Mastering Commodities and Bonds
Here's how small accounts can trade bonds, metals and oil
- The Israel-Hamas war has made commodities a hotter play than stocks.
- The best commodity and bond products for small accounts are liquid, cheap and highly correlated to commonly traded ETFs.
- Trading underlying assets worth less than $50 allows for flexibility in capital allocation.
Since the outbreak of hostilities in the Middle East, the hottest plays haven't been in the stock market but rather in commodities.
With gold as the leader of this rally (up more than 7% in the last two weeks alone) a lot of investors are asking how they can get in on the action.
For small accounts, trading underlying assets that are less than $50 is ideal because it allows for more flexibility in capital allocation. Some of the trading products can be a bit too capital intensive for a small account, but there are many viable alternatives that small accounts can trade and have exposure to these markets.
Check out this discussion of the topic.
Best commodity products for small accounts
What commodity products can small accounts trade without becoming overly exposed?
The best commodity and bond products for small accounts are liquid, cheap and highly correlated to commonly traded exchange-traded funds (ETFs). For bonds, there aren't many ETFs with options that are highly correlated to the iShares 20 Plus Year Treasury Bond ETF (TLT). However, the VanEck Gold Miners ETF (GDX) and the Utilities Select Sector SPDR Fund (XLU) have some correlation—and their options come at a lower price. You can also trade iron condors.
Trading precious metals in small accounts is easier because multiple small-priced ETFs have liquid options. Such ETFs, including GDX, VanEck Junior Gold Miners ETF (GDXJ) and iShares Silver Trust (SLV), are excellent substitutes for the more expensive SPDR Gold Shares (GLD).
Additionally, crude oil has been in play, and a viable trading vehicle for all accounts is the micro crude oil futures (/MCL). It also requires less capital than USO or any other ETF because futures are more capital-efficient.
Key trading factors
For a less-expensive way to trade a popular market, look for the following:
- High correlation
- High implied volatility
- Lower price
- Liquid options market
If those criteria are met, a small account can be as versatile as any account size!
Anton Kulikov has a decade of trading experience. He leads research content creation at tastylive, appears on over 20 live shows including Futures Power Hour, Options Jive, and Research Specials LIVE co-authored bestselling investment strategy book Unlucky Investor’s Guide to Options Trading, and contributes research content for Luckbox Magazine.
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