COMMODITIES AND FUTURES
Another type of investment considered by experienced investors is commodities. Commoditie include grain, livestock, and precious metals. Generally, commodity investing is considered to be speculative. A speculative investment is one with an unusually high risk.
Commodity investors buy and sell futures contracts. An agreement to buy or sell an amount of a commodity at a specified price in the future is a futures contract . Futures contracts also involve the buying and selling of currencies and financial instruments.
Commodity ExchangesCommodities are bought and sold on exchanges similar to stock exchanges. Buyers and sellers are represented by traders on the exchanges.
One of the best known commodities exchanges is the Chicago Board of Trade (CBOT). Established in 1848 to provide a market for agricultural products, CBOT helps to avoid the huge price variances for these products. In 2007, the CBOT merged with the Chicago Mercantile Exchange to create the CME Group.
Other commodity exchanges around the world include the Kansas City Board of Trade, Brazilian Futures Exchange, the African Mercantile Exchange, and the London Metal Exchange.
Agricultural Commodities
Agricultural products, such as corn, soybeans, and wheat, are some of the items traded on commodity exchanges. Agricultural producers sell their crops in advance of a harvest at what they believe is a good price. Farmers will then know in advance how much they will receive for a crop.
Another type of investment considered by experienced investors is commodities. Commoditie include grain, livestock, and precious metals. Generally, commodity investing is considered to be speculative. A speculative investment is one with an unusually high risk.
Commodity investors buy and sell futures contracts. An agreement to buy or sell an amount of a commodity at a specified price in the future is a futures contract . Futures contracts also involve the buying and selling of currencies and financial instruments.
Commodity ExchangesCommodities are bought and sold on exchanges similar to stock exchanges. Buyers and sellers are represented by traders on the exchanges.
One of the best known commodities exchanges is the Chicago Board of Trade (CBOT). Established in 1848 to provide a market for agricultural products, CBOT helps to avoid the huge price variances for these products. In 2007, the CBOT merged with the Chicago Mercantile Exchange to create the CME Group.
Other commodity exchanges around the world include the Kansas City Board of Trade, Brazilian Futures Exchange, the African Mercantile Exchange, and the London Metal Exchange.
Agricultural Commodities
Agricultural products, such as corn, soybeans, and wheat, are some of the items traded on commodity exchanges. Agricultural producers sell their crops in advance of a harvest at what they believe is a good price. Farmers will then know in advance how much they will receive for a crop.
The futures contract buyers hope the price of the crop will go up when harvested so that they can earn a profit. Conditions that affect agricultural commodity prices include weather, international trade agreements, and worldwide demand and supply.
Gold, Silver, and Precious MetalsPrecious metals have worldwide importance. Investors have traded gold and silver on commodity markets for centuries. Gold has the longest history as a monetary commodity, going back to gold coins that were circulated as early as 500 BC. Gold is highly prized for both ornamental and industrial reasons. More recently, other metals, such as copper and platinum, have also become valuable commodities.
Prices of these metals are affected by economic conditions as well as supply and demand. Since 1979, the price of an ounce of gold has ranged from more than $1,000 to less than $300. These changing values usually provide investors with protection against inflation.
Precious metals are quoted as spot prices per one troy ounce. This is the current price quoted for precious metals in the world markets. You can find the spot price for gold in London and New York in newspapers and online.
Money invested in precious metals does not earn interest. If you hold gold, silver, or platinum, you might profit by selling them later at a price higher than what you paid. Gold and other precious metals have another advantage—many view them as protection against currency becoming worthless. Gold could be used for buying goods and services when paper money might not be accepted.
Currency and Financial InstrumentsCurrencies, such as the U.S. dollar, euro, and Japanese yen, and financial instruments, such as Treasury bills and notes, are traded on the futures markets. The price of currency and financial instruments is affected by a country's economic outlook and current interest rates. Again, investors buy currency or financial instruments expecting the prices to increase in the future so that they can sell them to others at a profit.
COLLECTIBLESAnother form of investment that is popular with many people is collectibles. Collectibles are items of personal interest to collectors that can increase in value in the future.
An advantage of collectibles is the personal pleasure of buying, collecting, storing, arranging, and displaying what is collected. Often, collectors even form organizations. For example, stamp clubs around the country bring together stamp collectors who buy, sell, trade, display, and discuss their stamps. Baseball card trading takes place at scheduled events in huge arenas as well as over kitchen tables. Antique dealers and collectors gather for major events at which they buy and sell their items.
Types of CollectiblesA wide variety of collectible items may serve as investments. Commonly obtained items are stamps, coins, sport trading cards, and antiques. In addition, unusual items purchased as an investment include autographs and letters of famous people, Chinese ceramics, movie posters, glass-ware, rare books, and toys.
Collectible Values
The possibility of the average buyer of collectibles making a large profit is uncertain. Only rare stamps, coins, art, and antiques—which may cost hundreds or thousands of dollars—tend to be items on which the investor can make a considerable profit. The wise investor in collectibles studies the market, knows the product well, and analyzes the potential risk.
Gold, Silver, and Precious MetalsPrecious metals have worldwide importance. Investors have traded gold and silver on commodity markets for centuries. Gold has the longest history as a monetary commodity, going back to gold coins that were circulated as early as 500 BC. Gold is highly prized for both ornamental and industrial reasons. More recently, other metals, such as copper and platinum, have also become valuable commodities.
Prices of these metals are affected by economic conditions as well as supply and demand. Since 1979, the price of an ounce of gold has ranged from more than $1,000 to less than $300. These changing values usually provide investors with protection against inflation.
Precious metals are quoted as spot prices per one troy ounce. This is the current price quoted for precious metals in the world markets. You can find the spot price for gold in London and New York in newspapers and online.
Money invested in precious metals does not earn interest. If you hold gold, silver, or platinum, you might profit by selling them later at a price higher than what you paid. Gold and other precious metals have another advantage—many view them as protection against currency becoming worthless. Gold could be used for buying goods and services when paper money might not be accepted.
Currency and Financial InstrumentsCurrencies, such as the U.S. dollar, euro, and Japanese yen, and financial instruments, such as Treasury bills and notes, are traded on the futures markets. The price of currency and financial instruments is affected by a country's economic outlook and current interest rates. Again, investors buy currency or financial instruments expecting the prices to increase in the future so that they can sell them to others at a profit.
COLLECTIBLESAnother form of investment that is popular with many people is collectibles. Collectibles are items of personal interest to collectors that can increase in value in the future.
An advantage of collectibles is the personal pleasure of buying, collecting, storing, arranging, and displaying what is collected. Often, collectors even form organizations. For example, stamp clubs around the country bring together stamp collectors who buy, sell, trade, display, and discuss their stamps. Baseball card trading takes place at scheduled events in huge arenas as well as over kitchen tables. Antique dealers and collectors gather for major events at which they buy and sell their items.
Types of CollectiblesA wide variety of collectible items may serve as investments. Commonly obtained items are stamps, coins, sport trading cards, and antiques. In addition, unusual items purchased as an investment include autographs and letters of famous people, Chinese ceramics, movie posters, glass-ware, rare books, and toys.
Collectible Values
The possibility of the average buyer of collectibles making a large profit is uncertain. Only rare stamps, coins, art, and antiques—which may cost hundreds or thousands of dollars—tend to be items on which the investor can make a considerable profit. The wise investor in collectibles studies the market, knows the product well, and analyzes the potential risk.