10 Smart Tips for Beginners in Commodity Trading

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Commodity Trading Tips

Commodity trading is one of the oldest styles of investment in the book. This market changes constantly and there are a high number of commodities that you can invest in if you know where to look and how to make smart moves.

For beginners to the arena, it is wise to get to know the ropes and explore all of the options before diving in. Here’s what you need to know. 

What Commodities Are

People use commodities in everyday life. Things like food, oil, gas, etc. are all key assets in this market and it is these things that you will be trading with.

Knowing what commodities are is the basic amount of knowledge you will need in order to progress with your trading journey.

These are all of the world’s natural resources, and you can both sell and trade them on the open market. Currently, there are three categories to note. 

Stocks

Commodity stocks are the stocks assigned to companies that sell the commodity in question. So, if you purchase a commodity stock for oil, you will be investing in the company in charge of the asset.

In theory, the commodity stock should follow the price pattern of the underlying commodity so when oil prices are up there, it should be a viable profit venture.

This is seen as a lower risk strategy because your money is better protected through the power of leverage and risk mitigation. 

Stock Trading

Futures

Futures are contracts with a degree of ‘gambling’ upon the projected price of a certain commodity at a date yet to pass.

To trade in this way, you will need to be accepted onto a specialist broker platform which will guide your movements. 

Physical Commodities

Last but not least, we have physical commodities. As well as futures and stocks, you can invest in a physical commodity, like gold.

There is a lot of scope here for viable profit to be made, but it is considered a higher-risk strategy than other variations of commodity because there is so much speculation and uncertainty alongside fluctuation in this area. 

Who to Listen To

The power of misinformation is such that it can make the difference between investing wisely and making trades that compromise your capital.

That is why listening to the right people is the most important asset of all. It is absolutely recommended that you lean on the advice from people who know commodities inside out using a site like jamescordier.com a reliable source of facts and figures.

Remember, it is easier than you could possibly imagine to get swept up in hearsay and fake news so you have to ensure your sources are not just authentic but also informed and experienced. 

You Don’t Need Much Experience

It is possible to begin your trading journey with commodities even if you lack the experience that veteran traders bring to the table.

This makes it that much more accessible for a range of investment styles and creates a unique opportunity to invest in an area that may seem inaccessible without experience.

It is important to demonstrate an understanding of the basic concepts, especially if you hope to begin trading with futures. 

There Are Untradable Commodities Too

You may be wondering whether all types of commodities can be traded. Well, the answer is, no they cannot.

While oil, gold, and even wheat are all popular in the investment market, it is impossible to capitalize on things like water, certain crops like potatoes, and even electricity. 

Commodities Are Bound by Trading Standards

When you consider that a large portion of commodities are actually food items like pork or grain, it is important to also acknowledge there will be a set amount of trading standards assigned to them.

This means the goods are bound by certain regulations to ensure that they are of an acceptable standard. 

It Takes Time to Make Profit

Unlike other areas of trading where you can see a boom in your capital pretty much overnight, this investment route does not afford the same results.

So, you may be waiting for a while before you actually see a decent profit and your portfolio will be susceptible to a slow-burn energy that does not suit every style of investor out there. 

There Are Longer Trading Hours

It is also true that commodities have longer trading markets than stocks, shares, or even options. This means your trading day will be longer and there will be more to keep an eye on overall.

This is so that the market can catch up with the global perspective and there are no discrepancies in price mismatching etc. 

The Right Broker Counts a Lot

It is impossible to trade commodities without having the backing of a decent broker. Unless you are completely independent, experienced, and knowledgeable, you will never be able to make a name for yourself and reap a decent profit if you are not moving in the correct channels.

This means finding a network of support as opposed to a standalone portal where you have access to open information and real-time market updates for your trading bag. 

Exchanges Vary

When it comes to commodity exchanges, there is a ton of variation, and you should embrace this with open arms and an open mind.

The fact is, what you need is bound to be entirely different to the next trader in line and it is up to you to define the level of liquidity that will align perfectly with your portfolio needs. 

The Risks

While commodities are a great way to diversify, they are also incredibly volatile in certain respects. It is vital that you understand how to take on this risk so that your portfolio does not suffer unnecessarily. There is always a degree of risk to navigate, of course, with any investment.

Commodities’ main threat is the looming possibility of price fluctuation, and you have to be ready to embrace everything that means for your investment choices. 

Starting a trading journey in commodities is exciting but it needs to be approached with caution. Investments in this market could make you vulnerable and that is a necessary fact to absorb before you get started. 

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