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Notes On Trading Commodities And Currencies

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Trading Commodities and Currencies in a Portfolio

BUS 445 – Portfolio Management

Scott A. Blumer

Waynesburg University

Abstract

This paper explores several published articles that report on results from trading commodities and currencies as it relates to portfolio management. A few of the articles that I researched gave me a more general idea of how to invest in commodities and currencies. Some of the articles vary in that each of them has a different opinion on portfolio theory. For example, in their article, Jensen, Johnson, and Mercer claim that commodity futures are equal to equity returns over time and that they offer significant diversification benefits to an investment portfolio. In
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The four categories are energy, metals, livestock and meat, and agricultural (Agarwal). The commodity market can allow investors to earn returns based off the price volatility of different commodities in the global market. Obviously, in today’s market, online trading makes it a bit simpler for individual investors and investment firms to trade commodities. However, investing in commodities often comes with higher risk than equity but can be just as fulfilling if done properly (Agarwal). Commodity trades are vastly leveraged trades, meaning that the margin requirement for trading is pretty low in comparison to total holding, which increases the gains and losses an investor can earn (Agarwal). The three main ways an investor can invest in commodities are through stocks, mutual funds, and commodity futures. Investing in a commodity-based stock like a sugar company is one way. This is a traditional investment approach that will allow for secondary contact to commodities. A point to make apparent is that there is no correlation amongst commodity prices and commodity stock price fluctuation (Conover). A stock’s operation can be dependent upon overall market sentiments (Conover). Lastly, investing in commodity-based stocks can be simpler for minor investors instead of openly investing in the commodity market. Another way you can invest in commodities are through mutual funds. In this case, an investor can invest in a commodity-based mutual fund like one that
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