The commodities market works in a similar way to the stock market. Where equities are traded on the stock market, it is commodities like copper, soy beans, corn, gold and crude etc traded on the commodities market. Both small and large speculators are known for their ability to shake up the commodities market.
There are three different types of investor in the commodity markets:
1. Commercial Investors: This is the actual companies involved in the production, processing or merchandising of a particular commodity. Commercial investors account for the majority of trading in all commodity markets.
2. Large Speculators: Here a group of investors will pool their resources together aiming to reduce their combined risks and to increase their combined gains. Similar to mutual funds in the stock market, large speculators have investment managers that make decisions for the investors.
3. Small Speculators: These are the individual commodity traders who trade via their own accounts or through a commodity broker.
In order to trade commodities through AIP, you will meet a commodities advisor to discuss contract specifications for each commodity. You will also discuss trading strategies. Trading in commodities uses the same mechanics as any other investment opportunity. Investors want to buy low and sell high. The major difference with trading in commodities is that they are highly leveraged. Commodities trade in contract sizes instead of shares.
All stock investors should know about bonds. Often during times of economic turmoil bonds may be what is needed to keep a portfolio afloat. Bonds are effectively an I.O.U. and they are issued by the kind of entities that are able to cover the money the bond holder has invested in it. If you own stock in a company, you become the owner of a share of the company. As a bondholder, you become a creditor.
Entities Who Issues Bonds
1. Corporations (as a way to borrow money)
2. Governments or governmental agencies (such as the U.S. Treasury)
3. Local governments (used to fund infrastructure projects)
Even though investing in bonds is less exciting than stocks, bonds do play a critical role in any economy and they are an important role in every well-balanced portfolio.
Returns expected from bonds are usually much lower than investments in stocks. But bonds offer a much safer investment due to how they are backed by the issuing entities. The safety and stability bonds provide act as a counter balance to the fluctuations that are common to stocks.
The majority of investors should have a mix of stocks and bonds in their portfolio. Your level of risk tolerance will help you to calculate what percentage of stocks form your portfolio. The more dynamic investor will want a higher percentage of stocks verses bonds in their portfolio compared to a more conservative investor.