What's More Volatile, Stocks Or Commodities?

If you said stocks, you'd be right. There's a big misconception that commodities or futures are more volatile and risky than stocks. The truth is, what makes commodities or futures appear risky is the leverage factor. You only have to margin up a small amount of capital, usually less than 5%, to control a large amount of capital. What that means is when the market moves even a small amount, you get a bigger return, or in some cases a bigger loss, on your money because of leverage. If you put up the whole value of a commodities or futures contract, you effectively de-leverage your investment and at the same time lower your risk and return.

For example, say you want to buy 100 ounces of gold. At the current price, you would have to pay $123,500 and you would own the gold. Instead, you could buy 1 futures contract of gold worth $123,500 and only margin up $4,400. Now let's say we have a $10 move in gold. On 100 ounces that would be worth $1000. As you can quickly see, the return on $4,400 is a heck of a lot higher than the return on $123,500 if you owned the gold outright. Which would you rather have, close to a 25% return on your margin on 1 futures contract, or have a $123,500 tied up in physical gold and see a return of less than 1%?

That, my friends, is why commodities or futures are interesting and can be very profitable when you approach the market with discipline. Naturally, leverage slices both ways and you could lose just as fast as you make money. The key here is to be diversified like our World Cup Portfolio.

Here's the 6 individual markets of the World Cup Portfolio shown quarter by quarter. As you can see, not every market made money every quarter, but combined every quarter was profitable. This underscores the power of diversification and disciplined trading.

Corn (CBOT:ZC.Z14.E) - Q1 $-1050 Q2 $2475 Q3 $2100.
Total gain in Corn thru Q3 $3525

Wheat (CBOT:ZW.Z14.E) - Q1 $3825 Q2 $-275 Q3 $212.50
Total gain in Wheat thru Q3 $3762.50

Soybeans (CBOT:ZS.X14.E) - Q1 $5100 Q2 $-3075.02 Q3 $10,437.50
Total gain in Soybeans thru Q3 $12,462.50

Crude Oil (NYMEX:CL.Z14.E) - Q1 $6,170 Q2 $0.02 Q3 $4,800
Total gain in Crude Oil thru Q3 $14,153.50

Gold (FOREX:XAUUSDO) - Q1 $1224.50 Q2 $7664 Q3 $5265
Total gain in Gold thru Q3 $14,153.50

Dollar Index (NYBOT:DX) - Q1 $-75 Q2 $-921 Q3 $5653
Total gain in Dollar Index Q3 $4657

Total gains for the World Cup Portfolio through Q3 of 2014 are $49,530.52. The results are based on trading 1 futures contract per market on an investment of $50,000. Profits were not reinvested into buying or selling more contracts as the year progressed.

You can follow the exact signals for our World Cup Portfolio right here. If you have any further questions or comments, please don't hesitate to leave them below this post.

Every success with MarketClub,
Adam Hewison
President, INO.com
Co-Creator, MarketClub

5 thoughts on “What's More Volatile, Stocks Or Commodities?

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  2. hi adam, great portfolio.
    how many trades approxamtly would the world cup portfolio be per year?
    i know somtimes your on the sidelines, which is fine. if its about 10-20 trades it'll be suitable for me.
    nick,.

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