Trading Commodities For A Living

Trading Commodity Indexes

Everyone knows what a stock index is. It is price weighhed or value weighted measure of a basket of stocks. Indexes are very important in the world of investing. If you want to invest in commodities, you should invest in a commodity index.

Just like other indexes, commodity indexes track the performance of a basket of commodities. This basket usually includes wheat, corn, soybeans, coffee, sugar, cocoa, cotton, lean hog, live cattle, feeder cattle, heating oil, gas oil, unleaded gas, crude oil, natural gas, aluminum, copper, lead, nickel. Zinc, gold, silver etc So you can see, these indexes track a variety of commodities.

The most popular commodity index is the Goldman Sachs Commodity Index (GSCI). GSCI tracks the performance of 24 commodity futures contracts. Another popular commodity index is the Reuters/Jefferies Commodity Research Bureau Index (CRB).

Now CRB is an important commodity index and it is widely followed by hedge funds, institutional investors, retail investors and economists as a commodity benchmark. CRB is based on a basket of 19 commodities that have been primarily chosen on the basis of their liquidity and performance in the past. If you are into commodity investing than you need to keep an eye on CRB. Another very important commodity index is the Dow Jones-AIG Commodity Index abbreviated as DG-AIGCI. Now DG-AIGCI places a premium on the liquiduty and production of the commodities. This ensures that no commodity dominates DG-AIGCI.

Now, Rogers Commodities Index (RCI) is another very important commodity index that you should know if you are into commodity investing. RCI is based on a list of 35 commodities. RCI tracks the most commodities in the different commodity indexes.

The best and the most direct method is to trade futures contracts on one of the commodity index. A few of these indexes have futures contracts that track their performance. You can also trade futures contracts on individual commodities included in the index.

Another method is to invest in commodity mutual funds that track these indexes. One way is to invest with a third party manager that uses commodity indexes as the basis of their investment strategies. Some of these vehicles include mutual funds, commodity pools or Commodity Trading Advisors (CTAs).

Last but not the least, is the great investment opportunity that Commodity ETFs ( Exchange Traded Funds)provides. This is a highly popular alternative that a good investor should not miss. These Commodity ETFs track the performance of a commodity index and provide you with a great opportunity to profit from the boom in the commodity market!

About the Author

Mr. Ahmad Hassam has done Masters from Harvard. Get FREE COPIES of the
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