Commodities and Indices

Commodities and Indices

   May 31, 2013       Unknown

---

Investors have several options when choosing a financial market to invest in. Two of these are Commodities and Indices.

Commodities

The commodity markets are regulated exchanges in which primary products and raw materials are sold in the form of standardized contracts. These goods have a universal price. For example, a bushel of wheat will cost the same in the US and in China. Prices only differ when there is an imbalance of demand and supply.

The main commodity exchanges around the world include the following:

• Chicago Board of Trade
• Chicago Mercantile Exchange
• Kuala Lumpur Futures Exchange
• London Metal Exchange
• New York Mercantile Exchange

Investment in Commodities

As Commodities are widely traded and are not easily influenced by the actions of a single company or nation, they represent a good and stable form of investment. For example, while many financial institutions went bankrupt during the credit crunch of 2008, the commodity markets remained largely unaffected.

There are several ways to participate in the commodity markets. These include the following:

• Commodities Exchanges
• Commodities Indices
• Futures Contracts
• Options

What are Indices?

Indices measure the performance of the financial markets. There are different Indices for different types of markets. Normally, Indices give an average of a basket of prices that are representative of the market to be measured. For example, the S&P 500 is an average of the market capitalization of the top 500 companies traded in the US equity market.

Some of the major Indices traders pay attention to include the following:

• CAC 40
• DAX 30
• DOW JONES
• FTSE 100
• Hang Seng
• NASDAQ
• S&P500

Trading Indices

Apart from being a measure of performance, Indices are also widely regarded as an investment vehicle. Investors can speculate on the performance of the various market Indices through index mutual funds. As these funds are based on a basket of prices and are less volatile, they are less risky than a single financial investment.