Port St. Lucie, FL (PRWEB) September 10, 2008 — T & K Futures and Options, Inc. now offers clients access to a multitude of federally registered and licensed Commodity Trading Advisors. Managed futures funds are professionally managed futures accounts run by commodity trading advisors. These managed futures funds are for investors searching for greater market diversification into the various commodity sectors without having to take the time necessary to actively manage the investments on a day to day basis.

“There are many reasons why managed futures funds may be a good investment for risk tolerant investors.”

Managed futures trading allows for the opportunity to reduce overall portfolio volatility and risk because they can fluctuate independently of the stock, bond and real estate markets. Managed futures accounts can also deliver the potential for higher overall portfolio returns than a strictly stock and bond portfolio. Professionally managed futures funds have the ability to profit in any economic environment because of the ease of shorting or going long any of the various futures markets that are being traded. Managed futures trading also gives investors the ability to invest in virtually all areas of the global marketplace. Visit www.tkfutures.com/managed-futures-trading.htm to view some of the various managed commodity funds that are available to choose from.

“There are many reasons why managed futures funds may be a good investment for risk tolerant investors.”

There is substantial risk of loss involved in managed futures trading. Many managed futures funds will cease trading if the assets devalue by 50 percent but investors should read carefully through and futures fund’s prospectus before investing any risk capital. Past performance is not indicative of future results and only risk capital should be used when investing in any high risk investment. There is substantial risk of loss in managed futures trading and this type of investment may not be suitable for many investors. Visit www.tkfutures.com/risk_disclosure.htm to learn more.

There are many different managed futures funds to choose from. Some focus on only one sector of the commodity markets such as grains or metals while others trade just about every sector. This allows investors to tailor fit a fund into their overall portfolio that specifically meets their needs to have a certain missing commodity sector or asset class as part of their investments. Visit www.tkfutures.com/education.htm to learn more about the basics of commodity trading and see the various sectors involved in commodity investing.

Managed futures trading should be considered by investors as a speculative investment and at most should only make up 20% but probably less of the total assets in a portfolio. Managed futures funds are very similar to a managed stock mutual fund but the extreme volatility may be too much for some investors to take. Unlike a stock mutual fund, futures funds often require a minimum investment of $50,000 or more to begin trading.

The author of this release is a 15 year veteran of the commodity markets and the president of T & K Futures and Options, Inc. Managed futures funds to some degree may be appropriate for many investors but should be implemented sparingly based on the investor’s risk tolerance.

On Wednesday, just one day after the CFTC began holding hearings, UNG formally announced through an 8-K filing with the Securities and Exchange Commission (SEC) that it will actively seek to reduce its holdings of the IntercontinentalExchange (ICE) Henry Financial LD1 Fixed Price Contract. This also follows on the pronouncement Monday by the CFTC that the LD1 contract indeed performs “a significant price discovery function,” and is therefore subject to CFTC regulatory and reporting requirements.

But perhaps more importantly, the fund also announced that it may no longer be willing to issue any new units, or creation baskets, even if it is approved to do so by the SEC. “Due to the very recent changes introduced by ICE and the CFTC, management cannot determine at this time if, in the event that the registration statement was declared effective immediately, UNG could in fact permit the normal creation process to commence again.” UNG is still awaiting approval from its June request with the SEC to issue up to 1 billion additional units, but even if its application is approved, it noted that it may still choose to issue just a portion of that new allotment, or even none at all.

UNG already began the process of paring down its holdings of ICE swaps on Friday, when the fund sold 26,950 September ICE swap contracts and purchased a $250 million, bilateral total return natural gas swap with a series of investment-grade counterparties.

Expect UNG to continue rolling out of its ICE and Nymex positions in the days ahead. “The Nymex [natural gas] futures contracts and the LD1 contract, the economic equivalent of UNG’s benchmark futures contract, have to date provided the best means for UNG to meet its investment objective of tracking percentage changes in the price of the benchmark futures contract,” the fund noted in the 8-K filing. “However, UNG has been forced to consider other investment alternatives in order to avoid violating these new limits and to avoid regulatory action.”

UNG’s action was revealed on Wednesday as the CFTC moved through its second day of hearings on imposing position limits on commodity futures. Based on the commissioners’ questions and comments it appeared it is not a question of whether there will be position limits, but how extensive they will be and how they will be imposed, for instance on the OTC market. Limits might be more successfully imposed on natural gas contracts with the only major market in the U.S. and Canada than on globally traded commodities such as oil and wheat.

Commissioners closely questioned veteran trader and market commentator John J. Lothian, who said passive traders in the commodities markets such as index funds and exchange-traded funds “have become such large dominant players that they are the fundamentals in the marketplace.” Instead of watching supply-demand factors for the actual commodity, traders are watching for the role of the index funds “because that’s the dominant theme in the marketplace, as opposed to, perhaps, cash-futures convergence. That element of it can get overwhelmed,” he said.

Lothian, who publishes the widely read John Lothian Newsletter, said the tremendous exposure of commodities to the large index fund investments “has changed the behavioral aspects of some of those commodities because such a large dominant player is not acting by the rules of the market that I grew up with.” When the market goes up the traditional behavior is for traders to sell and take a profit. With index investors the reaction is to invest more money.

To read the entire story, visit http://intelligencepress.com and sign up for a free trial.

About Intelligence Press

Intelligence Press Inc., (IPI) is an independent publishing company serving the energy industry since 1981 with leading news and price survey reports for the natural gas market in its publications: Natural Gas Intelligence, Daily Gas Price Index, Weekly Gas Price Index and Power Market Today.

The publisher offers real-time news on natural gas and power market developments at http://intelligencepress.com. Additionally, Intelligence Press provides historical price data, publishes natural gas infrastructure, storage maps and glossaries.

Contacts

Intelligence Press
James Geanakos, 703-318-8848
james@intelligencepress.com

Permalink: http://www.businesswire.com/news/home/20090730005819/en

BOSTON–(BUSINESS WIRE)–FundQuest has adjusted its recommended allocation to include three additional asset classes on its open architecture platform for financial advisors. FundQuest, a leading managed account services provider, helps advisory firms to control costs and accelerate growth through outsourced technology, back-office, and investment research services.

According to Tim Clift, Chief Investment Officer at FundQuest, “Our research indicated that the market correction has provided an opportune time to add these three asset classes. In particular, we see good valuations, increased portfolio diversification, and a means to add a hedge against future inflation and a weaker dollar.”

Financial advisors are looking for additional ways to serve the needs of their increasingly risk-averse investor clients and, based on FundQuest’s analysis of the current markets, each of the three additional asset classes has specific potential benefits.

First, as a group, commodities have the potential to provide inflation protection to a portfolio. Second, in general, hedge-style mutual funds exhibit low correlations to long-only stock and bond indices and, on average, have offered a superior “return-per-unit-of-risk” compared to stocks and bonds. Since hedge-style mutual funds are under Securities and Exchange Commission regulatory oversight, they offer investor protections including transparency and a level of liquidity which most traditional hedge funds do not provide. Finally, bonds of developed (international) markets currently look attractive on a relative value basis when compared to the US bonds which usually dominate traditional portfolios for US based investors.

In FundQuest’s model-based-portfolios, approximately ten percent of the assets are allocated to alternative investment classes. For advisor-directed portfolios, FundQuest offers a wide selection of hedge-style mutual funds and research-based recommendations.

FundQuest conducts rigorous quantitative and qualitative due-diligence on all FundQuest recommended investments including: length of track record, relative performance, adherence to objectives, risk profile, manager tenure, and other key criteria.

Past performance is no guarantee of future results.

About FundQuest

FundQuest is the best partner to RIAs, independent advisors, broker-dealers, banks, and trust organizations to help them grow, control expenses, improve profitability, and expand their fee-based product and services offerings. The company’s advanced technology, objective investment research, high quality back-office operations, and sales support services enable financial advisors to deliver highly competitive personal wealth management services. FundQuest’s services are employed by more than 180 financial advisory firms.

Financial advisors leverage FundQuest’s flexible wealth management solutions to deliver: unified managed accounts, mutual fund advisory, hybrid active and passive portfolios, separately managed accounts, income portfolios, trust services, annuities, exchange-traded funds, and alternative -investments. FundQuest provides well-established connectivity to all of the major custody and clearing firms.

The combined US and European operations of FundQuest have $40 billion in assets under management and administration. FundQuest’s services are offered in the U.S. through FundQuest Incorporated, a registered investment adviser based in Boston, MA. FundQuest is part of BNP Paribas, one of the world’s largest financial services firms. www.fundquest.com/usa

Contacts

FundQuest
Jim Graves, 617-526-7386
jgraves@fundquest.com

Permalink: http://www.businesswire.com/news/home/20090722005776/en

KIGALI, Rwanda–(BUSINESS WIRE)–As part of its ongoing commitment to east Africa, Starbucks Coffee Company (NASDAQ: SBUX) announced today that participating stores in the U.S. and Canada will offer for a limited time a selection of African coffees and other products from the region beginning next week. In addition, Starbucks executives started a four-day visit to Rwanda today and met with the local groups supplying the items for the Starbucks coffee and merchandise as well as recipients of contributions through its relationship with (PRODUCT)RED™.

Featured coffees for this summer include an East African coffee blend offered as part of Starbucks ongoing relationship with (PRODUCT)RED™. For every pound of the (STARBUCKS)RED Whole Bean Coffee sold in the U.S. and Canada, Starbucks will contribute US $1 to the Global Fund to help support AIDS programs in Africa. Stores in the U.S. and Canada will also feature a 100 percent Rwanda coffee, which is noted for its crisp and clean finish.

Included in today’s visit was the TRAC (Treatment and Research AIDS Center) center and clinic. TRAC is Rwanda’s national HIV and AIDS research center which houses the country’s busiest/most demanding HIV clinic. Starbucks senior leadership team had the opportunity to visit the clinic and learn and witness in person how the availability of antiretroviral therapy, which (RED) helps finance has help make a difference in peoples’ lives.

Also featured in Starbucks stores this summer will be merchandise created by Rwandan artisans – such as authentic African fabric tumblers and cotton canvas hand sewn totes – from Fair Winds Trading. Through our relationship with Fair Winds Trading, we are able to give our customers an opportunity to connect with a community of artisans who are working to create a better life for themselves and their families. These products are another way Starbucks is connecting our customers with the people and places that grow our coffee and investing in the success of Rwandan communities.

About Starbucks

Starbucks Coffee Company provides an uplifting experience that enriches people’s lives one moment, one human being, one extraordinary cup of coffee at a time. To share in the experience, visit www.starbucks.com.

About (RED)TM and (PRODUCT)RED

(RED)’s primary objective is to engage the private sector in raising awareness and funds for the Global Fund, to help eliminate AIDS in Africa. Companies whose products take on the (PRODUCT)RED mark contribute a significant percentage of the sales or portion of the profits from that product to the Global Fund to finance AIDS programs in Africa, with an emphasis on the health of women and children. Current partners are: American Express (U.K. only), Apple, Converse, Gap, Emporio Armani, Hallmark, Dell, Windows and Starbucks. Since its launch in the Spring of 2006, more than $130 million has been generated by (RED) for the Global Fund. (RED) money is at work in Swaziland, Rwanda, Ghana and Lesotho. For more information, visit www.joinred.com.

Photos/Multimedia Gallery Available: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=5996048&lang=en

Contacts:

Starbucks Coffee Company
Lara Wyss, 206-318-7100
press@starbucks.com
or
Edelman
Meredith Bell, 323-202-1042
meredith.bell@edelman.com
or
For UK Media:
Edelman
Emma Noble, +44(0)7989 857167
Emma.noble@edelman.com

It’s great to be able to trade a commodity where you wouldn’t mind actually taking delivery.

Coffee prices have been rising for the last two years, after a substantial dip. Producers haven’t completely recovered, but for the first time in several years optimism is on the rise.

Prices fell from around 129 to 113 cents per pound over the first six months of 2006, but the good thing about commodities trading is it’s just as easy to make profits in a declining market as in a rising one. Stocks, by contrast, make shorting a much more risky and difficult prospect. Investors tend to make more money on a rising stock market than a falling one.

Currently, Brazil remains the world’s largest producer, so as the saying goes ‘as goes Brazil, so goes the world’ where coffee is concerned.

2006 Million Bags % of World
Brazil 36.1 32%
Vietnam 12.3 11%
Colombia 11.6 10%
World 112.7 100%

But in recent years Vietnam has become a major producer, and in the two years since the U.S. rejoined the ICO (International Coffee Organization) many interesting things have been happening.

World production, as estimated by the USDA (U.S. Dept of Agriculture), is expected to be around 123.6 million (60kg) bags, with an expected use of 122.4 million bags for 2006-2007.

The USDA is estimating the Brazilian coffee crop at 44.8 million bags, up 24%. The Brazilian government is putting the estimate at 40.6 million bags. The International Coffee Organization, ICO, figures are roughly the same at 120 million bags total, with Brazil at 40.6.

For complete statistics on coffee, including production amounts by type and country, historical and current prices, etc see the International Coffee Organization website at http://dev.ico.org/trade_statistics.asp

Coffee futures contracts are traded on the NYBOT (New York Board of Trade), currently around 98 cents per pound in July 2006. The price has recently trended downward along with many other commodities. But supplies remain relatively tight, with stocks being drawn down in both exporting and importing countries.

With total ending coffee stocks at 21.75 million bags, the stocks-to-use (SU) ratio is the lowest in two decades at 18%. That means upward price pressure, or at least good price support.

Balance that against the fact that most commodities prices, metals and energies in particular, experienced sharp rises from 2000 to the present, while coffee fell or remained static. So, like any other commodity, coffee is a crap shoot. But, several large traders, such as Paragon Trading in New York, are expecting a supply crunch during 2007 that won’t ease for at least two years.

The standard contract size on the NYBOT is 37,500 lbs (approximately 250 bags). At that size, maybe you won’t want to take delivery after all, but a futures contract can be obtained for somewhere around $2,000. With world consumption steady and supplies tight coffee still makes for a viable investment.

Silver is unique among commodities. Like gold and a few others, private investors can feasibly take actual delivery. But unlike gold, the price is within reach. Physical storage is not out of the question and security can be as simple as bank’s safe deposit box.

The possibility of taking delivery on a commodity expands trading strategies since it allows for additional hedging, using a combination of spot and futures contract trades. It also allows for pure spot trading with local merchants. ‘Spot trading’ means buying and selling the actual commodity, as distinguished from trading futures contracts in which actual delivery, for most traders, is rare.

Another advantage of silver is its relatively low per ounce price. Silver has traded in the range of $5-$15 per ounce for decades. Like lower-priced stocks, those prices make silver more accessible to the average investor in quantities large enough to make substantial profits.

That price range doesn’t sound good to someone used to trading stocks and seeing them rise to ever greater heights over the years. But factoring in inflation, those stock prices don’t always look so good. Silver, like gold, is one way to measure real prices.

Traded on COMEX (The Commodity Exchange of New York) and elsewhere, the standard contract size for silver futures is 5,000 troy ounces. A ‘troy’ ounce is 1.1 times the common avoirdupois ounce used in cooking and packaging. COMEX is a division of the New York Mercantile Exchange.

The tick (minimum price fluctuation) is $0.005 per troy ounce. With a minimum of 5,000 troy ounces, that makes a tick worth $25. That’s a substantial change to those used to stock prices which move around 10 to 25 cents per share, but multiplying by 100 shares brings it in the same range. In any case, it’s a normal amount in commodities trading.

A standard price quote may appear as:

Contract Date Last Change Open High
Jun ‘06 (SIM06) 1014.8 -3.7 1013.8 1014.8

Low Date/Time
1012.8 12:29

The contract date specifies the expiration month and year of the contract. The specific date is set by the exchange. The characters in parentheses are a standard abbreviation for a futures contract. SI is silver, M is the short form used for June and 06 specifies the year, 2006. The others represent familiar price quote columns.

The prices are specified in cents per troy ounce, hence 1014.8 would be equivalent to $10.148 per ounce. One contract at $10 per ounce, for 5,000 ounces is therefore an investment of $50,000. For the average investor, that’s a substantial chunk and one of the reasons futures and options – which allow investing around 5% of that – are so popular.

One caveat: silver prices – like those of any commodity – are volatile. In May 2006, the silver price peaked at over $15 per ounce. It promptly retraced to around $10 per ounce. But, as with any other form of trading, what counts is not the absolute price or even solely the trend. Profits are measured by the difference between buying and selling prices and that means timing is essential.

For decades, commodity trading in petroleum products was a club for only the big guns. At 42 gallons per barrel, and a minimum contract size of 1,000 barrels, the prospect of delivering oil was only for professionals. But several changes have occurred in the last few years to alter the scene.

Oil prices remained stable for decades until the explosion of the mid-70s. Political and technological changes resulted in shortages, uncertainty and rising prices. Since then prices have risen to over $70 per barrel and are expected to rise from mid-2006 to mid-2007 and then decline slightly for the following two years.

No one can predict oil prices with certainty, but there are several large scale factors that make reasonable projection possible.

Demand is rising, and is likely to continue for at least the next few years and probably longer. India and China are both experiencing substantial technological and cultural changes. India in particular is embracing more elements of a free-market economy than it ever has and the trend shows no signs of being reversed, or reversible.

Western technology and business methods are bringing India into the 21st century very rapidly. Along with that comes an increase in demand for energy, primarily oil-based, in order to build new homes, office buildings, manufacturing plants and more. Large segments of what was once a largely rural economy are seeing the effects. That leads to even more demand.

Demand isn’t enough, of course. An individual can want anything. But India’s ability to buy those goods is increasing. With an inexpensive, highly educated work force India is becoming the central focus for outsourcing for Information Technology, electronics manufacturing, communications and more. Those 21st century businesses are expected to continue to expand for at least the next decade. Just as one indication, broadband adoption is growing rapidly in India.

China now has the largest mobile phone use in the world, and the second largest Internet population. Demand for energy is increasing there and is expected to continue for the next decade at least. Though ostensibly ruled by the Communist Party, social forces are eroding its effectiveness. No one can know whether repression will ease or increase, but the flow of information is difficult to block even for a dictatorship.

As social changes continue, business is increasing in China. Energy demand is up. New buildings, manufacturing plants and infrastructure is constantly being built. All those require energy, primarily oil-based.

At the same time demand is rising, supply rates have becoming static or declined. Temporary refinery loss, such as that due to hurricanes, can be recovered in a few months to a year. But North Sea oil production peaked in 2000 and has been tapering off slowly. Until or unless political changes occur that release the large known reserves in Alaska, substantial new sources are unlikely to come into play. No new sources are expected to come online anywhere in the world.

Technology is leaning more toward developing other forms of energy, though they are not expected to be on the market for more than ten years. Fuel-cell powered cars, which would account for only 7% of gasoline use anyway, won’t be in everyone’s driveway for some years to come.

Political pressures to forbid nuclear power, at least in the U.S., are not expected to change. The waste disposal problem is still a political football with no solution in sight.

Finally, new forms of oil trading mechanisms are evolving to allow the average investor to participate in this once-exclusive club.

E-mini futures on the Chicago Mercantile Exchange, for example, allow for trading contracts half the traditional size, 500 barrels. Futures and options on NYMEX (New York Mercantile Exchange), though still at the 1,000 barrel size require less than 5% investment, putting them within reach of all. Commodities pools and funds (such as those from Pimco and Oppenheimer), which allow investing fractional amounts, are becoming more popular.

The risk/reward balance was never more favorable for the average investor to investigate oil commodity trading.

That last question is stated just as it should be. Not ‘what to buy (or sell)?’. Investing, true enough, is buying with the intention of selling for capital gains or reaping dividends in some form. But ‘buying’ is an activity carried out for consumption. Investment is undertaken to make a profit.

So, the question becomes, what will return the most profit for a given risk over a specified span of time? And, the sad but true answer is: no one knows.

Nevertheless, it is possible to judge the pros and cons and make moderately well-founded predictions based on history and current circumstances. So, here goes…

STOCKS

Dozens of thorough studies show that over a span of 10 years or more stocks in general will outperform any other investment. Historical returns averaging 12% per year are well-documented. No bond, real estate, commodity or other investment does so well, on average.

But there are two drawbacks to that position. Few investors want to buy a stock and hold it for 10, 20 or more years in order to be safely assured (to the degree that’s possible) of seeing that return. Second, funds aside for the moment, individuals don’t invest in ’stocks in general’, they buy and sell a particular stock.

So, if stocks are attractive, consider a particular company’s prospects over the time span you select. Technology, and other social and economic changes, eventually obsoletes every company. Except, of course, those that change with the times, eventually becoming an entirely different kind. General Electric no longer makes most of its revenue from selling light bulbs.

BONDS

Bonds, when well rated (AA or above) by one of the major agencies, return 4% or better with low risk and semi-annual interest payments. But assuming a modest 25% tax rate, the return is already down to 3%. Add the effect of even modest inflation at 2%, and the return is down to 1%. That doesn’t even include the possibility of price depreciation for those who chose to sell prior to maturity.

Even so, bonds have advantages no other instrument enjoys. Since they have a set interest rate and maturity date, their behavior is much more readily predictable, given plausible assumptions about interest rate changes and other economic factors.

And many millions of skilled investors make substantial sums through bond investing. For those who can follow their lead, or carry out their own research, healthy profits are possible with modest risk.

COMMODITY or CURRENCY

Neither commodity nor currency exchange investing is appropriate for the novice investor. Period. Though the situation is changing. See Funds below.

REAL ESTATE

Real estate investing, either through actual property acquisition or paper investing (via Mortgage Backed Securities, ETFs – Exchange Traded Funds, IRAs – Individual Retirement Accounts – or other means) is a stellar way to make substantial gains. But, for all except those who simply occupy the property, it’s a full time job.

FUNDS

For those with limited time or temperament for research and investment tracking, funds offer an excellent alternative to direct investing. Mutual funds, one of the more common types, pool investor money and diversify investment (usually) into a variety of instruments: stocks, bonds, currency, commodities, etc.

Investors save money by not incurring a fee for every trade, but pay management fees of one kind or another (usually annual), and those can eat substantially into overall returns. Check out each carefully.

It would be pleasant if the situation were simple. But, if it ever was it no longer is. As Einstein once said, “A theory should be as simple as possible, but not simpler.”

On the upside, the research and advice available today is better than ever. With the Internet, individuals can investigate instruments at least to the degree that helps confirm or contradict recommendations made by advisers. (Including mine!)

Tread carefully at first, then be bold.

The Chicago Board of Trade (CBOT, http://www.cbot.com) for example trades a wide variety of commodity types. On the exchange, traders will find everything from corn, soybeans, wheat and oats to several metals contracts: 100 oz Gold, 5,000 oz silver and newer ‘mini’ contracts for both. Mini’s are contracts in which the amount covered by a standard contract are smaller than the traditional amount, allowing for a lower initial investment and smaller price increments or ‘ticks’.

The CBOT also offers an array of non-physical ‘commodities’ futures contracts. Government bonds futures contracts are traded: 30-year bonds, 10-year notes, 5-year swaps, and more. A swap is the combination of a cash trade and a forward – similar to futures. They’re used primarily for hedging. The CBOT also trades a number of indexes, such as the Dow AIG Index (a commodity index), and the Big Dow (an index on stocks).

Also housed in Chicago, the CME (Chicago Mercantile Exchange, http://www.cme.com) trades commodities as it has for over a hundred years. Reflecting its long history, the exchange trades live and feeder cattle, hogs, pork bellies and others. Lumber, milk, butter and even fertilizer are traded here.

But the CME has other, more esoteric products. The exchange offers an E-mini S&P 500 contract to trade the Standard & Poor’s 500 Index on stocks. If the NASDAQ is more your style, they offer the E-mini NASDAQ 100 that trades a futures contract on that popular index.

Even Eurodollar futures are traded here. But the most unlikely contract has to be the Weather derivative – a futures contract that speculates on weather around the globe during different seasons.

NYMEX is the acronym for the New York Mercantile Exchange. (http://www.nymex.com/index.aspx) Among the oldest in the U.S., they offer commodity and futures trading on a wide variety of petroleum and metals products, each with a distinct exchange abbreviation. Brent and mini-crude (CL, WS), Natural Gas (NG), Gasoline (HU), Heating Oil (HO, BH), and others.

Gold (GC), Silver (SI), Copper (HG) and Aluminum (AL) are offered, too. Note that the commodity abbreviations do not match the common chemical element abbreviations. Futures contracts are listed second and have their own abbreviation.

Another major exchange housed in New York is the NYBOT (New York Board of Trade). New York’s original futures exchange, it offers contracts on cocoa, coffee, sugar, FCOJ (frozen concentrate of orange juice), cotton and other agricultural products. It also trades non-physical items, such as currency pairs, the U.S. Dollar Index, the famed NYSE Composite and more. The NYBOT offers live price info and will even feed a Blackberry device.

But the U.S. has no monopoly on commodity and futures exchanges. One of the world’s most active is in London: Liffe (http://www.liffe.com). Formerly known as the London Fox (London Futures and Options Exchange), it’s now merged with euronext. The exchange trades cocoa, sugar, coffee, wheat, barley, potatoes and other agricultural products.

Not far away is the historic London Metal Exchange (http://www.lme.co.uk), one of the grandfathers of precious metals trading. Copper, lead, aluminum, and several others are traded here. The exchange even trades plastics.

Japan, too, has a major exchange, the Central Japan Commodity Exchange (C-COM, http://www.c-com.or.jp), based in Nagoya, Japan. Formed in 1996 from the merger of three other major exchanges, commodities range from eggs to gasoline and kerosene to ferrous scrap.

Observe there are some differences. Because of shipping costs, differences in composition, and so forth, some oil does sell for a different price than that from another source. Texas crude and North Sea oil are close enough for many purposes, but they trade on different markets and have different prices.

Commodities can be traded on either spot markets, or in the form of futures.

Spot markets are those in which the commodity is traded immediately in exchange for cash or some other good. You go to the local jewelry store and buy an ounce of gold. That’s a spot trade. You give the jeweler several hundred dollars in cash, he gives you an ounce of gold, usually in the form of a coin, ‘on the spot’.

Other traders exchange commodities on spot markets in much greater quantities – thousands or millions of ounces of gold or barrels of oil. At some time the actual good is delivered. After all, at some point, someone has to use the good or it’s, so to speak, no good.

In the form of futures (or options), what is traded is not the good itself, but a contract to buy or sell the commodity for a certain price by a stated date in the future. Hence the name.

Most commodities trading is done in the form of futures or options and it’s that scenario that gives rise to most of the huge potential for profit and loss. It also gives rise to all the interesting aspects of trading, since it inherently involves predictions of the future and hence uncertainty and risk.

Commodities trading has been around for centuries, but the modern markets arose in the late 18th century when farming began to be modernized. Though the pace of trade and many of the detailed mechanisms has changed, the basics are still the same.

Growing wheat, for example, took several months then from planting to harvest to delivery. It still takes several months. A farmer might plant wheat in April and discover in June that the price someone is willing to pay for delivery in August has dipped over the past month.

For example, suppose on May 1st wheat to be delivered September 1st is selling for $4.00 per bushel. By June 1st, it has fallen to $3.80. The farmer may believe the price will continue to fall. He offers a contract on his wheat to be delivered September 1st for $3.80 per bushel, locking in a price today at the current market level. In exchange, he accepts a legal obligation to deliver the wheat on or before September 1st.

Fortunately for the farmer and others, some believe the price will in fact not fall but instead will rise by September 1st to $4.20 per bushel.

That kind of prediction is typically based on a very complicated analysis of current conditions, such as the total amount of acreage under plant, soil moisture levels, weather predictions for the coming months, political events and dozens of other variables.

No one knows the future price with certainty, that’s why it’s called speculation.

Come September 1st the farmer delivers his wheat and is paid $3.80 per bushel. If the price turns out then to be $4.20 per bushel, the speculator makes a healthy profit. If the price is, say $3.50 per bushel, the speculator has lost money.

That’s commodities trading in a nutshell, or rather in a basket.