Where To Invest

Learning to trade commodities is becoming more and more popular. An increasing number of private individual investors are moving away from straight equity stock investments and moving into new markets in search of ways to make money.

The fallout from the sub prime crisis in the US has been much greater than many commentators expected. As credit defaults have increased, the cost of borrowing has increased significantly as lenders in all areas (mortgages, credit cards, personal loans) become more wary of lending cheaply. This effect has become known as the credit crunch. However the credit squeeze has not stopped there. Virtually all businesses are funded in part by debt. As a direct result of this increased cost of debt, most business are now being hit with higher costs that impact their profits. As profits fall, so too do company stock prices.

Why learn to trade commodities?

From July 2007 to Jul 2008 the Dow Jones Industrial Average stock exchange fell in value by about 19%. In the same period Crude Oil has risen in value by about 112%. This fact just highlights the difference in performance between the equity sector and the commodities sectors.

The main difference between the two markets is that the commodity markets are demand driven. By their nature commodities are limited in supply, for example there is only a limited amount of oil in the ground. As econnomies grow and use up more of these resources the supply reduces while at the same time the demand continues to increase. These two effects can only ave one result - an increase in prices.

Author: James McKerr
Source