Summarize the following:
Commodity stocks are those stocks that have prices that move with underlying commodity prices. This correlation is stronger for some stocks than for others. The important thing is that the company be related to the production or use of the underlying commodity. For example, rather than investing in aluminum futures, you could buy stock in companies that mine it. This way you lower your risk but are still participating in the commodities markets. Commodity stock prices will not move directly with commodity prices and may be influenced by other factors like company performance or underlying reserve values. Stocks are far less volatile than futures and they are easy to buy and sell. You could also consider buying mutual funds that invest in a variety of commodity-related stocks. Stocks and bonds are long term and have no expiration date like those of commodities or options. Start looking for commodity stocks to invest in by first locating a commodity that you want to invest in. You can identity this commodity either by simply choosing one that interests you or by following market news for information on potential price volatility. Locate related companies by searching for them on market websites. You can start by looking for companies that produce, refine, or ship your chosen commodity. Alternately, you can look for companies that use your chosen commodity as a primary input to production. Commodity-related stocks can be analyzed fundamentally or technically. Use fundamental analysis to determine if the company is a good value and likely to prosper in the future. Once you've chosen a stock, identify buying opportunities by watching the price movements of the stock to determine the optimum purchase and sale opportunities. Any type of online brokerage account will give you access to buying and selling stocks. Simply place an order for the amount of shares of the commodity stock you want to buy or sell. After you've bought it, track the stock's price and the price of the underlying security to determine when to sell. Cash and margin accounts are available. The latter provides an ability to sell stocks short as well as the ability to borrow money from the brokerage firm. Be aware that leverage increases the profit potential of a trade as well as its risk. When buying stocks of any kind, diversification reduces the risk of loss present in a single company. Consider buying multiple companies in the same industry to reduce the risk of owning a single company; buy companies in different industries to reduce the risk of owning a single industry.
Understand commodity-related stocks. Identify a commodity-related stock. Open an account with a broker.