Second Income

Commodity investing has the reputation for being risky. Many investors are simply scared of investing in commodities. Now, statistically speaking there is no more risk investing in commodities than there is investing in stocks. For whatever reason, investors have shunned commodities as investments for what they think are the more prudent investments such as stocks.

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Humans are simply afraid of what they don’t know. Investors are also human so they also feel afraid of something that they don’t know. We keep on listening about stocks from an early age. This makes us quite familiar with stocks.

We are willing to invest in stocks even when they don’t perform well. Just take the case of the recent stock market crash that happened in 2008. Investors lost something like 70% of their investments but still they are waiting for the stock prices to recover. In 2000, when the technology bubble burst, investors lost something like $3 trillion. On the other hand, commodities are something unknown to many investors. They don’t know how to trade them. They don’t have any idea of what instruments are used to trade them. So they become afraid when someone suggest commodities are a great opportunity right now!

There are dozens of commodity futures contracts that you can trade. Suppose, we want to trade the Soybean Futures Contract. This contract gets traded on the Chicago Board Of Trade (CBOT). The margin requirement for the Soybean futures contract is only 4%. What this means is that with only $400 in your trading account, you can trade a Soybean futures contracts worth $10,000.

But hey, leverage is a double edged sword that cuts both ways. If the market goes the wrong way, you can lose a lot more than your principle. Anything you do in life is risky. Even your marriage! Love can turn sour and end up in a messy divorce. But that doesn’t mean you shouldn’t love.

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