As economies crumble commodity prices rise as investors see a commodity strategy to profit.

Managed futures provide investors with track records and specific trading strategies so an investor can choose a CTA based on the market they would like exposure too along with the type of risk they would like to expose themselves too.

Chicago, Canada (prHWY.com) September 5, 2012 - World economies continue to falter and as their central banks work to restore confidence and stave off disaster commodities beat stocks and bonds in August. August will mark the third month in a row that commodities have outperformed stocks and bonds from a price stand point. Speculators are betting that central banks will take action to create growth or stabilize their economies. So what does this mean?

Central banks will flood the markets with money by purchasing securities. By flooding markets with money and providing liquidity these central banks can provide a solution for growth. With interest rates at almost 0% this is the only option left to create growth. However, this can create a new problem with the price of commodities. As more money enters the market and the amount of goods available remains the same then the price of these goods will rise. This is also referred to as inflation. This is what many speculators are betting will happen. Investors have taken money out of the equity and bond markets and put them into commodities. As interest rates remain extremely low all around the world this also allows for the cheap inflow of capital. We now have two factors affecting the price of commodities and investors are looking to either profit from this by betting long or buying as a hedge, which is one of the reasons we are seeing an increase in the price of gold. So what are investors doing that is creating a bull market in commodities over the past three months?

Investors are adding a commodity strategy to their investment portfolio. A commodity strategy can mean a number of different things since there are a number of different ways to create exposure to these markets. One commodity strategy would be to enter the futures market. A futures strategy can be the purchased or sale of a futures contract on a futures exchange. Another futures strategy would be to trade options on futures. An option trader can buy, sell or trade a spread which is a combination of both. This all depends on what type of risk the trader is willing to take and what risk/reward scenario is fitting for them. A trader who buys an option pays a premium and that is what they risk on the trade. They have limited risk and potentially unlimited reward. An option seller collects the premium, which is the most they can profit. They have limited reward and potentially unlimited risk. Then there are spreads which can be used to finance the purchase of an option or hedge the sale of an option. If an option seller sells a spread they now have a fixed amount of risk. Their risk is still more than they stand to profit but they are not unlimited.
Investors can also look to commodity trading companies to gain exposure to the futures market. Commodity trading advisors or CTA's are commodity trading companies that manage futures accounts on behalf of the account holder. They are also known as managed futures accounts.

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Tag Words: commodity strategy, futures strategy

Categories: Business

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