expenses. With the speculative markets it’s the same but how you manage
your risk will determine your success.
Let’s compare the stock market with the futures market, you can diversify
your risk in the stock market by investing in different non-correlated stock
and under normal circumstances it will work
well but sudden political
changes or news regarding the economy
can affect all share prices
overnight, even if you did spread your investments
across a number of
companies, all your profits can be wiped in extreme situations, as we have
seen in recent years.
Comparing this to futures markets where you can spread your investments
across a diverse range
of commodity markets like corn, silver, oil, sugar,
wheat or cotton, it’s impossible to imagine any situation affecting all these
markets at the same time.
Economic disasters,
droughts, war, floods, and
political events will always happen and they also affect certain commodity
markets, but spreading your investment not only minimizes your losses but
also puts you in a position to benefit from any price move.