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Commodity Futures for Profit Speculation

Approximately 97% of all futures contracts traded are from speculators. Commodities offer several different opportunities which cannot easily be found in traditional asset classes7:

(1) The ability to trade long or short positions. This offers the potential for profitability in bullish or bearish markets and volatile or non-volatile environments.

(2) Leverage. Trading on margin mag- nifies potential rewards as well as potential risk. When used wisely, leverage offers investors the ability to speculate and diversify into global markets without the need for massive amounts of capital.

(3) Liquidity. Liquidity is a characteristic of a market to absorb large transactions without a substantial change in price. Within liquid markets, matching a buyer with a seller is relatively easy.

(4) Transparency. Many futures markets are considered to be “transparent” because the order flow is open and fair. Everyone has an equal opportunity for the trade.

(5) Financial integrity. When making an investment, it is important to have confidence that the person on the other end of the trade will acknowledge and accept your transaction. Clearing service providers, in conjunction with their clearing member firms, create a two-tiered guarantee system to protect the integrity of futures and options markets.

The following chart is a comparison of the frequency of returns in commodity futures and stocks performed by a Yale University School of Management. It shows the increased consistency of positive returns for commodity futures as well as the increased relative frequency of positive returns.3

Quick Topics:
	What are Alternative Investment?
	Commodity Futures for Profit Speculation.
	Commodities Futures for Portfolio Diversification.
	Commodities Compared to Stocks and Bonds.

Risk Disclosure: There is a risk of loss in futures and options trading. Past performance is not indicative of future results. Nothing in this site is intended to be a recommendation to buy or sell any futures or options market. All information has been obtained from sources, which are believed to be reliable, but accuracy and thoroughness cannot be guaranteed. Readers are solely responsible for how they use the information and for their results.


Research Sources:
1.	Sesit, Michael R. ”Commodities Enter Investment Mainstream: Pension Funds, Universities Jump Into the Asset Class; High Returns, Low Risk”. 9 Sep 2004. Wall Street Journal.
2.	Barclay Group, LTD. “Money Under Management in Managed Futures”. 1 Mar 2006.
3.	Gorton, Gary (University of Pennsylvania) and Rouwenhorst, K. Geert (Yale School of Management ). “Facts and Fantasies About Commodity Futures”. June 14, 2004. Yale ICF Working Paper No. 04-20.
4.	S&P Corp. and D.B. Stark & Company. S&P 500 Index and Stark 300 Managed Futures Index Data. Dec 1981 to Dec 2005. Starkonline.com.
5.	Chicago Board of Trade (CBOT). “Managed Futures Portfolio Diversification Opportunities”. 2005.
6.	The Center for International Securities and Derivatives Markets (CISDM) of the University of Massachusetts Amherst. “The Benefits of Managed Futures 2005 Update”. June 2005.
7.	Chicago Board of Trade (CBOT). “Trading in Futures – An Introduction”. 2005.