Introduction

The main aim of starting a business is to make profits. Profits are classified under the broader category of revenues or incomes. Income refers to all the money that a business receives as a result of directly offering its products and services, or through other means that are not connected to the day-to-day operations of a business. This explains why the word income is often used interchangeably with profits.

In order to calculate the total income/net income your business realizes, you would need to determine the total revenues and total expenses. Then, you subtract total expenses from total revenues. A positive figure means the business has made profits while a negative figure denotes losses.

Types Of Income – direct and indirect income and expenses

Business incomes are divided into two broader categories namely direct income and indirect income.

Direct income refers to the income that a business earns through activities that are directly related to the day-to-day operations of the business. On the other hand, indirect income is the revenue that a business generates through channels that are not directly related to its day-to-day operations.

If you run a coffee shop, you probably have a manager, employees and suppliers. The profits you get directly from the sale of coffee, snacks and other beverages in such a store constitutes direct income. Therefore, direct income can be termed active income generated by a business. This explains why any shrewd businessperson will easily tell when there are drastic changes in their direct income patterns. For instance, if your coffee shop generates around $800 per month worth of direct income, and this figure happens to drop to $400 in a given month, you will automatically know something is amiss.

Therefore, direct expenses are easy to track because the entire business depends on them. If your coffee shop was to register a loss in a given month, you would adopt all manner of drastic measures to bring it back to profit-making. This is because if direct income is not well-tracked, your business could easily collapse. And remember, whether your business performs well or dismally, you would still need to pay rent, pay your employees, suppliers as well as renew all municipality licenses. In essence, direct incomes are very important for the existence of a business, so much that a little lapse could cause the business to head south.

What is indirect income ?

Now, on the same coffee shop, you probably have newspapers, old cutlery you no longer use, bottles and cans etc. You may decide to keep them or dispose of them. Usually, many businesses would not worry about disposing of old newspapers until they have made heaps in their offices and are consuming space unduly. Of course, a businessman will not just discard them. Instead, he will assess their value and then put them up for sale. The kind of revenue generated this way is what constitutes indirect incomes.

Evidently, indirect income is not something your business needs to operate. You can consider it an extra stream of cash, or better yet, passive income. However, indirect income has a way of salvaging a business that is in dire straits. For instance, it would be unreasonable to sit back and watch your business make losses when you have a whole carton of cutlery you don’t use, or an old delivery cart that is just lying around.

How To Calculate Direct and Indirect Income

In order to determine your direct income, you need to know about all the elements that constitute expenses. Expenses can be very broad and if not tracked, you might be losing so much money through loopholes that you could easily have avoided. If you are a coffees shop owner, the biggest expenses you probably incur include the purchase and maintenance of equipment such as coffee makers, coffee grinders, Espresso machines, refrigerators, ovens, toasters and other relevant utensils. And even if you already have these in place, there are beverage supplies you will need to pay for from time to time, as well as pay your employees and renew all municipality licenses. Expenses can be very diverse but when it comes to revenue, the channels may be fewer. So, after determining your total expenses, you expect to realize profits out of the sales made on coffee drinks and snacks. The difference between sales made and expenses incurred over a given period of time is what constitutes your direct income. If the difference is positive, then you have made profits and if the difference is negative, that means you made losses. When it comes to indirect income, the formula is more or less the same. However, the difference is the fact that there are probably fewer expenditures. This is for the simple reason that that very expenditure might have already been factored in somewhere when calculating your direct income.

For instance, if you buy a newspaper today and sell it 2 years later as part of a bundle, the initial expenses incurred in purchasing the newspaper must have already been considered at an earlier date when determining your direct income. So, normally, indirect incomes do not involve lots of lengthy computations. Usually, there is only the transportation cost depending on where you are planning to locate the buyer.

Why Should I Care About Both Incomes?

We have already determined that every business owner should keep track of their direct incomes. In fact, this comes naturally. However, not very many entrepreneurs are so successful when it comes to tracking their indirect incomes. This does not mean you shouldn’t. Indirect incomes are just as significant to the operations of your business as direct incomes are. First, it is a way of gaining full value for your money. Though you will often sell the asset at a relatively lower price than the initial purchase price, it is way better than tucking it into the trash. Also, putting up old assets for sale is a way of proving to your employees that you are in charge of your company’s inventory. No business is immune to pilferage, and as you know, employees will often target the least-utilized stuff. But when they occasionally see you selling them, [or just moving them], they will resist all temptations to pilfer.

Also, as we mentioned earlier, indirect incomes can really salvage your business. The revenue earned will come in handy when you are deep in debt or have outstanding payments.

Lastly, it is important to remember that indirect income needs not only be proceeds from the sale of old assets. There are other areas as well, such as offering consultancy services in your line of work and charging for it, starting and monetizing a blog about your company or industry, etc.

Conclusion

And there goes our detailed analysis of direct and indirect income. We hope you will find it useful, especially if you are a startup struggling with keeping tabs of your incomes, expenses and assets.

Commodity trading

Over the entire history of the world, those living in each period often used trading as a way in which to get the things that they wanted. In today’s society, this idea is still alive and well through the way that this trading takes place has changed drastically. Most people use the money to purchase the things that they want. Though, within the stock market, commodity trading is still alive and moving smoothly.
Commodity trading refers to the selling of common goods and services that many people use. However, this trading does not mean that the actual products and services are being traded. Instead, it relates more to the worth of these goods and services. These are then used as a ruler to determine and regulate the costs of other things.
What is regarded to be a commodity may be different from person to person or even country to country? Most of the commodity trading that takes place in any particular situation will consist of the things that are used most frequently in that area. For instance, in areas where farming is an integral part of life, livestock and crops will be involved in commodity trading. Metals and energy are also normally considered to be commodities and can be traded.

History Of Commodity Trading

Historically commodity trading has brought the biggest fortunes universally. It originated centuries ago, even before the stock markets came into existence, albeit traded then in a different manner, then as seen today on electronic exchanges. I have frequently cited that ” If trading in the hypothetical markets, then Stocks & Equities is for boys, but Commodities is for men” (No gender bias intended). Wealth formation and creation is not a matter of chance. It is a process that needs adequate analysis & lots of work time.

But, let we start from begin…
Commodity market goes as far as 4500BC when the Sumerians used clay tokens sealed in clay vessels for exchange. Claying writing tablets were representing an amount of a given commodity. These tablets specified the time and date to deliver the merchandise. Primarily, tablets functioned like today’s future contracts. These times defined what would be a world-changing concept. Before people could think of standardizing trade contracts, commodities such as seashells and pigs were the commodity money. Later on, silver and gold became the measures of exchange. Initially, the precious metal had its value based on beauty and association with royalty. As such, they came in handy when exchanging commodities or services. Ultimately, gold became money due to several factors. The scarcity, different density, and ease of melting, and measuring of gold were some of the dominant aspects.

Commodity markets strengthened when its utility became evident in the allocation of resources across Europe. The mechanism of distribution of goods, capital, land, and labor have a solid foundation in the commodity market. Additionally, the resourcefulness of this concept found life between the 11th and 13th century. The expansion and improvement of infrastructure, English urbanization, and the increasing use of coinage during these times were a picture of commercialization. The installation of reliable scales in villages of Sloten and Osdorp in 1466 paved the way for an understanding of the benefits of the commodity market. In essence, the scales ensured no villager would need to travel to Harlem to weigh their local butter and cheese.

Amsterdam Stock Exchange and History of Commodities Trading

The first stock exchange, Amsterdam Stock Exchange, was originally a market for commodity exchange. The only improvement was the use of sophisticated approaches which are now modern tools. More precisely, the market involved forward contracts, options, and short sales. The trade took place in the open air at a place called Amsterdam Bourse. The invention of the fair took place in 1530, and the venue became a spectacle after being rebuild in 1608. Commodity exchange is also a recent invention practiced in very few cities.

In 1602, when Dutch East India Company (VOC) was first established, there arose a need for stable banking facilities on a larger scale. Before this, several local establishments facilitated the exchange of commodities through asset valuation and trade regulation at a smaller scale, but a larger trading platform was not available. This is the time when the earliest Amsterdam Stock Exchange was born. It is often considered the oldest stock exchange in the world that still runs, a place where business dealers first had some regulated trading and banking experiences. It all began when the VOC was awarded a 21-year charter for all Dutch trade in Asia by the States-General of the Netherlands.

Consequently, owing to the high risk of business in Asia, the company provided stocks to a large number of investors. These investors received a guarantee of a share of future profits gained by the VOC. Soon, a secondary market evolved where the investors were able to sell some of their stocks through a regulated bookkeeper. This improved the confidence of the investors, and the trading market soon grew leaps and bounds, which is now known as the Amsterdam securities market. After the completion of the 21-year charter, in 1623, the VOC was originally supposed to distribute its entire profits to the shareholders, as per the original terms. By then, however, trading in Asia grew so rapidly that the market was allowed to continue to operate in the same regulated fashion. This was the time when the VOC was given a second charter for trade in the West Indies. However, this time, there was no clause provided that would expect the VOC to declare full liquidation after the charter period was over. Instead, shareholders were given dividends from whatever profit the company made. Thus, the trading market continued in full bloom and gave rise to the stock market as we know it. Since the 1600s, this stock exchange has changed several hands, and multiple modifications to the regulations have been made. If we look at its history over the last and present centuries, we find governance and structural changes as well. For example, in 1997, the exchange went through a merger with the European Operations Exchange (EOE), which gave rise to its present-day blue-chip index ‘AEX’. In terms of equity indexes, there are currently more than twenty Dutch companies that trade on AEX, some prominent names being ING Group, Philips, Unilever, and Royal Dutch Shell.

The stock exchange had a significant merger with the Stock Exchanges of Brussels and Paris in the year 2000, to bring forth the Euronext Amsterdam. For several years after that, Euronext thrived as the largest cash equities markets of Europe, while also being under NYSE. In 2014, however, it was spun out as an independent entity.

Through its eventful past, it is evident that the stock exchange of Amsterdam played a crucial role in shaping the modern-day stock and securities market. The successful dealings of multi-national company shares, giving rise to regulated bookkeeping, allowing investors to sell shares to third parties, and multiple investors being paid dividends are some of the characteristics that gave a distinct direction to the entire business world.

The Chicago Board of Trade or CBOT and History of Commodities Trading

The Chicago Board of Trade’s early history was a chaotic time. The Chicago Board of Trade or CBOT was established in 1948 in the city of Chicago. ( The goal of CBOT was to bring structure and regulation to the Midwest’s budding grain market. The board offered “futures” to the farmers that would guarantee their selling price. The price of grain was negotiated at planting time and then the grain was sold for the agreed upon price at harvest. This practice was mutually beneficial for both farmers and buyers. The farmers were guaranteed their profits and the buyers were assured their needed supply. The Chicago Board of Trade began with 25 directors. The directors were from all walks of life not just grain merchants. The board standardized the grain market by specifying bushel sizes and identifying the different types of grains to be sold. The CBOT had a hard time gaining traction when it first began. Soon Chicago became a booming town as it grew throughout the 1850s. Chicago was connected to the railways during this time. Also, a canal was dug to connect Chicago to the Mississippi River. These improvements to the city made the city of Chicago a booming center for the Midwest’s agricultural commodities. This created exponential growth for the board. In 1856 the board had experienced great growth, and grew to over 150 members. In 1859, the Chicago Board of Trade received its charter from the state of Illinois. With its new charter and sense of autonomy they were able to govern themselves and set up their own rules and regulations. They established their own unique systems for grading grain and organizing the sales of grain futures. In 1865, CBOT moved to its first permanent location which was in the Chicago Chamber of Commerce Building. The Chicago Board of Trade dealt with many scandals in its early history. There were many traders that tried to “corner” the market so they could have control of the prices and create more profit for themselves. Also, there were people who set up false fronts for futures trading called, bucket shops. These shops would promise sales floor trading and not follow through. Rampant fraud and manipulation caused public outcry, and backlash against futures trading. This outcry went as far as the CBOT being called a “board of thieves”. Through all of this drama and scandal somehow the board still prospered and grew, they moved to their own building. In 1914, World War I began. An attempt was made by the CBOT to set reasonable prices for grains to keep the market moving at a steady pace. However, the US government asked the board to stop all futures trading. Futures trading stopped for three years during the war. When futures trading was reestablished after the war was over three years later, wheat prices plummeted. This was unforeseen but Midwest officials were furious. All of this lead to the national government coming in and setting the first federal control of futures trading. This was known as the Grain Futures Act of 1922. The Chicago Board of Trading had a rocky start but still gained momentum and prosperity.

In conclusion, the Chicago Board of Trade (CBOT) provided the world’s oldest futures and options exchange for traders exchanging wheat, cattle, and pigs in the United States. Wheat producers came from Mid-West to sell their products to distributors and dealers. It is only recently that other food commodities featured on the Commodity Exchange Act. As a result, the CBOT traded rice, butter, Soybeans, eggs in the 1930s, and 1940s. The classical civilization boasts of a structure that allowed trading gold for spices or cloth that exhibit timelessness or high-quality standards. Commodity market history has a summation during the 19th century. During this time, it became apparent the importance of commodity market was indispensable. Exchanges led to improved transportation due to better roads, innovation, and financing, which plays a significant role in international trade to date. While the commodity market became more substantial, there arose a need for regulation. As a result, reputation and clearance were the epitomai of influence. States that take advantage of managing these two characteristics have critical financial centers.

Commodity Trading – Risks and Benefits

Let’s look into the various benefits and risks of online commodity trading:
Benefits:
• Investors have the advantage of accessing a variety of information required to trade in commodities. Live market news, quotes, analytical charts, projections, reports on commodities etc. are made available to clients, which helps you immensely.
• Most online commodity brokers employ a simple trading platform enabling you to execute orders by yourself, instead of approaching your commodity broker to act on your behalf.
• Online trading is usually cost-effective, and hence brokers charge lesser commissions and fees. This not only reduces your expenses but also allow you to explore multiple strategies viz., spreads, day trading etc.
Risks:
• Though online commodity trading enables you to decide strategy and execute orders, your inexperience in futures trading, lack of proper guidance may be detrimental at times.
• With live market updates at your fingertips, you may be lured into wrong moves, inappropriate trades and end up with huge losses.
• Investors usually drift from their commodity trading plans and get into speculative trading.
• You also run the risk of over trading. Entering into positions for a couple of days to take benefit of the fluctuating markets, lacking a proper understanding of markets, prices, commodities etc. may end you up with losses.
• Online trading may spur speculative and gambling mindset in non-disciplined investors.
However, with the guidance of an experienced commodity broker and by strictly adhering to your long term strategies, you can mitigate the risks of online commodity trading. Also, acquaint yourself with the trading platform to avoid errors in order execution.

Major commodity markets

Australian Stock Exchange (ASE): Energy, environmental, financial, agriculture
BM&F Bovespa (Including the Brazilian Mercantile and Futures Exchange): Agriculture and financials
Chicago Board of Trade (CBOT): Agriculture and livestock
Chicago Mercantile Exchange (CME): Energy, precious metals, industrial metals, livestock, and financials
Korea Exchange (KRS): Financials and precious metals
London Metal Exchange (LME): Industrial metals
New York Board of Trade (NYBOY): Agriculture
New York Mercantile Exchange (NYMEX): Energy and precious metals
NYSE Euronext (ASE): Energy, environmental, financial, and agriculture (based in France)
Tokyo Commodities Exchange (TOCOM): Energy, precious metals, industrials metals, and rubber

Tips on Commodity Trading

People are aware that commodity trading can be hazardous. They may earn a lot, or they may also lose their fortune with just one trading move. Those who rely on speculation only may be putting they’re financial as well as their emotional well-being at very high risk. Although the risk is always present in all of the things that people do include trading, there are ways for them to at least minimize it as much as possible. Traders can make even the worse scenario into an advantage especially if they can control their emotions despite the setbacks that they fall into while trading.
While self-control is essential when trading, lots of people are not able to do it. They tend to have the urge to predict what would happen in the market at times without real basis. However, they can instead improve their chances if they stick to their plans despite the odds. Traders have to be consistent in applying the strategies that they have set, and they are not supposed to be depending on their “gut feeling” when making trade decisions. Following the trend carefully is one of the basics of commodity trading.

Another element involves cutting down on possible losses. Though losing some trades is expected, traders can at least minimize them through the use of tested and efficient trading techniques. They can get used to accepting some losses, but it should help them be more careful so that they do not end up losing all of their money in the trading business as much as possible traders will have to see to it that they can keep down their losses to one percent only or up to five percent in case of smaller trading accounts. People need to learn how to make use of their stop-loss orders at the right time so that they will be able to get out of trades that have hit loss limits.

There is a variation in the commodity market, and although traders may be using the same techniques, they have to be aware of these differences. Some commodities are more liquid so traders will have to know the regular cycles that may occur over a given period. Trading commodities can also take its toll on the psychological well-being of traders especially when they experience extreme emotions like elation for winning trades or frustration over losses. It is essential that they can put their feelings in the check because of the changing nature of the market which could sway direction either for or against them.