Re: Best places to trade commodities for your private account

Patrik · Post by **Patrik** » Sat Mar 12, 2005 11:05 pm

GSCI info

i) My impression was that it has been trading in quite large volumes recently. Can't find any numbers right now..

ii) GSCI contains a lot of commodities in energy, metals and agriculturals. Energy is a fairly large portion so there will be some correlation, but it's not that high.

Perhaps this is a stupid questions, but when you say trade - what did you mean more specifically?

Otherwise I would say a comod index is not that much different than a stock index (there are some important stuff like backwardation slide etc, but if you are just looking at the basic idea). If you want exposure to a broader market without trading the components an index product might make sense, otherwise it does not.

TonyC · Post by **TonyC** » Sun Mar 13, 2005 1:56 am

i trade crude and natty, so remember that i view the world in a certian way . . .

- gsci was 40% energy the last time i looked, so your comment about "why not trade crude" resonates with me . . .

. . . on the other hand, copper is up more than crude lately, so if your buying into the jim roger's idea that all commodities are goingup maybe an index is better . . .

- investing in an gsci instrument will save you the hassle of rolling contracts. the gsci is designed to capture profits from "rolling-down-the-normal-state-of-backwardation", the reason i put it in quotes is that it's just a theory, and after trading energy since 1989, [and t-bond options and caps/swaptions for 3 years before that], i'm still not sure if backwardation is a normal state that can make you money.

- gsci is strictly a long commodity strategy . . . the best investment i ever made was sinking half my paltry 1987 bonus into MSFT, and forgetting about it. there is NO commodity in the world that will EVER rally the way MSFT or dell or oracle have. the reason commodities will never rally that high is a little something economists call "substitution effect" . . . since commodities traders have no hope for those kind of equity home run returns commodity traders have been forced to learn how to make money [to a far greater extent than equity traders] by going short. i leave it to you to decide if a long only commodity strategy is a smart way to play commodities

- what are you trading when you trade the gsci? a future? an ETF? an open ended mutual fund that purports to track the index? [i honestly don't know]

Patrik · Post by **Patrik** » Sun Mar 13, 2005 11:47 am

tonyc,

I looked up the weights (here), currently energy (wti, crude, natgas, heat oil, etc etc) makes up 73.76% - the index is world production weighted as I understand it, guess the recent high energy prices has caused it to have a very high weight. There are also subindices; GSNE that contains the non-energy commods, GSAG that is the agriculturals, etc.

About being a long commodity strategy: true, but that does not mean you can only trade it from the long side, right?

The ways you can trade the GSCI are many. From what I understand CME futures and OTC swaps are the most common.

M1kz · Post by **M1kz** » Sun Mar 13, 2005 12:18 pm

A document describing the differences between the GSCI, CRB, and Rogers Raw Materials index can be found here: http://www.rogersrawmaterials.com/overviewandanalysis.PDF.

The paper claims that the monthly re-balancing done by Rogers index improves the risk-adjusted return (cfr. with GSCI with yearly re-balancing). Sometimes, more often than commonly believed, simplicity is the key to superior performance.

TonyC · Post by **TonyC** » Sun Mar 13, 2005 3:58 pm

> The paper claims that the monthly re-balancing done by Rogers index improves the risk-adjusted return

> (cfr. with GSCI with yearly re-balancing). Sometimes, more often than commonly believed, simplicity

> is the key to superior performance.

hmmmmm, more frequent algorithmic rebalancing and simplicity

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