The commodities markets offer an interesting alternative compared to currencies and stocks, which usually receive the most attention from retail investors. If you’re thinking of entering the world of commodities and want to know how to get started, it’s important to know the basics of what commodities are and what you can do to maximize your chances for profit.
The first order of business is understanding that materials like copper, silver, gold, and oil are some of the most-traded commodities in the world. Most play an integral role in the global manufacturing sector and are traded by individuals, institutions, and governments.
The main goal of traders is to make a profit on the often-fast-moving prices of the goods in question. Taking part in these lucrative, but risky markets is best done online or from a mobile app. Some of the newest apps for trading commodities make on-the-go transactions quite simple. The beauty of apps in this type of activity is that you can do your research on a particular market before the opening bell, go to your job in the morning, and monitor prices on your smartphone throughout the day. If an entry setup appears, it’s easy enough to use your app to make a trade, no matter where you happen to be at the time. It’s essential to do research and learn about risk before you begin trading in this interesting, volatile segment of the securities market.
Do Your Research
Read a few books about commodity-based trading and the history of the practice. People can trade in five different ways but almost never buy physical gold, oil, silver, or copper. Instead they purchase futures contracts, which are written agreements that give the holder the right to buy or sell a fixed amount of something on a precise future date, or before that date. In addition to futures, you can access this market through ETFs (exchange traded funds), mutual funds, and traditional stocks. For the latter, you simply purchase stocks that are closely related to the asset that interests you. For instance, if copper is your chosen specialty, you could buy stock in companies that mine it. Maybe the simplest way into the market is through CFDs (contracts-for-difference).
Consider specializing in one area or one product only. It will make your life as a trader much easier and probably more profitable. The four basic areas of interest are agriculture, livestock, energy, and metals. Most of all listings you see will be in one of these categories.
Learn About Risk
There’s a much higher level of risk with any type of trading the uses leverage. It’s possible, for example, to control more than $100,000 worth of gold with an investment of $10,000. When gold moves up, you could profit substantially. However, if the price goes against you, you stand to lose not just your original $10,000, but even more depending on how far the price falls. It’s imperative for new participants in this realm to study the mechanics of how contracts work, and know how much leverage to use on a given transaction. Once you choose a broker, be sure to do plenty of practicing on a simulator so you can refine your trading style and get used to buying and selling commodities.