While traditional investments such as stocks and bonds are constantly touted as the panacea for everyday problems, the reality is that there are activities occurring worldwide that have the ability to power boost your investment returns.
In much the same way that stocks move in a cyclical fashion, so do futures. The difference between the ups and the downs of stocks and futures hinge on two different ideas, though. Stocks move based on speculation and anticipation of a company’s success or lack thereof. Futures and currencies move on the needs of the economic engines of entire countries. It is the difference between micro and macro economics.
Once you understand the encompassing nature of futures and currencies, you begin to pay careful attention to the interrelationship of various economic influences and the economies they affect. You also develop a confidence in the numerous futures and forex opportunities ahead of you.
Jim Rogers, author of the book Hot Commodities has stated on numerous occasions that we are in a 25-year bull market for commodities. This may or may not be true, but it is undeniable that the world’s prosperity hinges on raw materials, credit liquidity, and currency weakness and strength. All three of these things have lined up in just the right way to create opportunities that didn’t exist just a few years ago.
In this article we will take a look at industrialization, emerging markets, and alternative fuels. Each one of these topics plagues the front page of the newspaper in one form or another. By putting a spotlight on them, you will begin to see not only the robustness of the opportunities ahead of you, but the relevance. It is difficult to change gears from something as familiar as stocks and bonds. The only way to successfully do it is by showing how common and ubiquitous the world of forex and futures is. Once that is done, we will delve deeper into the “what” and how of futures and forex investing.
The Industrial Revolution is broken up into two phases. The first typically deals with the industrialization of Britain in the eighteenth century. Three key areas-textiles, steam power, and iron founding-were developed into full-fledged businesses that were dependent on machinery more than people. These developments moved in lock step with the development of the Royal Exchange in Manchester, England. The Royal Exchange was developed as a place for merchants and tradesmen to meet and develop forward contracts, the precursor to today’s futures contract.
The second industrialization wave occurred in the nineteenth century, largely impacted by the development of the rail system in the United States and the growth of steel and petroleum. These developments, along with the introduction of electricity, led to the development of the Chicago Board of Trade in 1848.
In both instances, the proliferation of eighteenth- and nineteenth-century technology revolutionized the world and spurred the nascent growth of globalization, all of which had a direct impact on the development of commodity trading and the introduction of two different types of traders: hedgers, who owned or were about to purchase the goods, and speculators.
Fast forward to the twentieth and twenty-first centuries, and the silicon age has done to the world what electricity and steam engines did in the preceding centuries. In 1971, Intel introduced the first computer chip. These micro processors are in everything, from cell phones and cars to coffee makers and toys. This has led to a third industrial/technological revolution in countries that may have missed out on the first and second revolutions but are rapidly gaining ground on the developed first-world countries they hope to emulate.
The five emerging markets that get all of the media attention are China, India, Brazil, Russia, and Mexico. In the past 10 years, each of these countries has seen a huge impact in their imports/exports, development of a middle class, and the overall growth of their economies. This growth does not come without growing pains, though. Their growth has directly impacted supply and demand of key resources in agriculture, energy, and raw production materials.
Futures, Forex or Stock?
There are many emerging-market funds and hot stocks associated with the countries and resources. The average investor would scour through hundreds, if not thousands, of different stocks and mutual funds domestically and abroad to find just the right opportunity.
As long as the management is competent, and hopefully not corrupt, and they have the right combination of marketing and competitive advantage over the next corporation, you might just have a chance at exploiting different current-event opportunities like these and many others.
However, you can go straight to the source. If you want to trade ethanol, there are ethanol futures-no need for a corporate middleman. If you want to invest in the growing European economy, buy the spot or futures euro currency with ease. If you think there will be a shortage of soybeans worldwide, sell soybean futures.
The simplest and best way to take advantage of today’s news is in the futures and forex markets.