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Commodity trading

Commodity or commodity trading instrument has always been excellent for most global investment managers. Automatically capital turnover that occurs in the commodity market is quite competitive.

Commodities can be interpreted as something substansially physical, such as agricultural and mining. Where an investor or trader may make purchases or sales through both futures and spot markets. This instrument is one of a small number of investment instruments, in which participants who have little capital to get involved and reap huge profits in a relatively short time.

However, as a commercial commodity trading has a high reputation in the level of risk, particularly for individual investors. In fact, the risk of trading in commodity market will not be much of a risk you have defined yourself. The rest is a matter of risk of price movements, which tend to be the same as the risk of asset price movements such as stocks or bonds.

All you need to do is to identify and monitor the factors that drive prices, such as taxes, inflation, interest rates, weather, transportation and technology costs, each of which has a different effect on each commodity.

Generally, the commodities are divided into two, the first commodity hardware which generally is the result of mining such as gold, silver, oil, and other commodities on earth, have limited resources and generally require high resources and funds to acquire them. The second is soft commodities which are agricultural products such as sugar, cocoa, coffee and others. Table 1 gives a detailed example of the commodity.

Table 1: Types of commodity

Because many types of commodities are traded in the world market, our focus in this book is limited only to the portion of the hard commodities such as gold, silver and oil. These instruments can be traded on the spot market, futures or options, in general, have been shaped into contracts that can be traded more easily.


History records that metal already has a high value since immemorial time. Especially precious metals such as gold and silver which for centuries have been the medium of exchange in trade transactions. Including international trade, before coined money occurs as it is physical.

The high value of the metal in the eyes of the world still survives to this day. Gold and silver are still considered by most investors as a land investment that continues to shine.

Commodity futures contracts as well as the precious metals commodity futures contract that contains forward delivery agreement at a specified price. This contract has been formally standardized by the world body in size, quality, time and place specified.

As with other commodities, gold and silver can be traded in the form of spots or option 24 hours a day.

How to invest in gold

Through the development of technology and commodities trading, gold can be invested in various ways. As well as the wide range of products such as, Gold Bullion, Gold Certificates, Gold Accounts, Gold Exchange Traded Funds (ETFs), Gold and Gold Mining Shares Mutual Funds.

  1. Bullion Gold
    You can buy commodities directly in the form of gold bars or coins. If you buy gold bullion (gold on a large scale) or gold coins, this means that you are dealing with physical gold. In this case, caution needs to be taken into consideration, especially with the storage and insurance.

    Buying physical gold is a popular way of investing since centuries ago. Precious metals gives assurance to investors that the value of these assets will never be zero, as might occur in the shares or other financial instruments.
  2. Certificates of Gold (Gold Certificates)
    Buying gold certificates is one way to own gold indirectly. You will only hold a certificate without holding a physical form. Investors will benefit in terms of safety and storage problems. However, this option is not popular in the eyes of investors because they still do not feel having if it does not have the physical gold.
  3. Gold Account ( Gold Accounts )
    Some banks have provided a gold account, where you can make a purchas , sale or storage of gold. These accounts are generally divided into two models, which accounts allocated and unallocated accounts. 

    In allocated accounts, when you buy gold and stored in boxes/ secure storage and the ownership rests with you. Deposit box is provided by the bank, you only have to pay the rent and insurance costs for such services. While that is not allocated to the account, you do not have the allocation of ownership of gold, so you do not pay rent or insurance bullet. However , the depositor has the right to lease the gold you save.
  4. Gold Exchange Traded Funds ( ETFs )
    Exchange-traded funds ( ETFs ) are mutual funds traded on stock exchanges, like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to net asset value over the course of the trading day. Most ETFs track an index, such as stock index or bond index. ETFs may be attractive as investments because of their low cost, tax efficiency, and stock - like feature. ETFs are the most popular type of exchange-traded products.