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Are Commodities Less Risky Than Stocks?

We ran across an interesting article from MarketWatch that you should read: “Why futures contracts are actually less risky than stocks.” In this article, columnist Mark Hulbert gives five insights comparing stocks and commodity futures. Citing a new white paper from the Yale International Center for Finance, he gives some compelling “facts” towards his conclusion that commodity futures are not as risky as stocks.

Here are his “facts” as quoted in the article:commodities less risky than stocks

  1. Commodities are actually more conservative than stocks
  2. Stocks and commodities futures have nearly identical risk-adjusted returns
  3. Commodities futures are not very correlated with either stocks or bonds
  4. Commodities are a far better inflation hedge than not only bonds but also stocks
  5. Stocks of commodities producers are not a good substitute for commodities futures”

Click HERE to obtain the research paper from Yale supporting his conclusions.

While we prefer a more balanced discussion of risk and reward when talking about futures, Hulbert makes some good points in this article. Futures and commodities are not well understood by the public and often avoided for reasons other than sound research and study. We can attest to this in our experience as a futures brokerage.

Additionally, the misunderstood structure of the futures contract leads investors to misuse these markets or miss opportunities. One primary example is the flexibility futures provide by allowing investors to sell (short) a market just as easily as they could buy. Many investors lack this understanding and approach futures and commodities from a “to buy or not to buy” mindset. You’re missing half the story! This versatility does not increase your profit potential; it just increases your flexibility in making trade decisions.

However, we would differ on a few points with Mr. Hulbert. We disagree with any minimization of risk. We also would differ on the use of commodity ETFs. While those are a viable option for investors, most commodity ETFs are looking to mimic the performance of a commodity or group of commodities (e.g. grains or energy). It is still limited to the mindset of trading from the buy-side only. Instead, consider a managed futures account. Having a futures account managed by a professional trader gives potential benefits:

  • Potential for risk reduction of your overall portfolio
  • Diverse market exposure
  • Exposure to different trading strategies
  • Trading flexibility for bullish, bearish and sideways markets
  • Performance based fees
  • Transparent account statements
  • Reasonable liquidity

Futures, Forex and Option trading involves substantial risk, and may not be suitable for everyone. Trading should only be done with true risk capital. Past performance either actual or hypothetical is not indicative of future results. Leverage can work with you and against you.

Of course we’re biased. We wouldn’t focus on managed futures if we didn’t think it was best for you.

So what do I do next? If you like the idea of addition diversification and flexibility to your portfolio, the next step is to educate yourself on managed futures. Here are two steps:

  1. Call one of our BROKERS who are standing by to help you learn. (888-818-0880)
  2. Access the net track records for hundreds of professional futures account managers in our database. Click on the link below to sign up and receive login credentials.

Foremost Managed Futures Database

You can’t remove the risk from trading, period. Managed Futures have the potential to reduce a portfolio’s volatility by offering different markets and strategies with less correlation to stocks and bonds. However, adding Managed Futures to a portfolio can also reduce the efficiency of a portfolio and by adding Managed Futures is no guarantee of profit.

The Foremost Trading Team

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Disclaimer: Trading futures, options on futures, retail off-exchange foreign currency transactions (“Forex”), investing in managed futures and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. This website contains information obtained from sources believed to be reliable, but such information has not been independently verified and its accuracy is not guaranteed by Foremost Trading. Past performance is not necessarily indicative of future results. Any mention of performance in any context whether actual or hypothetical is no guarantee of future results. Foremost Trading became a registered ‘dba’ of RCM Alternatives in July of 2020. Please see full disclaimer here: https://www.rcmalternatives.com/disclaimer/