Dividends and How Commodities Exploit Cash Commodities

After you have invested in stocks and bonds, sometimes your eyes will look at commodities and wonder should I try? On You Tube you can find many videos about investing from people trying to sell you something; to information to somebody trying to tell you what is wrong with the system we have. How you see the world, will determine how you view the video – one video watched was How Commodities Exploit Cash Commodities, 2018.

The reason why you may look towards commodities is to trade is to take risks, but many traders hate risks however if you get it right you will achieve a high rate of return. Notice the ifs in the statement.

The biggest commodity trading houses are in Switzerland lead by Vitol (about $300 billion); ADM (about $90 billion); Bunge (about $60 billion), Cargill (about $136 billion), Louis Dreyfus ( about $57 billion) and Glencoe (about $250 billion).

The mechanics of trading is on a $100 million lot, you would need to risk $3 million to try to make $100 million. If you get it right you win big, but most will not.

Best trader in Switzerland was a man named Marc Rich although he had few ethics and tended to trade on the edge of the law.  The regulators wanted to talk to him regularly.

If you trade you need to know your product. On the supply side – it is likely geographic and on the price side – what are the risks?

The commodities are around the world and the questions is do you want to take delivery or doing it for changes in prices. If you wish to take delivery, the market reacts to your word is your bound. If you agree to terms, you live with the terms. You can usually sell to someone, the issue is always at what price?

In order to get the best price, you constantly need to be prepared and analyze information. The larger firms will have teams of people just to do the analysis. One of the norms is constantly check your information sources. Why is your information correct?

If you wish to take delivery to sell elsewhere, remember the time frame between the purchase of the product to delivery requires a great deal of financing. Banks have money and will give you an umbrella when it is sunny and take it away when in rains. The banks tend to be risk adverse.

If  you do not delivery of the contacts on the futures market, you are speculating. The function of the futures market is limit risk for those who want delivery. As the world continues to evolve, the biggest trading is coming from algorithm trading and much of the world is mathematical relationships.

Linking to dividend paying stocks, when you buy these types of companies you are acting similar to those traders who buy and sell commodities they have taken delivery of. You are not the speculators. There is money to be made in dividend stocks from the dividend which can constantly grow over the years and the stock price which grows because the company is profitable for increasing number of years. If you want to make money very quickly, a dividend stock may not be for you, but if you believe you have time, then the basics of trading commodities does not change,

There are more questions than answers, till the next time – to raising questions.

 

 

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