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Ask the Analysts: What commodity would you recommend to a new trader?

posted on July 22, 2014


What commodity would you recommend to a new trader?  In each Ask the Analyst segment, experienced commodity market analysts provide thoughtful insight on trading skills, price trends, and strategies to help students and producers better understand how the markets work.

What commodity would you recommend to a new trader?

Don Roose: I would recommend a commodity that doesn't move very fast because you want to have time to analyze it. I would say probably a slower trading commodity is probably the corn market. And I would make sure that you did a lot of research first, that you understood it because there's two things about commodity trading. Number one, you have to -- it's kind of like a basketball game. It's one thing watching it on TV, it's another one playing it. So you want to make sure that you're emotionally prepared for whatever happens. 

Naomi Blohm: Crude oil. And the reason is because the math is easier because very tick in crude oil is $10 a tick. So you don't necessarily have to have a calculator. If you're going in it from a speculative standpoint too sometimes it's kind of neat to see what is happening in the world. And that helps you stay in tune to the world with politics, with economics, it also then plays into what is happening in the United States with how our production has improved. 

Dan Hueber: For the average person that wants to be in a commodity market, not looking at the financials such as the S&P 500, which can bring a lot of excitement, I would tend to say stay with corn and wheat. Again, they are the foodstuff, the feedstuff of life. They're large, corn especially it is a very large market. And the purpose there is you don't get necessarily as tied up in aberrations and swings because of extreme rumors. And in thin trade sometimes those swings can be more than a person emotionally really wants to handle. So I say stay with the big markets like corn. If you want a little more excitement soybeans is there. But soybeans is probably not for the faint of heart. You need to maybe have a little experience under your belt for that one. 

Elaine Kub: I think you should look for a market that has good, available information. So, not necessarily whatever is the most exciting move, for instance, this year coffee has been wild, it has doubled in price in 2014 already. But to be able to understand that or to get very timely information on that is rare. So it would make more sense to me to start in something that just your average news source would cover. Oil is a good example, it's a good proxy of the entire economic situation. So anything that would affect the American consumer can affect the oil price or global consumer can affect the oil price. They have mini contracts so you can start at a lower price. So that is one example. Or in the grains, if you feel like you have a good understanding of supply and demand of grain or what market factors would impact that you could start in let's say corn has very good open interest and they have mini contracts so they're cheaper. If you understood the spreads, the corn spread trades between the calendar, between each calendar month contract, that would be the best low risk, low price way to get started and you'd really have to understand what's going on in the markets so you could become an expert. 

 

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