Using ETFs To Successfully Trade Commodities

| May 13, 2009 | 0 Comments

It finally happened this week.  It happens every year… you can’t quite set your watch to it, but it’s a constant here in the desert.  What am I talking about?  Triple digit temperatures of course.

Yesterday it was 105 degrees here in Phoenix.

If you’ve never been in the desert, remember, it’s a dry heat.

Most people dread the heat, but I happen to enjoy it.  After all, I live in an air-conditioned house, work in an air-conditioned office, and drive an air-conditioned BMW.  The heat is easy to deal with… if you do like I do and deal with it on your terms.

The same is true in trading stocks.

Back in the 1970s, few people actively traded in the stock market.  You were forced to use expensive brokers.  The cost of trading was ridiculously high.  Information was difficult, if not impossible, to come by. And the markets were held up as a mystical place.

Not anymore.

You can trade on your own terms these days.  Discount brokers have cheap rates.  You can find everything you ever wanted to know about a company on the Web (I hope the The Dynamic Wealth Report is a key resource).  And, the once mystical is now mundane.

Everyone seems to have an online trading account.  And buying shares of AT&T (T) or IBM (IBM) is easy as pie.

Trading in the markets is getting better every day.

One of the most exciting developments is the creation of ETFs (exchange traded funds).  They’ve opened doors previously shut to the investing public.  Now trading strategies only available to professional investors are available to you and me.

Let me give you an example.

Often times, professional investors use part of their funds to mirror a specific index.  Doing it in your personal account was next to impossible. Now, trying to mirror a specific index – like the S&P 500, Dow, or NASDAQ – is very easy to do.  In all of 30 seconds, you can buy a share of an ETF tracking any of these indexes and a hundred more.

I started using ETFs more than a decade ago.  As their popularity has grown, so have the number of new strategies and styles they seek to mirror.

Take commodities for example.

Just two years ago, you’d need a huge portfolio to justify trading commodities.  Your only choices were investing in the futures market directly, which is risky, or you could buy a commodity mutual fund with high fees and suspect performance.

In the last 24 months, that’s all changed.

New commodity focused ETFs and ETNs are coming out every day.  Some of these are focused on tracking a basket of commodities.  Others are focused on specific commodity complexes like Energy or Grains.  Still, more are focused on individual commodities.

Commodity ETFs are everywhere.

If you want to trade the entire commodity market, check out the PowerShares DB Commodity Long ETN (DPU).  It’s set up to mirror the movement in crude oil, heating oil, corn, wheat, gold and aluminum. PowerShares also offers an inverse fund.  That one goes up in value as commodities fall in value.

If you want to focus on just an individual commodity, check out the iShares COMEX Gold Trust (IAU).  It holds several billion in physical gold.  When you buy the ETF, you get a piece of that stock pile.  It’s a great way to easily get exposure to gold.  Something we all need as runaway government spending will spark inflation.

Like I said, these aren’t the only ones out there.  If I tried to list them all here, it would go on for pages.  Just remember the flexibility ETFs offer is great for diversifying your portfolio.

And it’s great news for us.  Think about it… commodities as an asset class were incredibly difficult to access.  Now in 30 seconds and for the cost of a regular stock trade, you can quickly add commodities to your portfolio.

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Category: Commodities

About the Author ()

The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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