Commodities are an asset class that are an alternative to the 3 benchmark classes, stocks, bonds and money markets.  Commodities include, precious and base metals,  petroleum, natural gas, grains and softs and represent excellent instruments to trade options.  Commodities are volatile financial products  and therefore the premiums on commodity options are relatively expensive.  Because of this nature, commodities create excellent opportunities to make robust returns.

There are a number of ways to trade commodity options.  The oldest and most common are options on futures.  A futures is the obligation to purchase a specific commodity as a certain time in the future.  Commodity futures can be physically delivered or financially settled.  For example, a Silver contract requires that the contract purchaser takes delivery of 5,000 ounces of silver if the contract is held past the delivery date.  On the other hand, Eurodollars futures are financially settled were the purchaser is received or pays the different between the purchase price and the settlement price.  Options on commodity futures are delivered into the futures contract itself.

A second type of option that can allow an investor to speculate on commodities are options on ETF’s.  An ETF (exchange traded fund) is a equity like product that can specific exposures to commodities.  For example, the ETF USO (United States Oil Fund), is a trust that holds oil futures.  This ETF is highly correlated to the NYMEX Oil Contract.  The ETF trades on the NYSE, and there are option on this ETF.  The options are relatively liquid and allow investors access to the commodity option market.

Copper is an industrial metal and is usually related to growth prospects around the globe.  As economies around the world expand and manufacturing demand increases, prices of copper increase in tandem.  As economies begin to contract and manufacturing and construction levels declined, the prices of copper also decline.

Gold and silver have historically traded as both commodities and currencies.  Gold and silver each have their own interest rate curves that create the shape of the long-term profile.  Similar to currencies these commodities use forward points to create the forward curve.

An ETF is a unique investment that combines features of stocks and index funds. Like stocks, they can be traded any time during the trading day on a stock exchange. Like index funds, they represent an investment in a pool of financial assets or securities that mimic the performance of a specific index. Here are some compelling reasons why you should be trading ETF’s:

[We highly recommend ETF Trend Trading if you want to be taught 1-1 on how to make money from ETF Trading...]

#1) ETFs are safer than single stocks or commodities or currencies. Because they represent a basket of underlying assets, you are automatically diversified for risk and not dependent on the fortunes of a single financial asset.

#2) You can trade an ETF just like an equity on the stock market. You can therefore trade long or short, trade on margin with leverage and use limit orders and other risk management techniques.

#3) ETFs rapidly growing in popularity and you could choose from a wide range of ever-growing investment vehicles to suit your particular investment objectives.

#4) You have access via ETFs to a wide range of markets such as commodities. You could for instance trade oil or gold in a most convenient fashion. You could also trade country ETFs for geographical diversification (the hottest investment destinations in the next 40 to 50 years are reckoned to be Brazil, Russia, India and China and you could take advantage). If you have an interest in forex trading, you can trade currencies via ETFs.

#5) ETFs represent an excellent long-term investment vehicle for long-term investments such as 401 (k) plans. After all the objective of any long-term investment is a risk diversification with the prospect of growth. An ETF allows you to do so in a simple and straightforward fashion without the need for complicated strategies while allowing you to control risk.

#6) ETFs present an excellent way to hedge your investments. The ideal hedge security is normally a security that is highly liquid with high trading volumes so that you can buy or sell any kind of market conditions. You could for instance hedge an existing portfolio of equities by going long or short on the appropriate ETF. This works both for short-term and long-term hedging.

To buy and sell ETFs, you need to open an account with a broker. If you have an existing broker who is reliable, find out if you can trade through him. Set up a sensible investment plan in consultation with your broker and use all the risk management techniques you need. Remember, that like stocks, you will have to pay a commission to your broker each time you perform a transaction.

Finally, here are some trading tips from leading experts:

-your maximum investment in any single ETF should not exceed 10 percent of your total portfolio

-track the performance of your ETF’s. You can do this by tracking the performance of the appropriate index fund.

-some traders recommend that you set up order with your broker to automatically sell any ETF that loses five percent to 10 percent of its value in a single trading day.

As interest in ETF’s has skyrocketed, issuers have hurried to expand the scope of products to every conceivable asset in the investment universe.

Many investors have gone past the stage of regarding ETF’s as a supplement to equities and bonds and have now adopted all ETF portfolios and techniques such as ETF Trend Trading. With asset class diversification coming from the appropriate ETF (equities, bonds, currencies, commodities and so on) rather than investing in each of the underlying assets, portfolios are becoming far easier to manage especially for the average investor.

Money market ETF’s now offer investors an opportunity to put their short-term cash to work. These funds invest in a variety of low risk and short-term investments such as certificates of deposit, commercial paper and Treasury bills. The advantages of money market ETF’s are:

-their yields are higher than certificates of deposit

-their costs are lower than money market mutual funds

-they make monthly interest payments

-they offer a degree of diversification which would be well beyond the reach of an average investor

-they offer the tradability and liquidity of equities

The best way to understand how a money market ETF operates is to look at a couple of the more popular ones:

WisdomTree U.S. Short-Term Government Income Fund: this fund, which is actively managed, invests in short-term government securities such as Treasuries and bonds issued by federally sponsored agencies and repo agreements backed by government securities.

Claymore U.S. Capital Markets Micro-Term Fixed Income ETF: this actively managed fund the tracks an index made up of securities with a maturity of less than 12 months such as fixed income securities and Treasuries.

Because ETF’s are such a flexible investment vehicle, you can also invest in ETF’s that are not technically money market ETF’s but provide good short-term and low risk investment opportunities. Two such ETF’s are briefly described below:

PIMCO Enhanced Short Maturity Strategy Fund: this fund is not technically a money market ETF because it invests primarily in investment quality short-term debt securities. The objectives of the actively managed fund is to provide better returns and higher income on the than money market funds.

PowerShares VRDO Tax-Free Weekly Portfolio: variable rate demand obligations (VRDO) are actually long-term floating-rate interest bonds wereon which interest is typically reset every month. Liquidity comes from the fact that the bonds can be sold at any time to an investment dealer.

In addition to the US markets, there are now ETF’s that offer exposure to the money markets of various different countries such as Japan, China, India and Brazil. Developing country money market ETF’s tend to offer higher returns which it is possible to enhance if you handle the currency risk judiciously. You must remember that these are generally denominated in the home country currency and it is also possible to lose money on adverse currency movements.

If you are choosing to invest in a money market ETF, the two things you should study carefully the details of the holdings that make up the investment basket and the costs. You should also remember that some money market ETF’s could be less liquid than others and you may have a problem in trading them actively.

An exchange trading fund (ETF) sells investors an interest in a pool of securities such as equities, bonds, currencies or commodities, not unlike a mutual fund.

Unlike a mutual fund however, an ETF trades like equity on a stock exchange which means it can be bought and sold freely during trading hours, margin trading can be used as well as techniques such as limit orders and ETF Trend Trading. An ETF normally seeks replicate the performance of a specific index.

An inverse ETF is an interesting variation of an ETF in that it seeks results that are the exact opposite of the index to which it is correlated. In other words, if the index goes up, the value of the ETF goes down and vice-versa. As an example, if you expect an index such as the S&P 500 to go down, you would buy the inverse ETF in order to profit from this decline. There are also ETF’s that seek to deliver multiples of the inverse correlation to an index. For instance,ProSharesUltraShort Russell 2000 aims to deliver twice the inverse of the Russell 2000 index.

Normally, the capital of an inverse ETF is not invested directly in underlying securities. Instead, the investment adviser invests in a complex mix of derivatives such as options, forward contracts and swaps which he believes will provide the inverse performance to the index. In addition, excess cash if any is invested in money market/short-term debt instruments that will enhance the return on the ETF.

Advantages: the main advantage of an inverse ETF is the simplicity, especially for an average investor, though the same objectives can be achieved by other means. If you feel that a particular index or industry of commodity is going to go down, buy the ETF. Then when the downtrend has run its course, sell the ETF to book your profits (remember that as the index declines, the ETF will appreciate). If you were to achieve the same result in normal trading, you actually need a short sell which you may not be able to do because you do not have the right broker or the capital to provide the margin.

Alternatively, you could achieve the same effect by taking a position in the derivatives market. Your broker also may not allow you to deal futures and options unless you demonstrate your competence. Trading in derivatives is never easy at the best of times nor does it have the simplicity and the transparency of an ETF transaction. You are also better off letting the inverse ETF investment manager handle these complex transactions on your behalf.

Disadvantages:

-if the inverse ETF investment adviser gets his calculations wrong, the ETF may not deliver the kind of inverse returns that you are looking for. This could be the result of an incorrect derivatives mix or of leverage.

-if you pick the wrong inverse ETF, you only have yourself to blame.

Inverse ETF’s make an excellent hedge for an existing investment portfolio. For instance, if you believe that the value of your existing equity portfolio is going to decline, the most straightforward manner in which you can hedge a possible loss is to buy the appropriate inverse ETF. This is far more uncomplicated than having to rebalance your portfolio by buying and selling the individual items of equity. It is also much more cost-effective.

Because of the zooming popularity of ETF’s, issuers are rushing to create ETF is that incorporate virtually any financial asset that you can think of.

Let us recall that ETF’s are baskets of financial assets or securities in which you can buy a share. They have the liquidity and the trading characteristics of equities, lower costs than a mutual fund and automatic risk diversification. You do not need any complicated strategies or an investment in the underlying securities in order to create a comprehensive portfolio. After all, the objective of a well balanced portfolio is liquidity, risk diversification and the highest possible returns consonant with prudent risk management.

We will now demonstrate how you can create a balanced and well diversified portfolio without even leaving the universe of ETF investment. We will assume that you would like some exposure to a range of financial assets and markets as well as geographical and industry diversification. Your portfolio could be made up of these components:

Equity ETF’s: typically these funds will track equity indices so that you are not faced with the risk of investing in one or just a few equities directly. If you are generally bullish about a particular index (such as the S&P 500 or the Dow Jones), the appropriate ETF will give you exposure for a reasonable investment without the high risk and costs of buying the underlying equities that make up the index.

Industry ETF’s: these funds will concentrate on a particular industry or industry index by investing in the underlying securities (such as oil stocks for an oil index or gold stocks for a gold index). If you are bullish about a particular industry or sector, you can invest easily without the hassle or expense of buying the underlying stocks.

Commodity ETF’s: perhaps you might like a small investment in a commodity like oil or gold. Even if you know nothing about buying or selling commodities, all you have to do is to find the appropriate ETF and buy. Every time you want to exit the position, sell the ETF. As simple as that.

Currency ETF’s: you have heard about all the opportunities that arise out of trading forex in the forex markets but somehow you have never got round to finding out how. Now all you have to do to make a currency play or hedge a currency risk is to buy or sell the appropriate currency ETF.

Foreign markets ETF’s: with increasing globalization, you are becoming increasingly aware of the lucrative investment opportunities overseas. You may have even heard of the famous Goldman Sachs report that says that the investment opportunities for the next few decades are going to be in the countries they call BRIC (Brazil, Russia, India and China). Of course, you don’t have a clue about how to go about investing. You no longer need to concern yourself with this as long as the right ETF is available.

Bond ETF’s: Equity markets have not been performing recently and a trusted adviser has told that you need to diversify into bonds to obtain a steady return from your portfolio. You do not have the resources to spread out your investment and have worried about concentrating only on one or two bonds. The answer to your problem is a bond ETF. If you are willing to be adventurous, you could consider an emerging market bond ETF which not only offers a high yield, but also a currency play.

You may also wish to consider managing your portfolio with ETF Trend Trading.

As we all know, an investment in an Exchange Traded Fund (ETF) offers an instant measure of risk diversification as it represents an interest in a pool of financial assets or securities. This helps particularly when you are planning to invest in an asset where the risk is higher than normal.

One particular security in the basket can go belly up and it will not significantly affect the value of the basket. In theory, therefore, you should be able to find a better than average yield in an ETF without running the risk of putting your money in a single high dividend paying stock or a single high yield bond.

High yield ETF’s normally fall into three categories: equity-based, property-based and bond-based. Since many of these ETF’s are denominated in different currencies, you could also profit from currency appreciation. For instance, many ETF’s based on European equities have performed well because of the strength of the Euro. In many cases, investors had to decide whether the currency gain is worth the trade-off against slightly lower yields.

In the case of bond-based ETF’s, there is the currency question but there are also other issues to be addressed. Some of the best performing bond-based ETF’s have been based on emerging country debt but you have to be happy with the underlying risk. A lot of the popular high yield ETF’s are currently based on so-called “junk bonds”. This is debt that issued by companies which have a credit rating less than investment grade. As The Motley Fool so aptly put it “one man’s trash is another man’s treasure”.

To be fair, many junk bonds are acceptable credit risks. In fact in 2008 and 2009, many junk bonds were hammered on price in the expectation that there would be large-scale default on corporate debt. This kind of corporate Armageddon simply did not happen and many ETF’s that are based on these bonds have performed spectacularly as a result.

Certainly, because of the risk diversification, an ETF is seen as an appropriate route to investment in high yield bonds.

High yield ETF’s versus high yield mutual funds: high yield ETF’s have attracted billions of dollars in investment in the past several months reflecting the keenness of investors on high yield (driven in part by the poor performance of the equity markets) as well as their growing confidence in the economic recovery. Mutual Funds have however competed fiercely for investor dollars and launched a number of successful funds. ETF’s however have the following advantages:

-ETF’s adopt a passive investment style while mutual funds are active investors. Mutual funds necessarily have to depend on savvy investment managers and their costs are therefore that much higher. Mutual funds also charge fees for short-term investments of less than 90 days. All this means that mutual fund yields are lower.

-an ETF offers the advantage of trading like stock which means that it can be traded all day, traded on margin to acquire leverage and amenable to risk management measures such as limit orders.

A reasonable compromise might be to use ETF’s for short-term trading and mutual funds for long-term investment.You may also consider ETF Trend Trading to improve your returns.

An Exchange Traded Fund (ETF) is an investment fund that trades on one or more stock exchanges much like a stock. It can therefore be bought or sold on the relevant stock exchange at any time of the day.

An ETF also mimics a mutual fund in that it offers you a share in a basket of financial assets. These assets could be any form of financial assets ranging from stocks and bonds to forex, commodities and derivatives. Many ETF’s track major indexes so that they have the tradability of a stock but the investment diversification of an index .

ETF’s do not trade over the counter in the net asset value of their asset basket unlike mutual funds. Only so-called “authorised participants” may buy or sell directly from ETF’s and these are large financial institutions that trade in very large blocks. Individuals or small investors have necessarily to deal through a stock exchange. This also makes them convenient because, if a small investors had to invest in an index of say stocks, it would be next to impossible to impossible for him to buy up the shares that make up the index.

ETF versus stocks:

- if you wanted to buy a basket or pool of stocks, you would have to buy some quantities of each of the stocks that make up the pool. With an ETF, you only need to buy shares in the ETF just as you would buy any  ordinary stock

-ETF’s can be sold short or traded on margin just like stocks. You can also place limit orders.

- Unlike a stock, where you are dependent on the fortunes of a single company, an ETF represents automatic diversification of risk since you are investing in a portfolio.

ETF versus index

-ETF’s are often co-related to an index and designed to mimic the performance of the index. For instance, the OIH is an oil industry ETF that follows the performance of the OSX index (which is itself made up of a number of oil industry shares). So if you would like a well-balanced portfolio investment in the oil industry, you would buy OIH instead of all the shares that make up the OSX  index

ETF versus mutual funds

-an ETF combines the basis of valuation (net asset value) of an open-ended mutual fund with the tradability of a closed ended mutual fund which trades throughout the day on a stock exchange.

-because ETFs tend to be passively managed, their costs are much lower than mutual funds which tend to be actively managed. They do not need to enter the marketing and distribution costs as well as the research costs of mutual funds. Investors will find ETFs cheaper than mutual fund funds because of this.

As we asked at the beginning of this article, are ETF’s  really the best of all worlds? They are not perfect investments but, because of their advantages and techniques like ETF Trend Trading, you should certainly take a serious look at adding them to your investment portfolio.

There are many people that are discovering exactly how convenient and easy it is to trade through ETFs. These are groups of bundled stocks and bonds that are traded with the index instead of being traded individually.

Although you are still going to need to have the components in place in order to place the trades, such as having a stockbroker, you can make your entire trading practice much easier whenever you do so. There is also the possibility of your trading, not only stocks or currency but ETF bonds as well.

These bonds come in a number of different types, and they may come from a variety of areas as well. Here are several different ways that these bonds are put out and how they are bundled underneath an ETF package. Understanding the basics that is behind how these bonds work will help you to not only be more successful in your trading practice but to recognize a good investment whenever it comes up in front of you.

Corporate bonds are probably some of the more common that you will see, and people trade these individually all the time. Because one corporation may put out multiple bonds, they may all be packaged underneath one unit and traded as an ETF. This can help you to be more invested in a single company than if you were trading them individually.

Treasury bonds are also a very popular item, and these are backed by the United States government. They tend to be more stable and therefore, a wiser investment for long-term usage. Some of the benefits of using US treasury bonds include the fact that they are long term, usually lasting 10 years and that they pay out interest on a semiannual basis.

Some municipalities may also put out bonds that can be traded through an ETF as well. These tend to be lower risk, but they also put out less money on the average than if you were buying a corporate bond. Since they are backed by a smaller government agencies, the amount that you will receive will vary, depending on the area in which they originate.

You also have ETF bonds that are of various durations. For example, you have short-term, intermediate term and long-term ETF’s that can be purchased. These are a compilation of various bonds that last anywhere from one year, all the way up to 30 years or perhaps even longer.

The final type of bond that we would like to discuss is the international bond. These are similar to the treasury bonds that we discussed above, but they are backed by a foreign government instead of the United States government. These are an excellent way for you to enter into an emerging economy or take advantage of the volatility of overseas finances.

Taking advantage of these ETFs is best done whenever you have a system that allows you to recognize trends within the system in advance. Using the ETF Trend Trader system, you can often recognize these trends within just about 10 minutes of work every night.

You have a number of different options that are available to you whenever you’re trading on the stock market or on forex. One of those that is commonly overlooked, however, is the ETF.

The reason why this is the case, is because many people consider this particular type of trading to be in a different league, or too difficult for the average investor to take part in. Nothing could be further from the truth, and once you understand the simplicity of the ETF, you understand exactly why you should be taking part in this yourself.

One thing that you need to understand about ETF bond funds or any other type of ETF trading is that they trade very similar to individual bonds and stocks. When a company, municipality or the government puts out these bonds, they can be bundled together inside of an ETF and traded as a group instead of individually. Not only does this make it more convenient to trade, but it also makes it much easier, as you are not having to worry about each individual part of the bond package. Rather, you can take part in trading over an entire index and that can really benefit you in a number of ways.

Trading bond funds in this way can also be a lot more stable than if you were to trade them individually. The markets, as a whole, regardless of whether you’re talking about bonds or if you’re talking about stocks or even currency tends to vary from individual item to individual item. If you trade in the group, however, it tends to be much more stable and you can generally tell where the ETF is going to go, long before it happens to go there.

Of course, there’s always going to be some volatility that is involved whenever you trade bond funds in this way, and you should always follow the old axiom, never to trade more than what you’re willing to lose. Once you understand how to trade them, however, you may be able to start doing it on your own and this can save you money as well. Although you’re still going to need to have a broker in order to access the market where you can trade bond funds, you will not generally need to have a financial adviser because of the simplicity of trading them.

One course that we would like to recommend which can help you to identify the various trends that are about to take place is ETF trend trader course. Many people that are using this have found that they are only spending a few minutes in the evening in order to lay out the entire plan for the next day. If your time and investments are important to you, this may be something that can help you to have both with success.