How to Determine What Types of Securities or Commodities Should Buy

1.Get advice:-

Determine if you would like to do your own research or hire someone to help you. Following and understanding the commodities market can be (and is for many) a full-time job requiring knowledge and expertise. If you do not have the time or inclination, hire a financial advisor to help you.

2.Invest in physical commodities:-

The simplest way to invest in commodities is to just buy the actual item itself and hope that the price increases. This introduces the additional costs of storage and shipping that come with holding a physical asset. This is generally only done with precious metals, like gold or silver, because they are smaller relative to their value. These metals are bought and sold both in coin and bullion form.

• One way to reduce your costs in trading physical precious metals is to use a remote gold dealing and storage. Several bullion firms offer online trading and safe storage of precious metals. If you're unsure of the legitimacy of a bullion firm, always check the World Gold Council's website first.

3.Invest in commodity futures:-

Commodities have traditionally been traded in the futures market. Futures, which allow an investor to trade contracts to buy or sell a commodity at a set date for a set price, carry a large amount of risk. Because these securities are often highly leveraged (paid for using borrowed money to increase earning potential), a small change in the price of the commodity can result in massive losses (sometimes even more than your initial deposit) or massive gains. In many cases, commodity futures trading is best left to professional traders and large corporations.

4.Invest in commodity-related stocks:-

Buying stocks to related to certain commodities is a way to bet on the value of a commodity without incurring all of the risk of futures trading. For example, if you want to invest in oil, you could buy stock in companies that drill, search for, transport, or sell oil. However, be advised that these stocks, while correlated with commodity prices, may not move directly with them. For example, if the commodity price jumps 10%, this does not necessarily mean that the related stock price will also jump 10%.

5.Invest in exchange traded funds:-

Exchange traded funds (or ETF's) are funds with shares that trade like stocks, allowing investors to easily buy into a more diversified portfolio of other securities. In the case of commodities, ETF's are generally comprised of futures contracts that track the value of a commodity. This allows the investor to invest directly in fluctuations of the commodity price without the risk of actually holding futures contracts.

6.Invest in mutual funds or index funds:-

Mutual funds cannot invest directly in commodities future, but can hold a variety of commodity-related stocks. This is basically just like investing in a large number of commodity-related stocks yourself, except for the fact that the mutual fund is professionally managed. Additionally, some index funds invest in commodities futures. This allows for a mutual fund-type approach with more exposure to actual commodity prices.