Time to cot­ton on to trad­ing

Op­por­tu­ni­ties and dif­fi­cul­ties in the com­modi­ties bull mar­ket

Finweek English Edition - - FRONT PAGE -

THE PRICE OF COT­TON in­creased more over the past year than that of sil­ver, which in turn fared much bet­ter than big brother gold (see Fin­week, 23 De­cem­ber 2010). Con­comi­tantly, the cot­ton price pulled the wool price up along with it. Now farm­ers no longer want to slaugh­ter their sheep: wool is worth more than mut­ton, with the re­sult that lamb chops al­ready cost more than R100/kg.

Oil is, of course, part of the com­mod­ity boom and that’s why we now have to pay more at the pumps for petrol and diesel, even though the rand is cur­rently one of the strong­est in­ter­na­tional cur­ren­cies. But how and where do we deal in – “trade” is the cor­rect word – this com­modi­ties boom is the ques­tion asked by many a reader over the past few weeks. In South Africa that’s un­for­tu­nately not quite as easy as sim­ply buy­ing and sell­ing Absa’s ETF in gold, called GLD.

But, even so, there are many op­por­tu­ni­ties. For a start, the prospec­tive in­vestor should visit Safex’s web­site and study it thor­oughly. You can have a lot of fun trad­ing with Safex’s com­modi­ties – which can even be done on credit af­ter pay­ing an ini­tial de­posit of around 10%, ac­tu­ally called an ini­tial mar­gin – in some­thing such as white or yel­low maize in SA or corn in the United States. A spec­u­la­tor can en­joy him­self play­ing around with those three com­modi­ties. Find out a bit about them and a whole new world will open for you.

Sun­flower and soya beans of­fer equally good op­por­tu­ni­ties. In fact, they’re some­times bet­ter, be­cause the mar­kets are so much smaller than that for maize, which means there can be price anom­alies from which you can score – but also lose! Trad­ing in both is so illiq­uid, ma­jor play­ers can some­times ma­nip­u­late the mar­ket and if prices move against you, you can be hit hard. I’m very fond of this mar­ket my­self, but I’m not go­ing to be telling my tricks of the trade here.

Safex also of­fers op­por­tu­ni­ties to spec­u­la­tors – yes, let’s call them by their proper name – to trade in cop­per, gold, plat­inum, sil­ver and crude oil.

The same rules ap­ply to the buy­ing of sil­ver as to the buy­ing of white maize. You open an ac­count, sign a long dec­la­ra­tion say­ing you un­der­stand all the risks and then you de­cide whether you want to buy or sell the prod­uct. That’s right: the op­tion of sell­ing short is just as con­ve­niently avail­able on Safex as the more tra­di­tional and, of

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