Investment for Begginer

Not every person know how to invest. Either they are not sure or not enough information this kind of investment. Now a days, it's many site can provided you information and step to become a wealth investor.

How can I invest in commodities?
Not everyone can invest in commodities. Before a brokerage will let you invest in commodities, you’ll have to meet certain net worth requirements and put cash in a brokerage margin account. The good news is that $2,000 of your cash could control more than $20,000 in gold or soybeans. The bad news is that if prices move against you, you’ll have to come up with more cash -- or lose your investment. Commodity prices often swing wildly. So, you can make lots of money or lose your shirt in hours, if not minutes. Never invest money that you can’t afford to lose in commodities.

What is margin buying of commodities?
When you buy commodities on margin, you use a small amount of cash to control a large quantity of raw material, such as wheat, gold or Treasury bonds. You must post an initial margin, depending on the contract, and keep a maintenance margin amount in your account. Because so little cash is needed to control large quantities of goods, margin buying uses leverage to boost your return. But beware -- this strategy is risky. You can lose your entire investment -- or more.

What government agency oversees commodity futures and options trading?
The Commodity Futures Trading Commission (CFTC) regulates the markets where commodity futures and options are traded. Its mission is to protect you as an investor from fraud, manipulation and other abusive practices. The commission investigates and prosecutes alleged violations of the rules, such as improper marketing of commodity investments, and it refers criminal activity to the Justice Department for prosecution. You can read about recent enforcement activity and other news on the CFTC Web site.

Should we Invest in Commodity?

There are plenty of good reasons to bet on commodities, but if you’re new to investing that’s probably a better way to think of it: as a bet. Since you’ll be betting against experts who do this for a living, your odds probably won’t be much better than playing the slots in Atlantic City.

Commodities speculation is about the riskiest place to deploy your savings: it’s really in a different category than investing. Commodities exchanges are really supercharged betting parlors made up of a series of hyperactive markets where you can bet on the price movements of a variety of products. The list includes precious metals, raw materials, grains and meat, oil and gas — even financial products like Treasury bills.

Though they carry big risks for individual investors, commodities markets were originally set up to help spread the risk of price changes among a large pool of players. Using futures contracts, for example, a farmer can sell a crop before it’s planted, even though he might get a better price in the future (which is where the name comes from.) If a boom in demand drives up prices by harvest time, the buyer of the futures contract wins. But if a bumper crop floods the market and prices plunge, our speculator could lose everything. No matter what happens, the farmer has enough money in the bank to buy the seed for next year's crop.

What is Commodity

At present, gold, silver, soyabean and guar gum are the most traded commodities. Here's a look at these commodities and the future outlook.

a) Gold

The future of yellow metal in India is bright indeed. The facts are proof enough. In India , gold is the second-preferred investment after bank deposits. The country is the single-largest consumer of gold in the world, accounting for 20 per cent of global gold off take in any one year, at an annual demand of 800 tonnes. South Africa is the world's largest gold producer with production of 394 tonnes in 2001, followed by US and Australia .

Domestic gold prices follow global trends as India imports nearly 70 per cent of its gold demand. Approximately 13,000 tonnes of gold rest in India , valued at Rs 780,000 crore. This amounts to 9 per cent of world's cumulative mine production. Add a Rs 40,000 crore gold jewellery market in the country, it is clear why this segment cannot be ignored for future investors.

At present gold prices are ruling at Rs 6,330 per 10 gm (Mumbai spot price), and $419.50 per ounce in global markets. Gold prices are likely to rise even further on the back of big demand from China .

b) Silver

Despite being classified as a precious metal, silver is also a useful industrial commodity. The metal is used in fabrication in hard-core industrial applications like electronics and brazing alloys, apart from traditional jewellery, silverware and photography.The link between silver and economic activity is strong, given that around two-thirds of total silver fabrication is in the industrial and photographic sectors.

Analysts estimate the demand to pick up further going forward. Around 50 per cent of India 's silver requirement last year was met through imports of Chinese silver (other important sources of supply are UK , CIS, Australia and Dubai). The price of silver not only depends on the primary output but also on the price of other metals.

This is because world silver mine production is more a function of the prices of other metals. In India volatility in silver prices is an important determinant of silver demand as it is for gold. Silver prices are currently ruling at Rs 10,025 a kg. A favorable demand-supply situation is expected to take the price to Rs 10,500 levels in the short-term.

c) Guar

Guar, or cluster-bean, is the source of a natural hydrocolloid, a cold water soluble forming thick solutions at low concentrations. Guar powder, which is derived from the guar seed, has industrial use such as in mining, petroleum drilling and textile manufacturing.

In food it is used as a thickener and as a means to prevent ice crystal formation in frozen desserts. The main demand of guar seed originates from the US petroleum industry and the oilfields of Middle East .

India is the major producer of guar seed, accounting for 80 per cent of the guar produced in the world, followed by Pakistan and US. The country's guar seed production has shown a variable trend (depending on the vagaries of the monsoon) and has been around 2-6 lakh tonnes per annum in the recent years.

India 's guar production was estimated at around 6 lakh tonnes in 2003. Around 70 per cent of the country's production comes from Rajasthan. The world market for guar gum is estimated to be around 150,000 tonnes per year.

The export from India is around 115,000 tonnes and the domestic market is around 25,000 tonnes. India 's total guar gum exports were valued above Rs 300 crore in FY03. While guar demand has been almost constant over the years, supply varies between years, leading to price volatility. The physical market of the commodity in India involves speculators and stockiest.

d) Soya bean

Soyabean is the most popular oilseed produced globally. Soya is a kharif crop, sown in June-July and harvested by September-October. Peak arrivals are from October-November. India produces 5-7 million tonnes of beans, 1 million tonnes of oil and 3-5 million tonnes of soyameal in a normal year. Madhya Pradesh, Maharashtra and Rajasthan are the major producers of soyabean in India .

Like guar, the production of soyabean is highly dependent on the monsoon and fluctuates between years. Domestically produced soyabeans find application in the making of vegetable oil.

India is the world's largest vegetable oil importer, though the country is a much smaller consumer of soyabean meal, and exports its surplus to other Asian countries. India is the world's leading importer of edible oils and is expected to remain an important source of global import demand in the near future.

The global production of Soyabeans is 170-185 million tonnes, which is 55-58 per cent of the global production of oilseeds. US, Brazil , Argentina , China and India are the major producers. Prices follow international sentiment and display very high volatility.

The opportunity

The fact that India is one of the world's largest agrarian economies makes it a natural territory for trading in commodities. Agriculture's share in India 's GDP stands at 26 per cent, while the commodity sector, including non-agro commodities and bullion-related industries, constitutes about 58 per cent of the country's GDP.

India is essentially a commodity-based economy and the physical commodity market in India is around Rs 11, 00,000 crore. India also happens to be one of the largest importers of gold (80 per cent of demand of 800 tonnes) and silver (70 per cent of demand of 3,800 tonnes) and edible oil (4.5 mt).

It is also the largest producer of cotton (15 per cent of world production at 2.7 mt) apart from sugar and spices. If trading in commodity derivatives becomes five times the size of the physical market, annual volumes would be Rs 55,00,000 crore (Rs 22,000 crore per day). Currently the combined volume in the MCX and the NCDEX is around Rs 15,000 crore per day.

The potential to grow is much larger when you consider the fact that in developed countries, the derivatives market is 15-20 times the physical market.

Analysts also note that India 's strategic location between time zones of already established commodity exchanges worldwide makes it a potential global hub for commodities futures trading.

In any case, Indian commodity prices closely follow international commodity price trends. This correlation in prices - which is more telling in the case of bullion - brings about a certain level of integration. It is estimated that the correlation between international gold prices and Indian prices is as high as 0.90.

However, when international prices climb up, the demand goes down in India and the correlation drops to as low as 0.40. The correlation between international silver prices and Indian prices is as high as 0.84.