Cannabis and Commodities
Cannabis may be coming to the Commodities Market. Pot can soon join corn, wheat, and hogs on the agricultural futures markets, well if New Leaf Data Services LLC has its way. New Leaf Data Services is a leading provider of financial, business and industry data for emerging markets in North America. They currently have 2 Benchmarks Cannabis and Hemp. The Stamford, Connecticut-based firm that tracks wholesale cannabis prices in Canada and the U.S. is in talks with a “globally recognized exchange” to start futures contracts. Eventually, New Leaf wants to launch multiple contracts on multiple exchanges for both marijuana and hemp.
Although, there are plenty of challenges to turning pot into a tradeable commodity. Some include standardizing elements like quality and content of tetrahydrocannabinol (THC), the main psychoactive agent, and attracting enough trading volume.
Commodities are not for the “New Investors”, no way, no how. This is a market for the more seasoned trader or investor, although very risk this emerging market may have some upside potential. Today, New Leaf has reduced its reliance on field reporters and now has relationships with a variety of brokers, collectives, and associations that provide pricing data in exchange for discounts on New Leaf’s subscription products or custom analytics.
How do you invest in commodities?
Commodities investing is a lot different from trading other types of investments. The biggest challenge with commodities is that they’re physical goods. There are four ways to invest in commodities:
1. Investing directly in the commodity.
2. Using commodity futures contracts to invest.
3. Buying shares of exchange-traded funds that specialize in commodities.
4. Buying shares of stock in companies that produce commodities.
The one that we will focus on is Commodity futures contracts. They offer direct exposure to changes in commodity prices. Certain exchange-traded funds are custom-tailored to offer commodity exposure. And if you want to stick to the stock market, you can always focus on the companies that produce a given commodity, such as cannabis.
The way futures contracts work is that when prices of the commodity go up, the buyer of the futures contract gets a corresponding increase in the value of the contract, while the seller suffers a corresponding loss. Conversely, when the price goes down, the seller of the futures contract profits at the expense of the buyer. But, remember future contracts and trading commodities is not for everyone.
Who Can Trade Commodities?
Not everyone who completes the account forms is suitable to open a commodities account. A broker may use discretion on whether a potential customer is an acceptable risk and is suited to trade commodities. Enough income, trading experience and credit are critical elements of suitability. Financial data is critical because commodities are highly leveraged assets, there is always a chance that one can lose more money than initially invested. Therefore, a broker requires information on income, net worth, and creditworthiness.
How Much Should I Invest?
I suggest at least $50,000.00 to begin to trade in the commodities market. I recommend this because of the way that small traders trade. You can open an account for $10,000 and trade one contract of a stable commodity with excellent results or be totally wiped out.
Trading futures requires a good-faith deposit or margin. In many cases, a trader, speculator, or investor can control vast amounts of a commodity and bet that the price is going higher or lower with a 5–10% margin deposit or less. But the way these contracts are set-up and the volatility of the markets, margin calls requiring additional capital are likely. When it comes to options, buyers have time value risk, and sellers act as insurance companies, they risk a lot for small potential profits.