Financial markets are highly volatile. It is easy to see how the price trend fluctuates widely during trading hours. It is therefore extremely important to understand how markets work before starting to buy commodities. Opening an online account to invest in stocks or funds is a fairly simple operation. In any case, the financial intermediary must comply with certain rules. This article explains how you can start investing in commodities.
Steps
Step 1. Open an online investment account
The first step to buy raw materials is to open an online current account. It is a simple operation. Many financial intermediaries allow you to do this in different ways.
- You can fill out the online form.
- You can download the form, enter the required information and mail it to the company.
- At the end, wait for the confirmation of the intermediary.
Step 2. Buy commodities through your financial intermediary
You can buy them with futures contracts. These are a particular type of contract that provides for the physical delivery of the raw material, from the seller to the buyer, on a predetermined date. You can buy different types of raw materials, including:
- Precious Metals: Gold and silver are the best known metals, but there are others, widely traded, but not as popular, such as palladium, iridium and osmium.
- Agricultural products: such as eg. soybeans, sugar, milk and wheat.
- Energy products: where you can find oil, natural gas, ethanol and propane.
- Livestock: such as pork, live cattle, and pig farming.
Step 3. Buying commodities with ETFs
ETFs (exchange-traded funds) are a particular type of investment fund that replicates the performance of indices, such as S&P 500. The advantages of investing with this type of instrument are:
- You don't have to spend too much time looking for commodities or deciding which one you prefer to invest in. This work is done by the fund managers.
- It is not necessary to have large sums of money to buy them. This way you will protect your capital.
- It is an opportunity to diversify into other commodities. For example, let's say you want to buy gold: by buying a single ETF, you will invest in many different gold mining companies; if the performance of one of these companies is not very good, you will still be able to profit thanks to the other companies, included in the same ETF, but which are doing well.
Step 4. Invest in commodities with a mutual fund
Unlike ETFs, the portfolios of mutual funds (so-called mutual funds) are not only composed of commodities, but also include other securities such as bonds or stocks. One of the benefits of investing in this way is that if the commodity market is not trending well, this can be balanced out by the other sectors these funds are investing in, such as telecommunications or technology.
