Harvested from two main sources — sugarcane and sugar beets — sugar is produced in more than 130 countries, with more than 70% of the sugar produced consumed in its country of origin. That’s one heck of a sweet tooth. And one heck of a way to diversity your portfolio. Just watch for sticky risks — investing in commodities isn’t for the faint of financial heart. Beginners can look to ETFs and other less risky avenues of entry into sugar.
Worth considering are exchange-traded funds — or ETFs. ETFs trade as shares on exchanges the same way that stocks do. But unlike stocks, they offer access to a variety of assets without needing to put all of your money into one or two companies.
ETFs allow investors to minimize risk by diversifying while also taking advantage of the performance and general popularity of a particular sector.
Popular ETFs that invest in Sugar No. 11, which is the benchmark in the raw sugar trade based on a futures contract for the physical delivery of raw cane sugar, include:
Another option for getting sticky with sugar is purchasing stock in a company that sells or is involved in the production of this commodity. A few to keep in mind are:
A common way to invest in physical sugar, futures contracts are legal agreements that allow you to buy or sell this commodity at a predetermined price at a specified time in the future. Contracts are negotiated at futures exchanges, which are like marketplaces between buyers and sellers, and you must trade on these contracts before they expire. Sugar producers and major sugar buyers often use futures contracts to lock in prices, but investors and speculators can also trade futures.
Various exchanges offer contracts on sugar, including the New York Mercantile Exchange — called NYMEX — which is part of the Chicago Mercantile Exchange, and the Intercontinental Exchange. You can get started through a brokerage account that allows futures trading — only a few of the major brokerage accounts enable you to trade futures, as well as some forex trading accounts.
Because futures contracts are standardized, one Sugar No. 11 contract always represents 112,000 pounds of raw centrifugal cane sugar.
Futures can be extremely volatile, making them a riskier investment than other options. Success comes down to hitting timing and price movement just right.
An options contract is an agreement between a buyer and seller that offers the option to buy or sell an asset at a later date and at an agreed price.
Because you can’t lose more than you paid for the option, excluding brokerage costs, one benefit is limited personal loss. So, if you’re wrong about the price of sugar, your loss is only what you paid for the option. Also, options are generally far less expensive than buying a futures contract outright.
The International Exchange — or ICE — offers an options contract on sugar futures. Check your futures brokerage’s options offerings to see if you can trade it.
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Investing in this volatile commodity comes with the possibility of substantial gains — and substantial losses. This is largely due to the number of factors that affect the price of sugar:
You can invest in this sweet commodity through ETFs, stocks, futures and more. Each option comes with its own risks, not to mention unpredictable factors that affect most commodities — like weather and politics. Before you buy, compare your investing options for other commodities and trading platforms.
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1. Understand the basics 2. Select a futures strategy 3. Open a futures trading account 4. Research the asset 5. Place the trade 6. Monitor
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