Over the years, I have received many solicitations for get-rich-quick schemes by investing in commodities options. I have seriously considered it, but have never done it. I know that it is a less than zero sum game and have heard that most people lose their shirts doing this.
Have you had any experiences with this or know anyone who has?
Well what kind of commodities are you talking about. There are hundreds of investable commodities, traditionally, they are not something you are going to make a ton of money on, but more of a solid foundation venture. I have money in Gold, and certain beef companies, but something tells me you are talking about something else all together.
I’m talking about just about any commodity-pork bellies, metals, currencies. The principles are all the same.
The dangerous thing is that you can leverage everything. That’s also the good thing. You can do like Hilary Clinton did and make millions off thousands. On the flip side, you can lose your house on a $300 investment.
(Is there a smiley that flaps his arms around and says "Danger, Will Robinson, Danger?)
I would recommend not using the leverage option if you decide to play. But I think if you are interested and you have money to burn that you would otherwise use buying lottery tickets, it would be a fun and learning experience. As long as you stick to using only your real money.
I once worked (as a lackey) for this commodities publication. What I saw during my time there was that there was a lot of money to be made, but it was made by the circle of people who get information first. By the time information reaches the general public, it’s too late. The commodities market is no place for amateurs.
The cost of subscribing to the publication I linked to above is $295/year! You can, however, request a free sample issue, which you might find interesting. When I worked there, we got a lot of free sample issue requests from people in prison - not sure why.
This is very true. Commodities vary like the wind, Nurse Carmen is right as well, you should not delve into the commodities as a hobby, you need someone who can sell at the drop of a hat, and someone to buy the right thing at the right time. Commodities are not for Ameritrade - though I should prefice that by saying some can do exceedingly well with Ameritrade and Comms.
Don’t forget this isn’t Trading Places.
I’ve traded commodities and have both made thousands and lost thousands. I trade foreign exchanges at night (e.g., the Hang Seng Index) because those markets are open when it is evening/bedtime PST. I’ve also traded the US markets like NYMEX and CBOT.
I got interested in doing it after reading a get-rich-quick-scheme brochure sent to my dad, but then searched for opinions of the person’s reputation. The schemer’s name was Ken Roberts and evidently his approach was to sign up people to his broker, who has hideously expensive commissions (the cost of placing a trade, similar to the commissions of a stock broker - KR’s company was charging > $100 per trade). There are a lot of scammers who prey on beginning traders, and so please be careful and google opinions on any guru that wants your money.
Anyway, I researched commodities trading for several years, created a system that seemed to be okay, and then jumped in. Most everyone gets squished early on because of inexperience, and most traders consider that to be the cost of ‘tuition’. I’ve been fortunate because my research and reading seemed to help me avoid some mistakes, although I’ve made plenty of them and continue to make plenty.
Trading is a good way to hedge if you depend on the commodities that are available. For example, when gasoline prices were going up, I took a long position in unleaded gasoline. Luckily, gas prices continued to go up and the money I made with that trade probably paid for the gas in my car for a year. Still, it was a lucky opportunity because I could have easily lost a ton on that trade too.
laina_f mentioned her commodities publication and the price. I don’t subscribe to any but I also don’t trade for a living. Information can really influence the markets. For example, if an early killer frost hits Florida, orange juice futures will shoot up. If you were betting that OJ was going down, you’ve instantly lost thousands of dollars in the span of a couple of hours. Lots of publications track stuff like weather and whether market makers are bullish or bearish. Some traders read charts exclusively, some follow ‘fundamentals’, which is to say, supply and demand forces on the prices of commodities.
For me, trading is entirely risk capital in my portfolio. It’s the riskiest type of investing and I resigned myself that those are funds that are more likely to be lost forever than yield a positive return. However, one should be well-capitalized to trade because the margin rates to place a trade are considerable. For example, to place the unleaded gas trade, I needed to have $6750 in my commodities account, plus $5000 as maintenance margin. From what I’ve read, most beginning traders lose everything because they are undercapitalized and let small losses turn into big ones. It’s entirely possible to lose more than your commodities account funds if your losses exceed what’s in your account (this is called a margin call and is to what Nurse Carmen is referring when she describes losing one’s house).
I should say that I don’t think it’s for everyone and the probability of getting rich quick is less likely than getting poor really quick. Like everything, it takes an investment of time to make it worthwhile eventually.