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Investment Vehicle

Commodity Trading As An Investment Vehicle

There are many inherent advantages of commodity futures as an investment vehicle over other investment alternatives such as savings accounts, stocks, options, and real estate.

The primary attraction, of course, is the potential for large profits in a short period of time. The reason that futures trading can be so profitable is leverage.

For instance, if you had a NRs 10,0000 futures trading account, you could trade one DFT futures contract. If you were going to buy the equivalent amount of common stocks, you would currently need about double to thirty-five times as much.

If you had made your move on the first trading day of September, 2009 and held your position for two weeks, your common stock position would have been worth about NRs 20,000 more than when you bought it. Not bad for only two weeks. If you had taken the futures route, however, you would have made the same gainas much as  a 200 percent gain on the NRs 10,0000 margin required in your futures trading account.

That is an actual example of the tremendous returns you can earn in a short period of time trading futures. Of course, you can lose money just as fast if you trade in the wrong direction. Suppose you had thought the stock market was about to go down and you had sold a futures contract instead of buying one. If you had valiantly held it for two weeks. That's a good example of why you must exit your trades quickly if they start to move against you.

Another advantage of futures trading is much lower relative commissions.Commissions on individual stocks are typically as much as one percent for both buying and selling. But in Futures your payment to commissions is very very low with respect to the amount you investment in stocks buying at the same investment.

While profits can be large in commodity trading, it is not easy to make consistently correct decisions about what and when to buy and sell.

Commodity speculation offers an important advantage over such illiquid vehicles as real estate and collectibles. The balance in your account is always available. If you maintain sufficient margin, you can even spend your current profit on a trade without closing out the position. With stocks,and real estate, you can't spend your gains until you actually sell the investment. It is called LEVERAGE facility.

As you will see, commodity trading is not particularly complicated. Unlike the stock market where there are over ten thousand potential stocks and mutual funds, there are only about forty viable futures markets to trade. Those markets cover the gamut of market sectors, however, so you can diversify throughout all important segments of the world economy.

In futures trading, it is as easy to sell (also referred to as going short) as it is to buy (also referred to as going long). By choosing correctly, you can make money whether prices go up or down. Therefore, trading a diversified portfolio of futures markets offers the opportunity to profit from any potential economic scenario. Regardless of whether we have inflation or deflation, boom or depression, hurricanes, droughts, famines or freezes, there is always the potential for profit trading commodities.