Investing In Commodity Indexes Can Make You Rich!

Indexes are important financial barometers that tell you the about the market just like an altimeter tells about the height of an aeroplane. There are many types of market indexes. The most important are the ones on the stock market that tell about the state of health of these markets. However, there are many indexes on commodity market. Commodity market is experiencing an unprecedented boom for the last many years. This is the best time to invest in commodities!

Just like other indexes, commodity indexes track the performance of a basket of commodities. This basket usually includes wheat, corn, soybeans, coffee, sugar, cocoa, cotton, lean hog, live cattle, feeder cattle, heating oil, gas oil, unleaded gas, crude oil, natural gas, aluminum, copper, lead, nickel. Zinc, gold, silver etc So you can see, these indexes track a variety of commodities.

Now the most important commodity index is the Goldman Sachs Index (GSCI). GSCI is based on 24 commodity futures contracts. Now most of the commodities have pretty liquid futures market and these markets are very important in setting the prices in the whole sale as well as retail commodity markets. The second commodity index that you need to keep in mind is the important Reuters/Jefferies Commodity Research Bureau Index (CRB).

Now CRB is an important commodity index and it is widely followed by hedge funds, institutional investors, retail investors and economists as a commodity benchmark. CRB is based on a basket of 19 commodities that have been primarily chosen on the basis of their liquidity and performance in the past. If you are into commodity investing than you need to keep an eye on CRB. Another very important commodity index is the Dow Jones-AIG Commodity Index abbreviated as DG-AIGCI. Now DG-AIGCI places a premium on the liquiduty and production of the commodities. This ensures that no commodity dominates DG-AIGCI.

Rogers Commodities Index (RCI) has a grand list of 35 commodities and tracks the most commodities amongst the different commodity indexes. Deutsche Bank Liquidity Commodity Index (DBLCI) is the newest kid. There are many ways to invest in these commodity indexes.

Now how to do commodity investing. Recently there was a news item that the famous George Soros is betting more than $600 million of his hedge fund on gold. Gold is a very important commodity that is expected to skyrocket in the near future. Remember crude oil the way, it had skyrocketed in the summer of 2008. Now, the most direct method is to trade futures contracts based on one of the above commodity indexes. There are futures contracts on some of these indexes that track their performance. So trading these futures contracts can be profitable in times of a commodity boom just like the one that is expected as the global economy recovers from the financial crisis. Then you can also trade futures contracts on individual commodities like gold, silver, crude oil, coffee, copper and stuff like that.

Another method is to invest in commodity mutual funds that track these indexes. One way is to invest with a third party manager that uses commodity indexes as the basis of their investment strategies. Some of these vehicles include mutual funds, commodity pools or Commodity Trading Advisors (CTAs).

Last but not the least, is the great investment opportunity that Commodity ETFs ( Exchange Traded Funds)provides. This is a highly popular alternative that a good investor should not miss. These Commodity ETFs track the performance of a commodity index and provide you with a great opportunity to profit from the boom in the commodity market!

Comments? Questions? Email Here

© HowtoAdvice.com

How to Advice .com