Will Trice wrote:

- quote -

You ARE right, I didn't mean to say you're not - when it comes to
contracts for delivery, there clearly is economic benefit to both
sides. It depends where you draw the lines, I guess. Is a contract for
delivery "traded"? (E.g. is the contract made available for
reassignment?) And if 95% of contracts are closed in settlement for
cash, does that characterize the game?

Note that though stocks are settled for cash, even a "trader" has
economic benefit if for example the earnings of the company rise during
his holding period. (I wonder if "risk" is classified as "potential
economic benefit"? ???)

Will Trice wrote:
- quote -

"Commodities futures trading" (I have a deplorable tendency to be
imprecise) is as I recall, categorized oficially by game theorists and
academicians as a zero sum game. Only about 5% of all contracts are for
delivery (e.g. Hershey buys forward contracts for cocoa to lock in
prices and ensure supply; General Mills buys grains; oil companies
balance out production). The other 95% some odd percent of contracts
are simply closed out prior to expiration - there is a "last trading
day" in the expiration month (I forget which day of which week for
which contracts). And then there is a "delivery date" for the remaining
open contracts (I think a week after the last trading day) upon which
the delivery must be satisfied at pre-designated delivery locations.

The reason, as I understand it, that it goes down as a zero-sum game is
simply that the amount of money involved in trading remains the same
(ignoring commissions), so if I win, someone else loses the same
amount, with no economic benefit above the monies originally committed
to the trades. Some hate commodities traders, alleging market
manipulation (remember the infamous Hunt brothers and the silver market
- 1980's?), while other state that traders provide liquidity, price
discovery, and so forth.

I dumped my text on Game Theory a long time ago (couldn't wait to get
rid of it), or I could look up lose-lose games (terrorism), win-win
games (commerce), and get more specific on win-lose (zero sum games).
Actually, I'm now upset because I can't explain off the top of my head
that stocks and bonds are a positive sum game. It annoys me, because
some have claimed that stocks are a zero sum game, and they are not. I
think it goes something like this: the capital markets facilitate real
investment in productive activities, and there is economic benefit on
both sides of the transaction.

dapperdobbs wrote:

- quote -

Is this true? It would be if you were dealing with derivatives, like
futures or options, but if you deal in the commodity itself it's not
zero sum is it?

-Will

"rjm" <sullywaly[at]yahoo.com> writes:

- quote -

http://news.morningstar.com/article/....asp?id=167266

Top Options for Commodities Exposure

We size up the different choices for investors.

by Karen Wallace | 06-27-06 | 06:00 AM | E-mail Article | Print
Article | Permissions/Reprints

[For the full article, go to morningstar. I don't know
if it's available for non-subscribers. Here's the
"Conclustion" from the article:]

There are more types of investments than ever before that allow
investors direct investment in commodities. And given the red-hot
performance of the commodities markets lately, it's likely that the
number of available products competing for shelf space will only
continue to increase. Of all the available options, we prefer the
PIMCO fund. Aside from the fact that it tracks a well-diversified
commodities index, it also adds value with its TIPS. What's more,
PIMCO has experience in the structured notes market. That said, we
think the ETNs are ones to watch, primarily because of their
tax-friendly nature and cheaper expenses. Quite frankly, however,
they haven't been out long enough to judge, and we don't know enough
about them to pound the table for these securities. But we are
keeping them on our watch list.

The Pimco fund mentioned in the article is, indeed,
PIMCO Commodity RealReturn (PCRDX)


--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

rjm wrote:
- quote -

see
http://www.amex.com/?href=/etf/prodI...uct_Symbol=IGE
for the holdings. 83% is energy. If that's your intent, this is a good
way to diversify into that sector. But your question was 'commodities'.
Basic materials is only 17% of this ETF.
JOE

rjm

First off, read the prospectus thoroughly, and inform yourself about
the fund, its managers and history. The prospectus should make things
clear to you in much greater depth and experience than I can (I've
never read one). Second, google for the commodities forum - you might
find better answers there.

The only info I have on managed commodities is generic to commodities
trading, and it's just a couple of rules.

Money management or cash management is a big part of the overall
picture - I believe what that refers to is trading technique, or, for
example, cutting one's losses when one is wrong, and following a trade
up when it is going in your direction. I think a part of the equation
there is the size of the money involved - bigger traders may have more
flexibility in their cash management.

Commodities, unlike stocks and bonds, is technically a "zero sum game".
There are fundamentals to analyze, but most successful traders use a
trading system that in most cases relies on charts, relative strength,
or other indicators of the direction of the market. The point is that
either a system, or a managed account, should specify a maximum
drawdown. The trader likely will not reveal his system, so you may not
have much other way of knowing whether or not he adheres to it with
discipline. Discipline is very important. It seems a fund, like a
system or managed account, should also specify a maximum drawdown, and
that's one thing to look for. I have heard of funds closing at a 50%
overall loss. There should also be a track record for the fund (the
principal acknowledged function of traders is to provide liquidity to
the market - it is just trading, not investing).

Hello,
I dont have much exposure to 'commodities' (other than possibly a
small % in mutual funds ExxonMobil, etc). I would like to ask from the
forum for opinions on what would be the best fund / ETF to get a more
decent exposure. I was considering PCRDX or IGE...
Thanks.,