[jluetjen]

Shaun;
Another thing to consider is the nature of the investment. When you buy stocks, if the value of the stock goes down, you risk losing some of your principle. In the worst case, the value of the stock may go to $0 and you will lose your entire investment. You walk away with no money and an education.

When you buy oil contracts, you are buying a future option. These are generally highly leveraged. If you buy a contract on the assumption that the price of oil goes up (Say buy a $150 contract when the current price is $100), and in fact the price makes a big jump in the other direction, you will find yourself with an obligation to take possession of oil at $150/barrel, when the current trading price is possibly only $75 a barrel, and you paid money for the contract that put yourself into this situation. Unless you have holding facilities for the oil, you are going to be stuck having to sell your contract at a huge discount and make up the difference from your own assets. So commodity trading can wipe you out, even if you only invested a small amount up front.

Another key point is that contracts are not like stocks in regards to their life. If you own stock in a company and the value takes a dip -- you have a choice. You can either sell it off and take your loss, or hold the shares in the hope that the stock will bounce back. Futures contracts on the other hand have a life. If you bought a 30 day contract, at the end of the 30 days you need to take action unless you want a delivery of oil to your house. So this will either force you to roll the contract over (thus incurring transaction fees) or else lock in the loss. So commodities are not an investment for the "buy and hold" type of investor.

So to sum up -- for the small investor the risks are huge. For large investors on the other hand commodity contracts are a means to hedge risk resulting from their other investments. But they need sophisticated management in order be successful over the long run.

(PS: If there are any commodities traders among us who disagree with my overview -- please chime in. I've only got passing knowledge of the subject and would appreciate the input.)