As An Investment Vehicle
There are many inherent advantages of commodity futures as an investment vehicle over other investment alternatives such as savings accounts, stocks, bonds, options, real estate and collectibles.
The primary attraction, of course, is the potential for large profits in a short period of time. The reason that failures trading can be so profitable is leverage.
While profits can be large in commodity trading, it is not easy to make consistently correct decisions about what and when to buy and sell.
Profit on Trade
Commodity speculation offers an important advantage over such illiquid vehicles as real estate and collectibles. The balance in your account is always available. If you maintain sufficient margin, you can even spend your current profit on a trade without closing out the position. With stocks, bonds and real estate, you can’t spend your gains until you actually sell the investment.
Stocks and Mutual Funds
As you will see, commodity trading is not particularly complicated. Unlike the stock market where there are over ten thousand potential stocks and mutual funds, there are only about forty viable futures markets to trade. Those markets cover the gamut of market sectors, however, so you can diversify throughout important segments of the world economy.
Futures Markets
In futures trading, it is as easy to sell as it is to buy. By choosing correctly, you can make money whether prices go up or down. Therefore, trading a diversified portfolio of futures markets offers the opportunity to profit from any potential economic scenario. Regardless of whether we have inflation or deflation, boom or depression, hurricanes, droughts, famines or freezes, there is always the potential for profit trading commodities.
Capital Gains
There are even tax advantages to making your money from futures trading. Regardless of the actual holding period, commodity profits are automatically taxed as sixty percent long-term capital gains and forty percent short-term capital gains. The current maximum Capital gains rate is thirty-three percent, somewhat less than the maximum rate for ordinary income. To the extent that capital gains tax rates are reduced in the future, commodity traders will benefits. It a distinction is re-established so that taxes on long term gains are lower than on short-term gains, commodity traders will benefit.
