Make Money by Trading Commodities
Commodity trading market allows you to trade using different commodities such as Oil, Natural Gas, and Gold, silver and other precious metals as well as various agricultural products. Commodity market can be either a derivatives or spot market.
In spot trading, you buy and sell commodities for instant delivery while in derivatives market you trade using different financial indices based on the commodity. Commodity futures trading involve signing a contract between buyer and seller agreeing to purchase/sell a commodity at later date based on today’s price forecast.
There are many advantages in trading commodities especially its transparency and discovery in fair price because of wide-level participation. Since every common individual is allowed to trade on commodities and requires minimum knowledge on stock market, it is more transparent and reflects the views of larger section of public. Commodity trading is a platform for all categories of investors such as importers, exporters, processors, wholesale traders as well as producers.
Commodity trading gives way to producers for hedging their positions based on their exposure and knowledge in commodities which they trade. Commodity trading does not pose the risks of stock market since it’s not based on the performance of any individual company or stock. Also there is no fear about insider trading in commodities. Any individual who understands the simple principles of supply and demand can make money by trading commodities. Also commodity trading requires low investment compared to stocks and other forms of trading. You can acquire higher positions with minimum capital and are usually required to deposit only five to ten percent of contract’s total value. The seasonality patterns in commodities are predictable and give clear idea for both long-term traders as well beginners to invest in the right commodities.
There is no counter party risk in trading commoditiesas they clear houses similar to equity market, which will ensure that all contract terms are satisfied. With the advent of mobile trading apps and online trading, commodity market has got increased participation from all sectors of public. Also with wider participation we can get universal view on commodities and minimize the threat of cartelization. This will also assure fair price discovery as the market is open to everyone.
In order to successfully make money through commodities, you should follow these simple rules:
- Formulate a clear trading plan –Always have a clearly defined plan on which commodities to focus and amount of investment to make. Don’t yield to temptations or emotional stress and make the wrong decision.
- Don’t invest on commodities or positions which you don’t have enough knowledge and are not sure about.
- Don’t discuss too much about your open positions with fellow traders since they can only get you confused with their own views and ideas.
- If you follow the guidelines of any technical advisor or analyst, choose the right person and follow only one at a time.
- Read market news on daily basis and keep yourself updated on the recent market trends. You should clearly understand whether the market is bearish or bullish and must be able to predict the change in trends. If you are right even forty percent of the time with your speculations, you will be able to make profits.
If you want to know more about how to trade commodities, go through various online training materials and get help from experienced traders.