Different Ways to Invest in Commodities and Futures
Posted By:- Ilan Levy-Mayer Vice President, Cannon Trading Futures Blog
When it comes to investing in commodities/futures there are several different ways to do so. I’ve been a futures broker at Cannon Trading Company for about 4 years and I wanted to touch base on a few different ways I have seen clients trade and invest in futures and commodities over the years.
I have seen many investors (small and large) participate in trading ETFs or ETF funds. With ETFs you do not own the actual commodity but you are looking to track the performance on either a single commodity or commodity index containing many different commodities through either its physical storage or derivatives positions in the market.
I do not accommodate trading ETFs or ETF funds with my actual clients. I am a registered futures broker and here at Cannon Trading Company we do not accommodate ETF trading for our clients. Please keep in mind the differences when trading ETFs versus commodities and futures. With ETFs you may experience management fees where as if you have a self directed futures and commodities trading account you will not experience those types of fees. Also when trading futures, unless you have a limited power of attorney on your account where you authorize another individual to trade your account, there is not a third party making your trading decisions and trading your account on your behalf. Here, at Cannon Trading Company many futures/commodities trader have self directed accounts where he or she makes their own decisions when it comes to trading.
At Cannon Trading Company I have seen three main ways futures and commodities traders participate in trading. I mentioned the first method above, which is self directed trading. Many futures traders small and large create their own strategies, using either specific algorithms, studies, and or a combination of specific methods with different futures markets. From the futures traders’ own studies, the client decides how and what trades to take with specific futures and commodity markets. Also the futures trader gets to decide which trading platform he or she executes their trades. There are many different types of futures/commodities trading platforms offered in the industry. Most are chosen specifically on the client’s trading needs and may be chosen with some help from their futures broker.
Another popular method I have seen futures and commodities traders participate in the market are trading with his or her futures broker or better known as broker assisted accounts. With these types of accounts the client and commodities broker can discuss different markets the client is interested in trading. The client gets to interact with an experienced futures broker who has studied the markets and have assisted other clients with trading futures and commodities in the past. Together the client and futures broker can come up with specific strategies to enter and exit the market either with futures and or futures options. They also discuss different prices in which the market is trading where the client can enter and exit the market, different lot size the client can trade, news or reports that may have or are affecting price movements in specific markets, etc. After the client and futures broker have decided on the trade, the broker will usually place the trade themselves on behalf of the client. Please note there is no guarantee on a return on your investment when trading with your broker. This is merely another option a futures trader can choose when investing in futures and commodities.
The last option I have seen futures and commodities traders participate in are through fully managed accounts, specifically on futures and commodities markets. These managed accounts are usually managed by a CTA, Commodity Trading Advisor. The CTA makes trading decisions on either following a specific algorithm in which takes trades on behalf of a client; follows a trading system which he or she takes trades on behalf of the client; or has come up with their own method in trading specific commodity futures markets. The CTA must provide the client with disclosure documents about the method in which they plan to trade the client funds, along with disclosing past performance and all fees the CTA will charge the client.
At Cannon Trading Company we offer all three types of services to our clients (self-directed accounts, broker assisted accounts, and fully managed future accounts). If you are interested in trading futures and commodities and would like to learn more about the different types of accounts we offer, please visit our website www.cannontrading.com.
Kimberly Pabillon has been a futures brokers at Cannon Trading Company for over four years. Her previous experience was with two large financial organizations SunAmerica and Bank of America working with both seasoned financial advisers and in consumer banking. Kimberly attended college at Seattle University in Washington State. She graduated with a Bachelor’s degree in Communications.
Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.
By Kimberly Pabillon – Broker with Cannon Trading Company