured they are only suitable for short term trading (you might want to read up on what "contango" means.

Jim Rogers has a newish book out on trading commodities which is a good starting place.

bloodninja

I'm lost already. Say if I just want to buy oil and take advantage of hte spikes that occur due to tensions rising in the middle east or due to shortages due to meterological events. Can I not just go to the bank and buy oil??

A Random Walk

You can buy a barrel of oil from an oil company and have it shipped to your front door, that's the only way to buy oil directly. Your wife may complain.

Other than that, you have to buy a vehicle through which oil is traded, which are the options I mentioned above. If you go to your bank I'm sure they will be glad to sell you one of the above vehicles, ideally the one that makes them the most commission.

One other option is to buy shares in an oil company e.g. in the past few years BP has become very correlated to oil prices. Unforunately when you buy an oil company, your investment will go up and down due to company specific issues.

dunkamania

Jim Rogers claims that commodity producing returns are inferior to direct commodity returns.not sure how he worked this out exactly.

Futures are the primary market for commodity derivatives.bear in mind the they are leveraged instruements.

Commodities ETF's are created by bundling together the underlying futures to mimic the price fluctuations of the commodities.

naitkris

you can buy almost anything on eBay so should you want to physically own commodities like metals which are popular on eBay then this is one way to go, but not recommended for security. an alternative is companies like e-gold which charge a fee to store the gold for you and to which you can relatively easily buy and sell as per market prices. another way is to own ETFs (listed as stocks) in metal which own the physical metal - these would be the best method in my opinion for both ease of buying and selling, as well as security, costs can also be very low if you go with a cheap stockbroker.

regarding oil, wheat, etc - not sure how to buy this as it requires buying in massive quantities normally as it is otherwise not so profitable.

silverharp

for buying oil your options are, ETF's, spreadbetting, options or futures contracts. Currently I'm looking at Canadain Oil trusts as their price is sensitive to the price of oil and gas however these are basically shares and are more long term investments.

PDelux

Currently I'm looking at Canadain Oil trusts as their price is sensitive to the price of oil and gas however these are basically shares and are more long term investments.

I used to own one of those, Canetic(CNE). It was great for the dividends but i bailed out with the crowd last year when the Canadian government announced they were changing the tax so effectively the trusts will not exist anymore. I just had a look at CNE and it's still paying 15% dividends though, not sure when it will change.

silverharp

PDelux wrote:

I used to own one of those, Canetic(CNE). It was great for the dividends but i bailed out with the crowd last year when the Canadian government announced they were changing the tax so effectively the trusts will not exist anymore. I just had a look at CNE and it's still paying 15% dividends though, not sure when it will change.

I'll have a look at that, the one at the top of my list is Penn West PWE I've a preference for ones with gas exposure. I am hoping for a general stock market correction this qtr then I'll start buying. I think these are generally undervalued and the tax rules maybe watered down

abakan

naitkris wrote:

regarding oil, wheat, etc - not sure how to buy this as it requires buying in massive quantities normally as it is otherwise not so profitable.

hum hum, things are gonna change , more people more demand. im looking in buying corn, soy wheat ETF as I belive they are gonna go up quite a lot in the next year

sapper

Mark Shipmans new book "The Next Investment Boom" or something like that, basically says that commodities are historically undervalued and primed to be the next big thing.

He recommends spread betting as the easiest way for the common punter to get in on the action, but also ETFs (which he is a bit iffy about because of bias towards energy)

With that in mind I logged on to paddypower.com to try their fantasy spreadbetting (they give you an imaginary EUR10,000). I bet 2 euros for every point above USD57.00 that the price of oil rose. A few hours later it had gone up 4 points and I won 8 euros - not bad - 400% return. I came back at the end of the day, the market turned and I had lost EUR320! (and thats only because the automatic stop limit kicked in)

So stay away from spread betting unless you know your stuff and can stand to loss buckets of cash

PDelux

He recommends spread betting as the easiest way for the common punter to get in on the action, but also ETFs

FYI you can also spread bet on ETFs.

So stay away from spread betting unless you know your stuff and can stand to loss buckets of cash

I think you mean stay away from commodities. You would have lost the money regardless of whether it was the SB company or some other route. They are quite volatile and you have to know what you're doing.

portomar

I do a small amount of spread betting with varrying degrees of success, i.e., not much. having said that, all of my losses, which were moderate, occured when i had no clue what i was at. im gearing up to start investing in it again, in soybeans, oil and wheat in particular. i find the more volatile the commodity, the easier to make cash on daytrading. due to the volatility, you literrally have to stare at a chart for trading hours unless you want to get destroyed. deltaindex is what i use.

moe_sizlak

if you invest in oil or gold , your investing at the top end as both are very expensive right now although there likely to keep rising

a better bet i think right now is soft commodities , wheat , milk , orange juice , agricultural produce , theyve had a phenomoenol year but food was undervalued for a very long time , many say the days of cheap food are gone what with drought in australia and the growing demand from the rising middle class in india and china, all the signs suggest that food wont be cheap

the only problem with soft commodities is that none of the investment companys have any funds that are completley soft commodity orientated
traditinally , commoditiy funds were made up 1st and foremost by energy , they would be at most populated by around 30% soft commodity

as a result you might be better off buying direct shares in the likes of glanbia , kerry or donegal which are all on the irish stock market

to take advantage of the corn and wheat boom , you would need to buy foreign shares as ireland is a very small player in terms of grain production and we have no companys that trade in wheat as such