Wednesday, December 6, 2006

Commodity Futures

I once thought that I would get rich buying and selling commodity futures. On the surface it seems like a great way to get rich. Small amounts of cash (it was 5% of the total value of the contract) can control large quantities of a commodity. A small change in a commodity price can yield fast and large profits.

So I subscribed to one of these services that performed "technical analysis" of a number of commodities. I borrowed (great idea!! - not) $10K and opened up a low cost account much like you do for buying and selling stocks. I tried to follow the trendlines and buy when a commodity was on the upswing. On occasion I made (on paper) large sums of money. But over a three month period my lack of knowledge (fundamentals) caught me short. I ended up selling during a rapid downturn and lost not just my original $10K but had to write a check for over $2K. I guess not everyone can be George Soros.

I think investing in futures is a lot like day-trading stocks. A very high intensity venture where you have to be on top of fundamentals as well as know something about technical analysis. My problems with both day-trading and futures is that I just did not take the time to do my homework. Another one of my life's expensive lessons.

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