4 Ways to Begin Commodity Market Research

You can invest in the commodity market in either very straightforward or very complicated methods. For example, you can purchase shares in a commodities mutual fund in the same way you would purchase shares in any other mutual fund. In this case, you would only need to research fund performance instead of specific commodity markets. On the other hand, you can go the opposite route and look to complicated options and futures contracts. The research you do will depend on the style of investing you are pursuing.

#1 Watch an Index

One simple way to start reviewing the commodity market is to watch an index of the market as a whole. If you wanted to start evaluating the stock market, you may watch an index like the S&P 500. Standard & Poor's has a similar index for the commodity market called the S&P GSCI. This index trades on the Chicago Mercantile Exchange, and you can follow the ticker as easily as any other ticket on the market. You will watch the ticker to understand how a broad range of commodities in the market are performing in comparison to other types of securities.

#2 Consider Commodities Mutual Funds

If you like the idea of investing in a portfolio of commodities, you may consider a commodities mutual fund analysis. In this case, your research will involve looking at various mutual funds to compare their returns and risk profiles. You can compare these funds to each other, to the S&P GSCI and to the S&P 500. This will give you an idea of how the funds are performing against each other, the commodities market as a whole and an alternative like the stock market. These comparisons can direct your ultimate investment in one fund over the other.

#3 Track a Specific Commodity

If you would like to focus on one commodity in particular instead of a portfolio of commodities, you may want to evaluate the performance of a specific commodity over time. For example, you can track gold prices or oil prices. While these are the two most common commodities to invest in, there are a host of other options. You can invest in cotton, soy, corn, tomatoes, rice or grain. You can also invest in other hard commodities, like silver, iron ore and natural gas. These investments tend to be made by more sophisticated financial professionals, but any investor can begin researching the prices of a specific commodity.

#4 Learn about Options and Futures

If you would like to tap into the lucrative commodities contracts market, you will need to understand the intricacies of options and futures. These strategies allow you to promise to buy, sell or trade a commodity at a specific date in the future for a specific price. To profit on these less traditional investment models, you will need to evaluate not just a commodity's current behavior, but also its potential future behavior. As a result, research into these options is much more detailed and can involve years of study in an advanced finance program.

blog comments powered by Disqus